Grain Update – August 30, 2018

 

8/30/18

The ProFarmer Tour Confirms Big Yields.  The Soybean Market Remains Weak Without A China Trade Deal.

The ProFarmer Crop Tour was held last week throughout the Corn Belt and confirmed big yields in most areas.  The tour started from Ohio and South Dakota last Monday and both sides eventually met up in Northern Iowa on Thursday evening.  Each day the teams reported corn yields and 3’ x 3’ area soybean pod counts in various locations along the route as both sets of teams moved to the center of the Corn Belt.  Corn yields and pod counts were generally better than previously expected and confirmed the big yields the USDA recently used on its last August crop report.  When the dust settled last Friday, the ProFarmer Tour pegged the corn yield at 177.3 bpa and beans at 53 bpa.  The USDA pegged the corn yield at 178.4 and the bean yield at 51.6 in their August crop report.  Generally, there is a tendency for ProFarmer to give yield estimates that are several bushels less than the USDA on both corn and beans.  The fact that the tour gave us essentially the same corn yield and gave us a bigger bean yield tells me that the crop is very good in most areas, and the final USDA yields could grow bigger yet, not smaller.  Additionally, the tour basically confirmed the USDA’s August crop report yields and now most of the trade is wondering how much bigger the final yields could grow to vs being reduced in future crop reports.  The fact that the tour gave us a bean yield that is bigger than the USDA tells me that there is a huge bean crop on the horizon.  Generally, this does not happen, and for the tour to out yield the USDA, something very special has occurred.

On top of this, most areas of the Corn Belt received nice rains in the last week that will finish out the crop in nice order.  Locally, some areas have received almost too much rain, but most areas received 3-4” in the last week.  Receiving this much rain during August really does not happen that often.  This rain will fill the bean pods and add kernel size and test weight to corn.  Ultimately, it will add a significant amount of bushels that will be harvested in the next few weeks.  The big corn and bean crop continues to get bigger and bigger.

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Grain Update – August 23, 2018

Written August 16, 2018

The USDA Gives The Industry A Bearish Outlook.  Corn Demand Remains Stout, But No Trade With China Is Causing Beans To Stack Up.

The USDA released its August monthly crop report last Friday, and shocked the industry with its findings.  Starting off with corn, it left last years supply and demand table the same as last month and made no changes.  However, for the ‘18/19 crop year, the USDA raised the corn yield 4.4 bpa up to a whopping 178.4 bpa.  Many times the USDA raises the yield in the August report based on the weather and crop conditions during the summer months.  However, the increase from 174 last month to 178.4 this month was a rather large one month adjustment, and it surprised many in the industry.  This increase in corn yield caused total production to increase by 357 M bu up to 14.587 B bu.  The USDA increased feed usage by 100 M bu up to 5.525 B bu and also increased corn exports by 125 M bu up to 2.35 B bu.  All of these adjustments caused the ending stocks for next year to grow by 132 M bu up to 1.684 B bu.  Obviously, the increase in yield was the over riding change and even though feed and exports improved, they were more than offset by the yield.

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Grain Update – August 2, 2018

8/2/18

World Wheat Production Problems Causing a Huge Wheat Rally.  Corn Tags Along For The Ride.

Grain prices have rebounded significantly in the last three weeks due to world wheat production problems and a very strong corn demand outlook.  In the midst of all of this, the Chinese are talking with the US again about working on the tariff issue.  All of these factors have placed a bid under the market and now we have grain futures significantly higher.  Corn has rallied 31 cents from its low, beans are 67 cents off their recent low, and wheat is a whopping 94 cents off its recent low.  These levels might not be exactly what you want, but if you have old crop corn or beans left in the bin or in storage, or if you don’t have enough new crop corn or beans sold for harvest, you need to be paying attention.  This is your opportunity to make catch up sales and put a plan together to help salvage your revenue for the year.

Lets look into the details.  Over the last month, several wheat producing areas of the world are having incredible problems with their wheat crop.  Canada, Europe, Black Sea, Ukraine, and Australia are all suffering from reduced wheat yields due to a lack of rain.  Then last week, the wheat tour witnessed better yields in the Dakota’s compared to last year’s drought, but the current yields of the hard red spring wheat crop is significantly less than the market thought was in the field.  All of this news have caused the bulls to have the upper hand and have pushed wheat futures significantly higher.  The funds were short roughly 10,000 contracts of Chicago wheat.  This news has forced these funds to cover their short positions and to go long.  Today, they are probably close to 50,000 contracts long of Chicago wheat futures.  If the world wants to buy wheat, they come to Chicago and buy wheat futures, and this is what we are seeing.  Currently, September wheat futures at Chicago are trading at $5.65.  The next high point in the chart is at $5.70, which should be attainable in the next day or so.  The contract high is $6.12.  They way this market is acting, I believe this level will be challenged as well in the next week or so.  When a market continues to trade higher each day, no matter the news, it has legs and it will challenge the past highs.  Volatility will ramp up, and the market will start to gyrate around as a top is made.

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Grain Update – July 19, 2018

7/19/18

Its All About Politics & Weather. Are Your Ready When Grain Prices Rebound?

The USDA was out with its July crop report last Thursday and indicated a tighter corn scenario but a weaker bean scenario for the upcoming crop year.  Let’s look at the details.

For old crop corn, the USDA cut feed usage by 50 M bu down to 5.45 B bu, but increased corn exports by 100 M bu up to 2.4 B bu.  The other major change was an increase in corn used for ethanol by 25 M bu up to 5.6 B bu.  When the dust settled for old crop corn, ending stocks were reduced by 75 M bu down to 2.027 B bu.  Many in the industry are wondering why feed usage is going down, especially when you consider how much the price on corn has dropped in recent weeks.  The increase in exports makes sense as the US has the cheapest corn in the world now, and with Argentina having a drought and Brazil having reduced yields due to a lack of rain, the world simply does not have an excess of corn, except for the US.  However, old crop corn carry out still starts with a “2”.  This generally puts the market in comfort mode.  But looking right around the corner at the new crop picture, and things tighten up considerably.

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Weekly Grain Update – June 28, 2018

6/21/18

The Grain Industry Prepares For A Major USDA Report On Friday.  Trade War Concerns And Great Crop Conditions Still Weigh On Grain Futures.

The USDA will be releasing its end of June crop report at 11 am CST on Friday, and this is one of the biggest reports of the year.  Generally, this report causes the market to make a major move in one way or the other.  The report contains the June 1st grain stocks and it also estimates the corn, bean, and wheat acres that were planted this spring.  The June 1st quarterly grain stocks gives the trade real evidence on grain usage during the 3rd quarter of the crop year, and it will indicate whether a particular grain is being used or shipped more or less than what the trade had anticipated.  Currently, the market is estimating that June 1st grain stocks are as follows:  corn – 5.268 B bu, beans – 1.225 B bu, and wheat – 1.091 B bu.  Any major difference given by the USDA tomorrow and the market will react according, possibly violently if a major difference exists.

The other set of numbers that will have a huge implication on future supply and demand estimates is the USDA’s estimated acres planted to each crop.  These acres will then be used by future crop reports as the basis for their supply estimates.  The acres estimate each June is usually a big focus and a big market mover.  Compared to the March 31st acres estimate, most believe both corn and bean acres will be increased by roughly 500 – 600,000 acres each.  The market now estimates these acres for tomorrow’s report:  corn – 88.562 M acres, beans – 89.691 M acres, and wheat – 47.102 M acres.  Again, any major differences by the USDA tomorrow and the market will react accordingly.  Over the years, the acres estimate has caused very big ripples in the market because the amounts released were not expected by the market.  Thus, it could be a very interesting session tomorrow.

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Weekly Grain Update – June 21, 2018

6/21/18

Grain Markets Have Finally Stabilized At Much Lower Levels.  Let’s Prepare To Pull The Trigger On Final New Crop Bushels Once Prices Rebound.

Rumors surfaced this week that the Trump administration is considering adding a 10% tariff on an additional $200 B worth of Chinese goods if in fact China retaliates to the 25% tariffs on $50 B worth of Chinese goods scheduled to be implemented on July 6th.  As you can guess, the grain markets and the equity markets did not find comfort in this news, with all major markets selling off in a big way.  News is also surfacing that Trump is asking the CCC to put a package together to reimburse farmers for the market values that have recently been lost due to this trade war.  More to come on this.  Since Memorial Day, the funds have been avoiding buying grain futures at any cost.  They had a long position prior to Memorial Day of roughly 200,000 contracts long in corn and 100,000 contracts long in beans.  Since then, they have sold off their entire long position and now have a sizable short position of approximately 100,000 contracts in both commodities.  This is a huge and vast reversal in position, and all of this selling pressure helps to explain why our grain markets have crashed since Memorial Day.

Obviously, the trade war with China is the lead story, but our inability to renegotiate a new NAFTA deal is also weighing on the market.  Canada and Mexico buy a huge amount of commodities from the US and not having them fully engaged to buy our grains and livestock is problematic for ag producers.  On top of this, the current corn and bean crop is off to a fantastic start, with beans being planted at the earliest pace ever, and with crop conditions just wildly good at this point in the growing season.  On Monday, the USDA pegged the corn crop at 78% good to excellent and the bean crop at 73% good to excellent.  Rarely are conditions this high for both corn and beans.  Additionally, most all of the Corn Belt received nice rains over the weekend and as I look at the current US Drought Monitor, I can see no significant area in the entire Corn Belt that does not have adequate water.  So, we are sitting here on June 20th with crop conditions off the charts, adequate moisture everywhere, corn and bean populations all very good, and a crop that is now growing at the 5-year average maturity.  There are no problems to speak of with the crop.  The next potential issue is dryness around the corn pollination period of July 10th – 20th this year, and the bean pod filling season around July 20th to Aug 10th.  If dry weather or heat surfaces during these times, it will add support to the market.  Until then, things look good and helps to explain why futures have spiraled out of control as of late.

The next major USDA report will be next Friday, June 29th at 11 am CST.  On this day, the USDA will update the trade on June 1st grain stocks and update the corn and bean planted acres for this growing year.  These acres will then be used on future crop reports as the base for the supply and demand estimates.  This report on the 29th usually causes a very volatile market session at Chicago after the numbers are released because the adjustments in corn and bean acreage causes major changes in the anticipated carryout’s for both this year and next.  Looking ahead, I see corn exports remaining very strong and feed demand remaining very strong in the corn market.  I would not be surprised to see corn carryout being trimmed back, especially for old crop.  On beans, I see nothing but a growing carryout on old and new crop.  This whole situation with China not buying our beans is a big deal because we need them to buy our beans.  Frankly, it is this single issue which has caused our markets to crash over the last 3 weeks.  If the Chinese tariff issue does not get worked out, I can see next year’s bean carryout being in the 7-800 M bu range, which is just enormous, and will weigh on prices.  In fact, this is probably what the market is anticipating considering what the bean market has done in the last 3 weeks, dropping a whopping $1.68 since then.  This is unprecedented, and unfortunately, many producers find themselves in a pickle because they did not sell enough new crop beans when the market presented them with the opportunity.

Fortunately, the market seemed to finally capitulate on Tuesday, with July bean futures trading down 66 cents at one point during the session, to a low of $8.41, but only closed the day being 16 cents lower.  This abrupt move significantly lower, and the popping right back is characteristic of a market finding solid support and new buying interest.  All of the weak players finally have now been stopped out, washed out, and now no longer playing the game.  Unfortunately, this leaves a market that is thinner than normal and illiquid, where a few big players can push the market around in big ways.  There are many traders who are now licking their wounds and thinking twice about trading grain futures again.  The more players we have, the more liquidity the market has and should result in less volatility.  It will take time for this to build back up.

Unfortunately, the market has left many of you with not enough grain sold and now are being forced to deal with much lower prices.  Now, we need to figure out how to make the best of this situation and put a salvage plan together to save your farm.  Many times, when a market crashes like we have seen, the market will go down and hit solid support, and then bounce back.  The market will usually bounce back 50 to 61.8% from the low point to the previous high.  I call this 50 – 61.8% retrace area the target box.  The market will likely trade into this box before resuming the downward trend.  Keep in mind that once we make it into this box, and it could be very briefly, the resuming sell off could be very significant and more powerful than what we just witnessed over the last 3 weeks.  This is hard to imagine, but the entire professional grain trade will be looking at the same set of numbers.  So where is the target box for Dec ’18 corn futures and Nov ’18 bean futures?  Let’s look at the charts.  On Dec corn, the previous high was $4.29 and the low just hit was at $3.60.  Thus, the target box for Dec corn is from $3.94 to $4.02.  On Nov beans, the high was $10.60 and the low was $8.64.  The target box here is $9.62 to $9.85.  Using the new crop corn basis at Readfield at 40 cents under on corn and 75 cents under on beans put the cash target box on corn at $3.54 to $3.62.  On beans, the cash target box is $8.87 to $9.10.  Please get a pen and write these numbers down.

For those of you who find yourself not having enough grain sold for new crop, what you need to do is relatively simple.  You need to assume trend line yields at this point, subtract off the number of bushels that you have sold for new crop, and find out the total number of corn and bean bushels that still need to be sold.  Then, once you know what these bushel totals are, you need to place firm targets to sell these bushels in the target box listed above.  It is critical that you deal with this issue today, and get a firm understanding of what your risk position is for your grain production.  It is also critical that you place a FIRM target to sell at the above levels because the market could be at this level only for 20 minutes at 3 am on July 10th.  The only way your target will get filled is if it is a firm target.  The firm target will prevent you from becoming bullish, right at the very top of the market, when you need to be selling bushels, and not pulling your targets.  The obvious risk is that you don’t sell because you are bullish, and then the market abruptly crashes, and you are level unprotected and exposed with no other selling opportunities.  You can enter this target on your own, in our online target bid center, or you can call us and we can enter it for you.  Either way will work.  But the critical piece is to find out what you must sell, and then get firm targets to sell in the above target box.  This will save your farm.

New Arrive Delayed Price Rates have Been Reduced

We have reduced our Delayed Price rates for new arrive corn and beans into Readfield and Center Valley.  These rates are for new arrive bushels only, and the rate will be in effect until Oct 1st 2018 when new crop storage rates will go into effect.  The new Delayed Price rate is now 60 days FREE, and then 3 cents flat per month thereafter.

Targets Produce Success and Protection For Your Farm

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.

Have You Sold Enough New Beans Yet?  Make Values Even Better With Cash Plus Contracts

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 20 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 $9.45 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 20 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 $9.45 level.  Taking off the basis of 75 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 9.45 – 75 = $8.70  The worst case is that you would have another set of new beans sold at $8.70 for Oct / Nov ’18 delivery into Readfield or Center Valley.  This compares to the cash price for new beans today at Readfield at $8.28.

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 $3.38, Resistance at $3.73, Place Targets at $3.68

New Corn – Dec 18 Corn Futures – Support at $3.60, Resistance at $3.94, Place Targets at $3.90

Cash Beans – July 18 Bean Futures – Support at $8.41, Resistance at $9.52, Place Targets at $9.42

New Beans – Nov 18 Bean Futures – Support at $8.64, Resistance at $9.72, Place Targets at $9.62

New Wheat – July 18 Wheat Futures – Support at $4.67, Resistance at $5.03, Place Targets at $4.98

To see where grain futures are currently trading, please click here.

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 marcus.cordonnier@chsinc.com.

Marcus Cordonnier

 

Weekly Grain Update – June 15, 2018

6/15/18

The Massive Selloff Continues.  USDA Confirms Large Old Crop Stocks, But Smaller New Crop Stocks On The Horizon.

The USDA released its June crop report on Tuesday and confirmed large old crop stocks, but significantly less new crop stocks.  In the corn market, the USDA increased old crop corn exports by 75 M bu up to 2.3 B bu for old crop.  We have seen a consistent amount corn being exported out of the Gulf each week, and these numbers have remained higher than normal for quite some time.  When the dust settled, old crop corn ending stocks were reduced by 80 M bu down to 2.102 B bu.  On new crop corn, the USDA reduced feed usage by 25 M bu down to 5.35 B bu.  The end result is a corn carryout for next year at 1.577 B bu.  As you can see, the corn carryout is substantially less next year than the current year.  The market is concerned about this sharp reduction in carryout for next year.  However, the crop is off to a wonderful start, the weather is non threatening at the moment, and there is a real probability that the old crop carryover could grow in size if the weather holds.

On beans, the crush margins has been very good as of late, mainly supported by the decent price of bean meal.  The USDA increased bean crush on old crop by 25 M bu up to 2.015 B bu.  When the dust settled, old crop bean ending stocks dropped 25 M bu down to 505 M bu.  In new crop beans, the USDA is using 89 M acres and a yield of 48.5 bpa.  They pegged next year’s bean ending stocks at 385 M bu, significantly tighter than old crop.  Just like corn, the old crop supplies remain plentiful while the new crop supplies are considerably less.

In the wheat market, the USDA made a small adjustment to old crop exports, and cut them by 10 M bu down to 900 M bu.  This pushed old crop ending stocks up to 1.08 B bu.  On new crop, they increased exports by 25 M bu to 950 M bu and this took ending stocks down to 946 M bu.  Both crop years have ending stocks close to 1 B bu and this leaves the market relatively comfortable.  Although true, there are concerns of lower yields around the world due to drought conditions in the EU, Black Sea, and in Canada.  Even though the US’s supplies remain decent, the rest of the world does not have the same luxury.

The market made a high on the Tuesday after Memorial Day and since then, it has been significantly pounded lower like I have never seen before.  All grains, no matter the significant tightness for next year, have all been pushed lower to levels that no one ever thought possible.  Many in the grain trade are shocked by this massive lower movement of grain futures since Memorial Day, and still cannot believe it has happened.  The fundamentals for next year clearly do not justify such a move, and we still have at least a 60 day period where the weather can easily change the final outcome on yields.  Since Memorial Day, Dec ’18 corn has dropped 46 cents, Nov ’18 beans have dropped a whopping $1.25, and July ’18 wheat has dropped 59 cents.  I have never witnessed anything like this in my 25 years in this business.  The funds had a decent size long position across the board and have been blown out of their entire long position, and now are likely short.  This is a massive amount of grain that has been sold in the last 2 weeks, adding more and more selling pressure to the market.

Additionally, the charts look terrible.  We have systematically blown through at least 3 different support levels on the way down, going through them like nothing was there.  What is concerning, is that we have not stopped going down yet!  As I look at each chart, we have not bounced off of any support level yet.  We now have new crop cash corn at Readfield at $3.42, new crop beans at $8.60, and new wheat at $4.40.  New beans into Readfield traded $9.91 just a few days ago!  This is something for the record books.  For all of you who took our advice and sold new crop bushels earlier in the year, congratulations.  You have saved your farm.  For those of you who were bullish and decided to stick your head in the sand over the last 3 weeks while trying to plant your crop, and now don’t have enough new bushels sold, we have some serious work to do.  Grain futures will bounce.  The questions is when, and from what level.

Why did this sell-off happen?  Let’s go over the list:

  • Although late, the entire corn and bean crop was planted in the Corn Belt.
  • Planting conditions were good, and plant populations are great. This will push yields higher.
  • So far, we have had adequate rain in the majority of the Corn Belt.
  • Heat units are accumulating nicely, and the heat is allowing the crops to catch up.
  • Soybeans were planted much earlier than normal, and final yields should be higher than normal if the weather holds.
  • The funds have sold massive amounts of their spec positions from one of significant length to now being short. All of this selling pushed futures lower each day.
  • The market is incredibly nervous about the potential tariffs between the US and China, Canada, and Mexico. The Trump Administration will make a decision today, June 15th, whether to enact its first tariffs with China on $50 B worth of goods.  The funds and specs do not want to trade grain with this outside influence, so they got out over the last 2 weeks.
  • NAFTA – It looks like an agreement will not be made with Mexico and Canada.
  • North Korea – Will this agreement hold? Are they playing us?
  • The lack of China buying US beans over the last 2 months. They have virtually stopped buying our beans.  If the tariffs get enacted today, the Chinese will do everything not to buy our beans.  This is the real reason beans have fallen by $1.25 in the last 2 weeks.  The bean market is in real trouble if the Chinese don’t buy our beans.

For those of you who now find themselves in a very uncomfortable position, the time is to be truthful with yourself, be honest, and allow us to help you work through this.  We want to help and can work with you to put a plan in place to dig yourself out of this hole.  This is not a time to sit back and be complacent.  Your farm and livelihood could easily be at stake.  Our team can easily sit down and help you put a marketing plan together to help salvage your business.

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 $3.50, Resistance at $3.62, Place Targets at $3.60

New Corn – Dec 18 Corn Futures – Support at $3.79, Resistance at $3.87, Place Targets at $3.85

Cash Beans – July 18 Bean Futures – Support at $9.00, Resistance at $9.26, Place Targets at $9.15

New Beans – Nov 18 Bean Futures – Support at $9.23, Resistance at $9.39, Place Targets at $9.35

New Wheat – July 18 Wheat Futures – Support at $4.86, Resistance at $5.03, Place Targets at $4.97

To see where grain futures are currently trading, please click here.

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.

New Arrive Delayed Price Rates have Been Reduced

We have reduced our Delayed Price rates for new arrive corn and beans into Readfield and Center Valley.  These rates are for new arrive bushels only, and the rate will be in effect until Oct 1st 2018 when new crop storage rates will go into effect.  The new Delayed Price rate is now 60 days FREE, and then 3 cents flat per month thereafter.

Condo Space For Sale (aka Long Term Storage Agreement)

The co-op does have 3,000 bu of condo space to sell.  If interested, you can find more information on our web site, or 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 marcus.cordonnier@chsinc.com.

Marcus Cordonnier

Weekly Grain Update – May 30, 2018

 

After A Nice Rally, Bearish Factors Line Up

The grain markets witnessed a tremendous run up in price last week after the productive meeting with the Chinese chief negotiator last week.  Now, the market wants to see some results of this meeting before taking the market any higher.  Trade volume was light towards the end of last week, and this allowed the bulls to easily push the market to new highs without much resistance.  As the market opened Monday night after the long Memorial Day weekend, the bullish mentality began to change.  Tuesday was a bearish day on many levels.  The market opened up strong Monday night and made new highs, only to trade lower and close lower, and some markets closed below the previous day’s lows.  This is the definition of a key reversal, and many grain markets witnessed this on Tuesday.  Technically, this is a bearish signal that might send grain futures lower for a significant amount of time.

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Weekly Grain Update – May 23, 2018

Trade War Avoided.  Bean Planting Much Ahead of Average. Corn Planting Almost Complete.

The big news this week is that a trade war between the US and China has been avoided.  The Chinese head negotiator spent all last week at the White House trying to hammer out a deal between the two countries.  Many of the details are not yet worked out or known at this point.  However, progress has been made, and an outright trade war will not occur.  It appears each side is working through the negotiating process, both giving in and taking, in order to reach a compromise.  The issue with the US is the huge trade imbalance with China.  President Trump is very committed to getting the US back to a more even trade balance with China.  A big trade imbalance is when the US buys more products from China than China buys from the US.  The current trade imbalance is roughly $600 B annually, and this process will try and get this reduced over time.  Obviously, the US needs China to buy grain from us as well as many other manufactured goods.  Frankly, China needs our soybeans in order to satisfy all of their needs.  China is still buying all of their beans from Brazil, and have practically stopped buying any beans from the US in the last 6 weeks.  Each week, we patiently wait for news that China has purchased more beans from us, but this has not happened recently.  This news that a potential trade war has been avoided is a huge deal to the bean market as it signals that China will once again start buying our beans.  Now, we must sit back and patiently wait to see the Chinese finally buy our beans once again.

The market is in full anticipation mode since Monday.  News started to surface on Friday that a trade war with China has been avoided.  As expected, the funds purchased grain futures on this news and pushed all grains higher over the last few sessions.  If China starts to buy US beans again, this is supportive to the grains and the bean market.  So far, the market has ramped up in anticipation of more Chinese purchases, but we have not yet seen any real activity.  I get the sense that we have now pushed grain futures as high as we can go until we see the actual Chinese buying occur.  At the end of the day, this buying is what must occur, not rumors that it will occur.  Time will tell.  Stay tuned.

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Weekly Grain Update – May 17, 2018

5/17/18

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.

Condo Corner

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 marcus.cordonnier@chsinc.com.

Marcus Cordonnier

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