Grain Update – December 13, 2018

12/13/18

USDA Released Its December Crop Report.  China Buys 30 Bean Cargos, Finally…

The USDA released is December crop report on Tuesday and really did not change much from November. Corn carryout did increase, but bean carryout remained the same.  Let’s look at the numbers.

For the ’18/’19 crop year, the USDA dropped corn used for ethanol by 50 M bu down to 5.6 B bu. They also lowered the amount of corn imported into the US by 5 M bu down to 45 M bu.  When the dust settled, the USDA raised corn carryout by 45 M bu to 1.781 B bu.  The cut in ethanol usage was not a surprise to the market as their margins have been negative for some time.  Each week it seems like there is another ethanol plant being moth-balled because the industry is not profitable right now, so the higher cost operations are being shut down. A 1.781 B bu carryout is tighter than last year’s numbers, but it will be interesting to see how the higher priced corn will affect feed demand incoming weeks, as lower priced corn from South America will be coming on line in March.

As harvest ends in the US, the corn basis levels have moved higher.  This is most noticeable in the southern Corn Belt where harvest has been over for quite some time.  Basis levels there have been stronger than normal for some time to try to stimulate movement.  The recent run up in corn futures has allowed the basis to back off slightly, but the farmer still is in no mood to deliver big quantities of corn yet, especially with the questions with China and how much they will buy of Ag commodities going forward.  China will focus on beans, but if they buy beans, the market should react positively, which will affect corn futures as well.

The USDA did not change one item in the bean complex on their December crop report.  This is odd as the market feels confident that bean exports need to be reduced at some point even if China starts buying now. Bean exports are currently pegged at 1.9 B bu, and probably in January they will start to get trimmed back.  In the meantime, the USDA probably wants to give China some time to see what they will do.  Yesterday, their state-owned grain company SinoGrain purchased 30 bean cargos of US beans mainly from the PNW.  This is roughly 42 M bu or so.  Will they buy more?  Time will tell.  However, we finally have them buying our beans and the northern plains finally have a market for their bean crop.  Brazil is just about out of beans, but they have a huge crop on the horizon.  This crop is at least 30 days earlier than normal, and Brazil’s weather so far has been just about perfect.  Even though China purchased beans yesterday, the window will close rapidly on the amount of beans they will buy from us for the balance of the year as Brazil will have a huge quantity available to them in roughly 30 days at a cheaper price.

The USDA left bean carryout at 955 M bu.  I don’t see how this bean carryout number can shrink much if any over the coming weeks. Frankly, I think there is a bigger chance that bean carryout will grow to over 1 B bu, and there is no doubt this would have happened if China did not step in yesterday and buy some beans. Now, the real question is how many more will they buy before going back to Brazil?  Yesterday’s buying from China has caused the bean basis at the Gulf and PNW to firm quite noticeably and will cause the basis in Brazil to weaken substantially.  The market’s role now is to get us back to a neutral market between the US and Brazil and unwind the premiums it placed on Brazilian beans over the last 6 months. In the US, the bean basis ought to start to firm.  However, we are still carrying out nearly 1 B bu of beans which is a huge quantity, possibly the biggest ever for the US.  This will likely weigh on the bean basis for the balance of the crop year unless China really ramps up its US buying program.  Time will tell, but China holds the cards at the moment.

We have seen a nice run up in the price of beans over the last 2 weeks as the market gets excited about China returning as a bean buyer.  I would recommend that all producers take a good look at the bids for new beans for next fall.  Nov ’19 bean futures at Chicago are now trading at $9.65 and have rallied over 50 cents in the last 2 weeks.  You need to seriously look at this opportunity and start to lock in bean production for next year.  The bean basis has firmed in the last 2 weeks, but if you still don’t like the basis, lock in the futures using an HTA contract.  The HTA contract will allow you to sell futures now, and then come back and set the basis at a later time.  However, there are fees involved for an HTA contract as the co-op will be covering the margin calls that you would pay if you sold futures in your own hedge account. Also, now is a great time to use our Cash plus contracts as it will pay you a big premium now in exchange for a new crop offer.  The calls for new beans next year are nice and fluffy and a great time to sell them and put these premiums in your pocket.  I will describe in detail below.  If you would like to arrange an appointment to meet with one of our grain originators to develop a custom marketing plan for you, please click here.  We would be glad to meet with you to help you with this process.  To see our current cash bids, please click here.

Do You Want a Premium for your Beans?  Cash Plus Is The Answer.

We are currently bidding $8.12 for cash beans and $8.61 for Oct / Nov ’19 beans delivered into Readfield. If this level is still not enough to satisfy you cash flow demands, you should consider our Cash Plus Contract. This contract will allow you to receive a 21 cent premium over the cash bid, and paid to you today.  In exchange for this premium, you will give us an offer to sell the same quantity of new crop November ’19 bean futures at the $10.10 level if on October 23, 2019,the price of November soybean futures closes at or above the $10.10 level.  This is a win-win for you.  You will be paid a 21 cent premium now on your cash beans.  If on October 23, November bean futures close at or above $10.10, you will have the same quantity of beans sold at $10.10 futures, less the basis of 95 cents under November (this could vary slightly), equals a new crop bean contract at $9.15 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a good price considering our posted new crop bean bid is $8.61 and represents a 54 cent premium over our posted new crop bid.  If on Oct 23rd ,November bean futures close lower than $10.10, then you keep your 21 cent cash premium, and have no other obligation. This contract has been popular as of late, and if you still own old beans, you should seriously consider it.

Recommendations For Corn & Bean Meal Consumers (Livestock Producers)

The bean market has ramped up over the last 2 weeks with the China enthusiasm, and this has pushed bean meal higher as well.  We have not seen the incredible gains in the corn market either, but corn basis is firming, and the corn market slowly trades higher in the meantime.  At some point, this enthusiasm will cool and the marker will reset lower.  This will be the time for you to lock in corn and bean meal for your livestock.  Here are my recommendations for coverage.  To see where futures are currently trading, please click here.

Cash Corn – March 19 Corn Futures – Support at $3.78, Resistance at $3.95, Place Targets at $3.83

Cash Bean Meal – Jan 19 Meal Futures – Support at $305, Resistance at $319, Place Targets at $310

LAST CALL – CHS ProAdvantage Contracts.

We are again offering the CHS ProAdvantage grain contract this year.  This contract is a very simple approach to allowing our trading professionals at CHS to market your grain for you.  Basically, you will handover 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 4 years and the results have been quite solid.  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 bushels in your bin, you can enroll in a contract for July 2019 delivery. For next year’s production, you can enroll in a Fall of 2019 delivery,and we also have Fall of 2020 delivery contracts as well.  The cost is 10 cents per bushel for the July 2019 or Fall 2019 contracts, and 12 cents per bushel for the Fall 2020 contracts.  The Fall 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 ProAdvantage 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.  Enrollment ends December 14th,This Friday.

What Are The Charts Telling Us?  Recommendations For Grain Producers.

Here are the support and resistance levels for cash and new crop grains.  These are all futures levels as traded at Chicago:

Cash Corn – Mar 19 Corn Futures – Support at $3.78, Resistance at $3.95, Place Targets at $3.90

New Corn – Dec 19 Corn Futures – Support at $3.99, Resistance at $4.06, Place Targets at $4.03

Cash Beans – Jan 19 Bean Futures – Support at $8.86, Resistance at $9.32, Place Targets at $9.22

New Beans – Nov 19 Bean Futures – Support at $9.42, Resistance at $9.71, Place Targets at $9.65

New Wheat – July 19 Wheat Futures – Support at $5.21, Resistance at $5.62, Place Targets at $5.50

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 New London at 419-279-3809 or send me an email at marcus.cordonnier@chsinc.com.

Marcus Cordonnier

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