Grain Update – April 11, 2019

4/11/19

USDA Shows More Corn, But Market Holds Steady

The USDA released its April crop report on Tuesday and showed more corn stocks than originally thought.  However, the market held firm after the release.  Let’s look at the details.

In the corn market, the USDA reduced feed usage by 75 M bu down to 5.3 B bu.  They also reduced the amount of corn used by the ethanol industry by 50 M bu down to 5.5 B bu.  This industry continues to struggle with a lack of margins, and the industry is not running at capacity at this time.  This helps to explain why corn usage has backed off.  Finally, corn exports were reduced by 75 M bu down to 2.3 B bu as well.  The US market is struggling to find export demand.  Last year, the PNW was very busy shipping corn to China.  This year, Brazil and Argentina have huge corn crops on the horizon and their price is substantially cheaper than corn from the US.  In fact, they have the cheapest corn in the world now, and the Chinese are buying their corn and not ours.  On top of all of this, the Trump administration and China continue to work together to try and get a new agreement in place to end the tariff war between the two countries.  This is allowed China to not buy corn like in past years as well.  Its been a very long time since we have seen the USDA reduce all three of these categories on the same report, and it added to the heaviness of the report.  When the dust settled, there were 200 M bu of corn added to ending stocks, increasing this final number to 2.035 B bu.

As I have said many times, having a corn carryout starting with a “2” puts the market in comfort mode.  Supplies are plentiful, and the market will likely see no need to rally.  However, we have a mounting problem just around the corner.  This relaxed sentiment makes the assumption that we have no problems planting a 92.8 M acre corn crop.  Will the US be able to get all of this corn planted at the right time as major areas of the western and northern Corn Belt sit now with a major snow or rain event on top of it right now?  Even with no snow or rain today, vast areas still are dealing with wetter and colder soil conditions which will likely press the corn planting date well into May.  Now, with more snow and rain, it just keeps pushing the likely corn planting date farther and farther into the back edge of the appropriate planting window for corn.  If any other weather systems develop and drop more precipitation in these areas, I can easily see many corn acres get switched to beans.  If this happens, all of a sudden, we don’t have such a plentiful corn supply.  In the coming days, I see the corn market becoming much more sensitive to the weather situation.  On top of this, the funds are extremely short corn futures, and all we need is a reason for them to cover (buy) their short position back, and we could have an explosive corn market on our hands until the we get our corn completely planted.  Thus, I am not bearish corn.  There is a real potential for the corn market to bounce from these levels and rally until at least we get 50% of the crop planted.  It is a real risk, and the market will eventually recognize it, at some point.

The bean market is totally different.  But first, lets look at the USDA report.  Unlike corn, the USDA made very little changes to the Supply and Demand table during April.  They reduced imports by 3 M bu and increased seed usage by 2 M bu.  But the most obvious change that is needed, they failed to adjust, again.  They left bean exports at 1.875 B bu and continue to leave bean exports alone.  If the USDA was honest with us, they would start cutting these back instead of waiting until the end of the crop year to slash them.  My best guess is that exports will be lowered (eventually by 200 M bu or so.  When this happens, bean carryout will grow from its current 895 M bu to at least 1.1 to 1.2 B bu.  Folks, this is a lot of beans.  Many producers went ahead and used the $1.65 from the USDA and used this payment to supplement their cash flow needs and left their beans in the bin or in storage, and still unpriced.  I can build a case where beans move lower and lower as more and more corn acres get planted with beans, and the farmer won’t move their beans until they are forced to do so just prior to fall harvest.  Thus, we could have a very heavy farmer deliveries during Aug / September and have 2 harvests back to back.  This will add increased pressure to futures and basis as more beans are rammed in the pipeline.

Most farmers are waiting for a China deal to be finalized before selling more of their beans.  My best guess is that Trump will demand a perfect agreement with China, and this will take another 6-8 weeks to get accomplished.  By then, the opportunity for China to buy any more old beans will be completely over.  Brazil and Argentina have the cheapest beans in the world right now, and their bigger than average yields will continue to press bean prices lower and lower.  On top of this, if the US farmer cannot plant his corn crop due to wet / cold weather, and instead plants beans to be able to survive, the beans carryout will continue to expand and beans are /  will be extremely over priced compared to today’s values.  Thus, I am bearish beans in a big way.  The market is not looking at these fundamentals yet, but as we inch closer and close to planting, and experience continual delays in plating corn, the market will be forced to recognize it in a big way.  The real risk here is a substantially lower bean futures market and a substantially wider new crop basis levels that will be considerably wider than last years wide basis level.  If I were you, I would take action today to protect your farm.  Please click here to see which grain originator on our staff can help you create a unique marketing plan for your farm, and help you place target orders in our online system.  I offer further explanation below.

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 – May 19 Corn Futures – Support at $3.55, Resistance at $3.66, Place Targets at $3.65

New Corn – Dec 19 Corn Futures – Support at $3.84, Resistance at $3.96, Place Targets at $3.95

Cash Beans – May 19 Bean Futures – Support at $8.83, Resistance at $9.12, Place Targets at $9.02

New Beans – Nov 19 Bean Futures – Support at $9.18, Resistance at $9.39, Place Targets at $9.34

New Wheat – July 19 Wheat Futures – Support at $4.35, Resistance at $4.82, Place Targets at $7.78

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 23rd.  These contracts will allow you to sell new beans today with an 18 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 $9.60 if on Oct 23rd, 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 18-cent premium paid to you on top of the current new crop bean price, and if on Oct 23rd, 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 $9.60 level.  Taking off the basis of 92 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 9.60 – 92 +18 cent premium = $8.86  The worst case is that you would have another set of new beans sold at $8.68 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a good price considering our posted new crop price is at $8.38 or so today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.  Please click here to see our current cash grain bids.

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.  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.

LAST CALL For New Crop Average Price Contracts – Sign Up Today

We are now enrolling bushels into our new crop Average Price Contract which is for new crop grain that will be delivered during this fall.  This is a cash contract and will use a 10 week period to average the price.  The timing of the new crop contract will be May 1st through July 3rd.  We will simply average the closing prices each Wednesday during these periods, pricing 1/10 of your contracted bushels each week during the period.  At the end of the period, we will simply average the prices together.  There is no minimum quantity and the best part of these contracts are that they are FREE.  There are no fees associated with these averaging contracts. 

The dates associated with the new crop pricing period of May 1st  to July 3rd  is normally a very good time to sell new crop grain because the market is dealing with planting problems and then dealing with dry weather problems somewhere in the Corn Belt.  When problems surface, the market puts more risk premium in the futures, and you will be participating in the market to capture these premiums.  If there are no problems, the market usually drifts lower after the July 4th holiday, making the timing an excellent part of this new crop average contract.    These contracts are simple, easy to understand, and they work.  Every farmer should put a decent amount of grain into these contracts to help protect your farm.  For more information on these exciting new contracts, please click here.

As always, if I can help you with anything, please call me at the grain office on my cell at 419-279-3809, or send me an email at marcus.cordonnier@chsinc.com.

Marcus Cordonnier

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