Corn & Bean Planting Progress Increases Rapidly. China Negotiations Continue.
The USDA came out with it’s monthly crop report last Thursday and gave the industry its first look of the ‘18/19 grain supply and demand picture. As we will see, there is very little room for error in the corn market and it offered a tighter bean picture than most traders thought. Let’s look at the details.
In the corn market, the USDA did not make any changes to this year’s supply and demand table, and left this year’s corn carryout at 2.18 B bu. The market was a little surprised that the export number was not raised, and the corn used for ethanol was not raised, to reduce the carryout this year. We continue to have the cheapest corn in the world, and exports remain high. However, these numbers indicate that we still have a huge amount of old corn in the country, and we will not run out anytime soon.
Next year’s corn crop is a different story. The USDA pegged the ‘18/19 corn carryout at only 1.68 B bu, which is a huge drop from one year to the next. They used 88.0 M acres with an average yield of 174 bpa. Even though the big reduction in carryout stocks from this year to next, the market was expecting a lower carryout number from the USDA for next year. We expect exports and ethanol to continue to be strong users of corn next year, but the real key is to get all of the corn acres planted in the next 2 weeks. Most of the Corn Belt has their corn crop mostly planted and is in good shape. However, we continue to have problems in northern IA, southern MN, SD, and WI. These acres continue to struggle with wet conditions and are having a difficult time getting their corn planted. However, this week’s weather will be a huge factor in how much corn will get planted. Locally, they have pushed the rain off until Monday, which is huge. As I speak, almost everyone locally is planting corn on their drier fields. If the rain holds off until Monday, a massive amount of corn will be planted locally by Monday. With the very warm soils, this corn should germinate very quickly and explode out of the ground with very good populations which should create better yields.
So, there is very little wiggle room for the corn market next year. Ultimately, mother nature will decide how much corn will get planted in the areas listed above. We all know the farmer can plant more corn acres in one day than any time in recent history, so even if the conditions are not perfect, many will figure out a way to get the corn crop planted. What the market does not want to see happen is a bunch of corn acres in the north not get planted to corn but to beans instead. This will cause an already tight corn scenario for next year to get even tighter, and a soft bean scenario to get even softer. All of this will be determined in the next 2 weeks.
That being said, you can sense that the market is getting more comfortable with the corn market each day that it does not rain. The USDA pegged the corn planting progress Monday night at 62% planted with the 5 year average at 63%. After a slow start, we are now caught up. Additionally, we are over 50% and on the downhill slide. As I said before, once we pass the 50% mark on corn planting, the market starts to get more and more comfortable and starts to take the risk premium out of the corn market for planting problems. You can see this happening this week in the corn market. The forecast is now clear for the majority of the Corn Belt until this weekend, and the market is getting less and less worried each day that we will have a problem. The risk premium is being taken out of the market, and down we come. With Dec ’18 corn futures now at $4.20, I cannot see a scenario developing that would justify Dec corn over $4.50. The corn crop will pollinate around July 15th on average, so a hot period during this time will cause a rally. If we start to have dry conditions in the Midwest during July, this will support futures as well. However, I don’t see a scenario where we can justify Dec corn over $4.50. Frankly, a simple and easy way for you to protect your farm and take advantage of a summer rally is to sell 15% of your corn crop at every nickel increment of Dec ’18 futures, starting at $4.20 all the way to $4.50. This is simple, easy, and will protect your farm and allow you to lock in premiums as the market rallies on any weather issue this summer.
The bean market is a little different. The USDA increased crush on old crop by 20 M bu and this was the only change to the old crop bean supply and demand table. This year’s bean carryout dropped by this 20 M bu down to 530 M bu. This is still a huge amount of old crop beans. The USDA did not change their old crop bean export number and left it at 2.065 B bu. The big risk for the bean complex is what the future holds for our trading relationship with China. Will the 25% tariffs be enacted? Will the US and China be able to get a new deal hammered out? Will the Chinese buy any more old beans? Will the boats already on their way to China with beans be able to be unloaded in China or will they be diverted away to other countries? Will China buy a huge amount of October beans from the US like they normally have been? If not, will this create a huge inability for the US to ship beans out of the Gulf while we are harvesting beans this fall? And the questions go on and on and on…. So many questions, and very few answers. The fact is that China’s delegation is in Washington this week through Saturday to pound out a new deal with the US. However, very little news is coming out of the meetings. Each day that no deal is announced, the market is getting very nervous that no deal will be made. If no deal is made, the bean market has a huge problem on its hands. The above export projection won’t mean anything. Next year’s export numbers won’t be right. The fact of the matter is that if we cannot ship beans to China this fall, our bean market is terribly overpriced.
The USDA pegged the ‘18/19 carryout at only 415 M bu and the market dismissed this projection almost immediately. The USDA is using only 89 M acres with a yield of only 48.5 bpa. The USDA pegged the bean planting progress at 35% on Monday night, and the 5 year average is only 26%. This means that the US farmer is planting beans much earlier than normal this year at a much faster rate than in the past. All of this should correspond to bigger yields this fall, and pushes forward the pod filling stage from August to LH July. Thus, we very likely could have corn pollination and bean pod filling at the same time this year during LH July. Make no mistake, the weather during LH July this year will be critical as both corn and beans will be affected. So all of this proactivity in bean planting will cause more bean acres to get planted, especially if there are some northern acres that cannot plant corn and plant beans instead. This means that instead of 89 M acres of beans, the total could be closer to 91 M acres. The market also disagrees with the yield of 48.5 bpa. Most traders feel that this should be closer to 50 bpa with the early bean planting.
So, if you plant the bean crop earlier, you gain more bean acres from the north that cannot plant corn, you gain yield due to the early bean planting, and now you have the potential for exports on both old and new crop to crash if we cannot get a deal pounded out with China, what do you think will happen to the carryout numbers that the USDA put out? Will they stay at 530 M bu and 415 M bu? I think not. The path of least resistance is for these numbers to grow, and possibly quite significantly. And if this happens, this puts a huge amount of lower pressure on bean futures. We have already started to see this happen. Nov ’18 bean futures made a high of $10.60 earlier in the year and are now trading at $10.15 or 45 cent lower. The path of least resistance is lower in the bean market and possibly significantly lower.
A possible silver lining is an increase in crush which can help offset these increases in production or losses from exports. The current bean crush margin is just huge at over $2.00 per bushel. If these crush margins are not an absolute record, they are very close, and they have been stout for many weeks led by the strength in bean meal. When the processor or makes big money, this will cause the basis to firm on old beans, especially since the farmer is planting and not delivering beans to him. The beans used in crush will continue to grow. However, the biggest factor in determining the price of beans is if we get a deal pounded out with China. Frankly, the bean complex will patiently sit and wait until we know what will happen. But make no mistake, the decision will impact bean prices either one way or the other. Talk about gambling. This is a high stakes poker tournament with the banker sitting right beside you watching your every move. Sometimes taking your money off the table and selling beans now is the best option for your farm, so you can sleep at night, and a lot less risky.
Targets Produce Success and Protection For Your Farm
Before long, weather markets will push the market around like a yoyo and produce unprecedented volatility. However, volatility can be your friend if you have a solid marketing plan and know how much and at what price you feel comfortable selling when the right opportunities present themselves. If you are not working with one of our grain originators today, please give us a call. We will gladly sit down with you to create a plan and help you protect your farm. For a list of our grain originators and the one closest to you, please click here. These types of volatile markets are a grain marketer’s dream. The volatility present selling opportunities that are very short lived. For the disciplined marketer, who knows exactly what commodity he needs to sell and at what level, this is a perfect scenario. You simply place target orders in our system and at 3 am in the morning next Thursday while China makes an announcement when we are all sleeping, the markets ramps up, hits your target, locks in your contract price, all automatically while you are in bed. How fantastic is that! I encourage all of you to start using our online target system. Its free, easy, and will protect your farm. Please click here for more information.
What Are The Charts Telling Us?
Here are the support and resistance levels for cash and new crop grains. These are all futures levels as traded at Chicago:
Cash Corn – July 18 Corn Futures – Support at $3.94, Resistance at $4.08, Place Targets at $4.05
New Corn – Dec 18 Corn Futures – Support at $4.12, Resistance at $4.23, Place Targets at $4.20
Cash Beans – July 18 Bean Futures – Support at $9.94, Resistance at $10.27, Place Targets at $10.17
New Beans – Nov 18 Bean Futures – Support at $9.97, Resistance at $10.25, Place Targets at $10.16
New Wheat – July 18 Wheat Futures – Support at $4.86, Resistance at $5.10, Place Targets at $5.05
To see where grain futures are currently trading, please click here.
Have You Sold Enough New Beans Yet? Make Values Even Better With Cash Plus Contracts
I can build a solid case why beans will move lower in the coming weeks as more acres get planted and less corn. In addition, the bean planting window is not nearly as tight as the optimum corn planting window. If you still have new beans to sell, please check out our Cash Plus Contracts. We can add a premium to your new crop bean sales price in exchange for an offer to sell more new beans if November Bean futures close above a certain level on Oct 24th. These contracts will allow you to sell new beans today with a 22 cent premium added to the new crop cash price in exchange for an offer to sell the same quantity of new crop bean futures around $10.50 if on Oct 24th, the November bean futures close at or above this level. If futures close below this level, you get to keep this entire premium, and you don’t have any other obligation. So it is a win-win for you. You get to keep the 22 cent premium paid to you on top of the current new crop bean price, and if on Oct 24th, depending on what November bean futures trade at the close on this date, you might be able to keep this entire premium free and clear. The worst case is that you would have the same bushel commitment in another new crop sale where November futures were locked in at the $10.50 level. Taking off the basis of 69 cents under the November futures for delivery into Readfield, which is our current posted new crop bean basis, you would have a new crop bean contract at 10.50 – 69 = $9.81 The worst case is that you would have another set of new beans sold at $9.81 for Oct / Nov ’18 delivery into Readfield or Center Valley. This is a great price considering our posted new crop price is at $9.44 or so today. Please check this out. We have been writing many of these contracts as of late, and they work really well.
The co-op did trade 5,000 bu of Condo space this week. I won’t disclose the patrons or the prices, but we were able to put two buyers and a seller together and completed the transaction. This was done by information placed on our web site. Do you own Condo space and wish to sell it? Are you interested in buying Condo space? If so, this is the right place. Condo Storage is also known as our Long Term Storage Agreement. We have listed this on our web site. If you are interested, please click here. Please call the number listed and talk to Todd. He will inform you of all the details and who is selling their Condo Space. In the future, this site on our web page will be updated with buyers and sellers of Condo space for our co-op. If you own Condo space and would like to sell, or if you would like to buy Condo space, please let us know and we can post your information for you. We want to make this a useful site to trade Condo Space.
As always, if I can help you with anything, please call me at the grain office in Readfield at 920-667-4955, ext 2 or send me an email at email@example.com.