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.

All of you who grow wheat need to be paying attention for next year’s crop.  The recent strength in nearby September wheat futures has also pushed next July wheat futures higher as well.  Now is the time to consider planting more wheat in September and October, and forward contract your wheat before it is planted.  There is nothing like locking in a nice profit before the crop is planted.  Today’s cash price for July / Aug ’19 wheat for delivery into Readfield is at $5.32. Looking at the July ’19 Chicago wheat chart, the contract high is at $6.09 less our current basis of 70 cents under Chicago, would put the cash price at Readfield at $5.39.  Thus, we are very close to the contract highs now, and this deserves your full consideration.  I would place targets at the $5.35 level and contract another 10% of your anticipated production each 15 cents higher and reward this market strength.  I can build a case for significantly lower corn and bean prices as fall harvest approaches.  Locking in wheat for next year diversifies your portfolio and helps to reduce your total risk.  If you want to see where our cash bids are trading, please click here.  If you would like to speak to one of our grain originators about setting up a marketing plan for your farm, please click here.  We can come to your farm or make an appointment to visit you.

The strength in the wheat market has propped up the corn market as well.  Our corn export pace remains stout, and we are on track to have record corn exports this year.  Our corn price is the cheapest in the world, and the world continues to come to the US to buy corn.  This is especially true since Argentina and Brazil have struggled with a lack of rain for their corn crop.  Over the last few weeks, their corn crops have continued to shrink in size.  The US just came off of a record corn harvest last fall, and we continue to have adequate old crop corn on hand.  However, with the world wheat issues that we have explained above, and the corn production problems in South America, the world has come to the US to buy our corn.  Thus, our corn ending stocks from the ‘17/18 crop year have shrunk, and the corn ending stocks for ‘18/19 are considerably tighter down to 1.6 B bu or so from 2.2 B bu from last year.  This erosion of corn out of our ending stocks position has caused the bulls to buy Chicago corn and for some to cover their short positions as well.  This is especially true since the wheat market has been on fire.  As wheat moves higher, so does corn.

That being said, the easy upwards move for corn is now almost complete.  Looking at the charts, many times a market will retrace either 38.2%, 50%, or 61.8% of a previous move before resuming the previous trend.  I believe the corn market will retrace 50% of its move before turning around and sliding lower into harvest.  Lets look at December ’18 corn futures as traded at Chicago.  The previous high was $4.29 and the recent low was $3.50.  This is a 79 cent move and if you retrace 50% of this, you will run back up by 40 cents.  This will put Dec ’18 corn futures back to $3.50 + 40 = $3.90.  If you take of our basis for Oct / Nov ’18 delivery corn into Readfield of 40 cents, this give you a final cash price of $3.50 for harvest corn.  We are currently trading at $3.41.  If you have more corn that must be sold for harvest, I would place a target at $3.50 for at least 50% of the harvest corn that you must sell.  For the other 50%, I would place a target at $3.60.  I would figure the volumes now, place a firm target now at these levels, and let it do its job.  That way, next week at 2 am in the morning, when China decides to work with us on beans, the market will pop up, hit your target and execute, all while you are sleeping in bed.  This might be one of the very last opportunities you have to get this corn sold before it slides lower into harvest.  I would place the targets and then forget about it.  Let them protect your farm.

We have a significant risk with our bean market.  The Trump administration continues to negotiate very strongly with China, and beans are wrapped in a tariff war between the two countries.  This negotiating process takes time, but unfortunately, the farmer remains in the crosshairs.  I don’t believe this tariff war will be over by November 1st.  If this is true, and China does not buy or greatly reduces its purchases of harvest beans from the US, this will create a huge logistical mess for the US this fall.  We normally run huge amounts of beans down to the gulf or out of the PNW each October as the Midwest goes through bean harvest.  If China does not buy our beans, where will they go?  Other countries will be forced to buy our beans because Brazil has been sucked dry because China is taking all of their beans.  So if other countries normally buy beans from Brazil, they will most likely come to the US this fall.  However, this sounds good in theory.  Maybe the situation won’t be as bad as I fear, but I have a bad feeling about bean harvest this fall.  The market is already anticipating problems.  Just look at the new bean basis at most elevators.  Noticed how weak they have become?  This is why.  China buys most of the beans from the PNW.  All of a sudden, if we cannot ship beans out of the PNW, where will they go?  The answer is likely by rail to St Louis where they can be barged to the gulf.  So the beans in the Dakota’s will have a problem getting away, and the problems will mount along the Mississippi River because twice as many beans will be forced down that funnel into a Gulf market that now has half the business compared to a normal year.  Is the picture becoming clearer for you?  Preparations for bean piles in the Dakota’s are already in progress.  Shuttle rates are being created from the Dakota’s to St Louis.  Beans will likely back up into the interior of the US like we have never seen before.  Basis will get incredibly cheap, bean spreads will widen, and all of this will likely weigh on bean futures.  Now, the bean crop was planted earlier than normal, and many people are saying their bean crop looks fantastic.  Locally, our crop looks great as well.  I believe the USDA is way low on their yield if 48.5 bpa.  If all of these reports are right, what happens if the final bean yield is 52 or 53?  All of a sudden, our bean carryout goes from 600 M bu to 800 to 900 M bu carryout.  How do you think bean futures will react to all of this?  This scenario could be extremely bearish for beans.  November ’18 bean futures starting with a “6” is a real possibility.  If you don’t have enough beans sold for harvest, what would this do to your farm revenue?  How would your banker react?

I have recommended for weeks that farmers should get sold up on any beans that they must move at harvest, and sell them when November beans hit $9.15.  This week, it hit this target briefly on Tuesday and traded up to $9.22 before falling off a cliff since then.  Now, Nov beans are trading at $8.95, and I’m not sure if they will or can get back to $9.15 again.  The $9.15 level is exactly the 38.2% retrace level of the previous $2.34 slide lower from the high level of $10.60.  Do you have more beans that you need to sell for harvest?  Did you sell them this week when Nov beans hit $9.15?  If not, I would put a target back at the $9.15 level and see if the market can make a double top.  This will give you a final cash price of $8.40 for Oct / Nov ’18 beans into Readfield.  My fear is that since this market now retraced the required 38.2% objective, that the bears will now resume the lower trend in the bean market, selling huge amounts of futures, going short big time, and press Nov beans lower than any of you think is possible.  I hope I am wrong, but now the bears are in charge, and don’t be surprised what they can do.  I just hope your farm is adequately protected.  If not, you need to act today.  We would be glad to help you.  Click here to see which grain originator services your area.

Have You Sold Enough July 2019 Wheat Yet?  Make Values Even Better With Cash Plus Contracts

If you still have new wheat to sell, please check out our Cash Plus Contracts.  We can add a premium to your new crop wheat sales price in exchange for an offer to sell more new wheat if July Wheat futures close above a certain level on June 19th.  These contracts will allow you to sell new wheat today with a 33 cent premium added to the new crop cash price in exchange for an offer to sell the same quantity of new crop wheat futures at $6.30 if on June 19th, the July ’19 wheat 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 33 cent premium paid to you on top of the current new crop wheat price, and if on June 19th, depending on what July wheat 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 July futures were locked in at the $6.30 level.  Taking off the basis of 70 cents under the July futures for delivery into Readfield, which is our current posted new crop wheat basis, you would have a new crop wheat contract at 6.30 – 70 = $5.60.  The worst case is that you would have another set of new wheat sold at $5.60 for July ’19 delivery into Readfield or Center Valley.  This is a great price considering our posted new crop price is at $5.30 today.  Please check this out.  We have been writing many of these contracts as of late, and they work really well.

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.

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 FREE through Oct 1st.  On Oct 1st, the Delayed Price rate on these bushels will increase to our posted new crop rate.

45 / 96 Road Construction Update

The intersection of 45 and 96 is now completed.  It has been a long 3 months, and we apologize for the inconvenience.  Normal traffic flows have been restored, and you can now freely use this intersection to get into our Readfield grain terminal, just like in the past.

CHS Pro-Advantage  WHEAT ContractsAll growers need to try at least one contract to diversify your marketing strategies.  It is a great tool, and has worked well.  Below is a description:

This contract is a very simple approach to allowing our trading professionals at CHS to market your grain for you.  Basically, you will hand over a portion of your grain to them to squeeze as much money out of the market as they can.  They will do many trades behind the scenes to generate as much profit for you as possible and when the program is over, their profits will be added together and given back to you in the form of a price that should be higher than the prevailing price at that time.  You don’t have to worry about the trades that they do, or any complex marketing strategies to learn.  This is easy folks.  Just give them a portion of next year’s grain production, and allow our marketing professionals to make money for you.

This contract has been offered for 3 years and the results are quite remarkable.  Their bean contract has worked well, and has allowed participants to enjoy contracts that were significantly higher than the current market.  All of this goes directly to your bottom line.  For next year’s production, you can enroll in a July ‘19 delivery, and we also have July ‘20 delivery contracts as well.  The cost is 10 cents per bushel for the July 2019 and 12 cents per bushel for the July 2020 contracts.  The July 2020 is an especially good deal because the contract allows our traders an additional year to make trading returns on your behalf for only 2 additional cents.  Also, the 2 year contract has worked tremendously well over its history.  There is no minimum bushel quantity required.  Please click here for more information on our CHS Pro-Advantage contract.  Every grower in the area should take advantage of this contract on at least a portion of next year’s production.  It is a very good contract that has a long history of success.  If you have other questions, please call me at Readfield.

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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