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.

The market is confirming these sentiments and grain futures at Chicago have been under assault over the last few weeks.  This has been especially true since the August crop report.  As the yield reports came in last week from Profarmer, grain futures continued to tick down each day as the market gets more and more comfortable with a generally very big corn and bean crop on the horizon.  The other factor is the inability for China and the US to pound out a new trade agreement.  This trade dispute is really hurting our bean market as I have explained many times in the past.  It seems clear to me that nothing will get done until November or so, and by that time, our bean harvest will be over.  So the US will be forced to go through fall harvest with not being able to ship beans to China.  This will basically shut off all bean exports out of the PNW and force much of the bean production in the northern plains down into the St Louis market to hit the Mississippi River to be barged down to the Gulf.  As you might expect, this has pressured the bean basis at the Gulf, and has caused this basis to crash in the last 3 weeks.  The normal bean basis at the Gulf generally trades between +75 to +125 cents over the November Chicago bean futures.  With the Delta harvest already under way, and all of the PNW beans being forced to the gulf, and with no Chinese soy buying this harvest, this basis is now trading at +10 and it did hit +0 late last week.  This 50 cent drop in bean basis at the gulf is the reason why our local harvest bean basis is so weak, and it will likely get weaker before we start harvesting beans.  Without China buying our beans, these beans are being forced to the Gulf, into a market that really does not want them, and the market reaction is to press the basis lower.  Bean basis, spreads, and futures are all weak, and all of these will likely stay weak or get weaker until China starts buying our beans once again.  If this does not happen until our harvest is over, harvest bean basis could get very ugly.

How can you take advantage of this weaker than normal harvest bean basis?  Easy.  By not selling any more beans than you need to and store your excess beans in the bin vs your corn.  This is generally just the opposite that the farmer does.  There will be great demand for storage at the elevator and storage rates for soybeans will be very high as compared to a normal harvest.  The market is already offering huge carries in the bean market, and if you can keep your beans off the market in your own space, and sell them in March or later, you will be handsomely rewarded.  This is especially true if the US gets a trade deal worked out with China.  If and when this happens, this will instantly change the bean market.  Futures, basis, and spreads will instantly work higher, and all of this harvest weakness will vanish over night.  Without a trade deal, the bean market stays very ugly.

Corn is different.  The corn market is moving from a market of excess to a market of less surplus and more demand.  Last year’s ending stocks were 2.027 B bu and this year’s carry out is down to just 1.684 B bu.  The US has the cheapest corn in the world, and the current demand structure in corn remains stout.  There are no world tariff issues to deal with, and since Brazil and Argentina had drought’s to reduce their corn production, the world is coming to the US to buy corn.  This is allowing the corn basis to remain relatively firm, and it will likely allow spreads to not widen as much as compared to last year.  Gut slot corn basis will still probably get weaker, but it should snap back relatively quickly right after harvest.  I also get the sense that Chicago corn futures will not be pressured lower like beans will be.  The reduced carryout, the huge demand structure, and the world interest in US corn will keep corn futures supported.  Thus, the downside risk in corn is relatively limited.

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.

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 & New Corn – Dec 18 Corn Futures – Support at $3.50, Resistance at $3.66, Place Targets at $3.62

Cash & New Beans – Nov 18 Bean Futures – Support at $8.26, Resistance at $8.51, Place Targets at $8.42

Cash Wheat – Dec 18 Wheat Futures – Support at $5.18, Resistance at $5.49, Place Targets at $5.44

New Wheat – July 19 Wheat Futures – Support at $5.50, Resistance at $5.76, Place Targets at $5.71

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

Consider New Crop Basis Contracts To Protect Grain Values

Do you still own old corn or beans in the bin at home or on Delayed Price at the elevator?  Do you need cash flow now and want to stop the storage charges?  Maybe you want to protect new crop corn or bean values on bushels that you will deliver this fall.  Please consider a Basis Contract.  A basis contract is where you simply lock in the basis (the difference between the cash price at our elevators and level where corn is trading on futures at Chicago.)  Today, new corn at Readfield is trading at 47 cents under the December ’18 corn futures level.  In a basis contract, we would lock in this 47 cent basis level under the Dec futures, but leaving the futures portion unpriced.  You will then have a contract that will trail the Dec corn futures by 47 cents.  Most people will then give us a target to price the futures level to price the contract when corn futures rally 10 or 20 cents higher.  In the mean time, you can deliver against this contract if coming from the bin, or we will allow bushels on Delayed Price or Open Storage to be applied onto this contract with no charge.  Once the contract is filled, if you are paying storage, the storage stops immediately, and we can then advance you 70% of the contract value based on the current market.  The balance of the contract value will be paid to you once you set the final price on the contract.  This is a win-win for all parties.  You get cash flow now to pay bills, you stop the storage from accumulating, and you get to haul the bushels now when you have time.  This is a great alternative vs doing nothing.  On top of all of this, new crop basis levels on beans will likely get worse before they improve.  As basis contract will allow you to lock in this basis and prevent it from getting worse as harvest pressure builds.  This will help protect your bean values for this fall.  Please give us a call, and we can explain to you all of the details if you have any questions.

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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