Grain Update – February 13, 2019

After 2 Months, We Finally Get A USDA Report.  Unfortunately, It Does Not Change Much

The USDA was out with its monthly crop report last Friday for the Grain Industry.  The report was a rather large data dump as this report was the combination of the Jan ’19 and Feb ’19 monthly data.  The government shutdown prevented the USDA from releasing its January report on time.  Thus, Friday’s report gave us first quarter grain usage, winter wheat planted acreage, final numbers from the ‘17/18 crop, and the supply and demand and ending stocks update for the current month.  Since the grain trade was waiting on this information for 2 months, it was widely anticipated and projected to be a game changer.  In the end, it changed little and came back as mostly as expected with little market reaction.

In the corn market, the USDA reduced the corn yield by 2.5 bpa down to 176.4 which caused total corn production to drop 206 M bu down to 14.42 B bu.  This change was mostly as expected by the market, and already factored into futures.  On the demand side, the USDA reduced corn used for feed by 125 M bu down to 5.375 B bu.  This was not expected by the market.  We have a big increase in total livestock now consuming corn, so how can feed corn usage go down?  The USDA also reduced corn used for ethanol by 25 M bu and reduced corn used for seed by 15 M bu.  When the dust settled, the corn ending stocks for this crop year was reduced by 46 M bu down to 1.735 B bu.  As discussed, the market pretty much anticipated this yield cut and the resulting reduction in corn ending stocks.  Generally, a 2.0 B bu carryout puts the market into comfort mode, and a 1.5 B bu carryout starts to put the market on edge.  This level allows the market to remain at the status quo as if we look back through history, this type of carry over number is actually quite common. 

The market will be looking forward to how the South American corn crop develops and if Brazil’s corn crop will have its yield trimmed like its beans.  Additionally, the market is projecting US corn planting intentions around 92 M acres this spring.  Dec corn futures are hovering just above $4.00 today.  Corn acres could get a bump if Dec corn rallies upwards close to the $4.25 level.

On beans, the market is a bit different.  It is currently being pushed around by the latest tweet, and the most recent headlines coming out of the US / China negotiations as the teams aggressively try and end the tariff war prior to the March 1st deadline.  If no agreement is made between the US and China by March 1st, the 10% US tariffs on China’s goods that we buy will increase from 10% to 25%.  This is a huge deal to the Chinese because they hate these tariffs, but it is the major item that is forcing China to be honest and negotiate with the US.  In the end, it will be Trump who will make the final decision to extend the March 1st deadline if no deal is made, but significant progress has / is occurring.

China is now done with buying beans from the US and from this point forward, they will buy all of their beans from South America as their beans are the cheapest in the world and both Argentina and Brazil are in major harvest mode today.  Argentina’s bean crop is just massive, but the Brazilian bean crop has been trimmed down to the 115 MMT level or so due to dry weather.  In the last week, Brazil has received more rain and Argentina received less rain which is benefitting both countries.  Thus, we could see the bean yields improve on both as we move forward.

Nearby, the bean market is in a tug-of-war between the big optimism of a new China trade deal, and the yield reducing weather in Brazil.  The fact is that neither will affect the outcome of this year’s world bean carryout that much.  The world has a huge cushion of excess beans, and once the Brazilian crop gets harvested, and the market sees that their volume is still quite substantial, and once the US gets its bean acres planted and emerged, I believe we could see a major reduction in bean prices going forward.  The US bean carryout is between 900 M and 1.0 B bu and could grow substantially going forward depending on final bean acres and planting weather.  Nov ’19 bean futures above $9.50 is a gift and should be sold by the farmer.  We have beans tucked away in many areas of the Corn Belt this year as the farmer hated the wide basis levels this past fall.  One can build a case where we have back to back bean harvests in late summer as the farmer cleans out his bins just before fall harvest to make room for new crop.  This will likely pressure futures and basis lower to significantly lower once the new crop acres emerge.

Let’s look at the USDA report from Friday.  The USDA reduced the bean yield by 0.5 bpa down to 51.6 bpa which lowered the final bean production number by 56 M bu down to 4.544 B bu.  The USDA also increased beans used for crush by 10 M bu, but lowered bean exports by 25 M bu down to 1.875 B bu.  With the lack of Chinese bean buying, the bean export number is still vastly overstated, and I can see bean exports being trimmed by at least another 100 M bu by the end of the crop year.  When the dust settled, the final bean carryout was trimmed by 45 M bu down to 910 M bu.  Yes, the bean carryout was reduced, but we are still looking at over 900 M bu which is a huge number!  To give you some historical background, the US bean carryout has never been over 1.0 B bu.  Going back to 1975, the biggest bean carryout prior to this year was in 2007 when final bean carry out was only 573 M bu.  Our current bean carryout is almost double this and looks to grow once exports come down.

If you do not like the basis, sell beans on an HTA contract and set basis later. However, the posted basis today could very well be the best basis of the year, only to widen out considerably as we get closer to harvest.  If you plan on growing soybeans on your farm this summer, and if you don’t have them sold yet, I strongly suggest you do this now.  I have no problem getting at least 50% of these beans protected in some way.  If you don’t like the cash price, and you don’t want to sell beans on an HTA, another option is to use our cash plus contract where you can generate an additional 25 cents today in exchange for a new crop offer.  Please see below for more details.  This is a great tool, and many customers are using it.

If you would like to place a target to sell grain, you can either call us or place your own target on our Online Target Offer system.  It is easy, free, and an awesome way for you to protect your farm.  Please click here for more information.  If you would like to talk to one of our grain originators or make an appointment for one of them to meet with you on the farm, please click here.

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

We are currently bidding $8.20 for cash beans and $8.70 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 24 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 $9.90 level if on October 23rd 2019, the price of November soybean futures closes at or above the $9.90 level.  This is a win-win for you.  You will be paid a 24 cent premium now on your cash beans.  If on October 23rd , November bean futures close at or above $9.90, you will have the same quantity of beans sold at $9.90 futures, less the basis of 90 cents under November (this could vary slightly), equals a new crop bean contract at $9.00 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a good price considering our posted new crop bean bid is $8.70 and represents a 30 cent premium over our posted new crop bid.  If on Oct 23rd , November bean futures close lower than $9.90, then you keep your 24 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 yesterday with the China enthusiasm, and this has pushed bean meal higher as well.  Corn futures ramped higher yesterday, and corn basis is firming.  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 $3.67, Resistance at $3.88, Place Targets at $3.71

Cash Bean Meal – March 19 Meal Futures – Support at $303, Resistance at $325, Place Targets at $308

Sign Up NOW For New Average Price Contracts

We are again offering an average price contract this year for new crop delivery.  The new crop contract will be for corn or beans for Oct / Nov ’18 delivery into any of our facilities.  The contract 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 through 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.

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 $3.67, Resistance at $3.88, Place Targets at $3.83

New Corn – Dec 19 Corn Futures – Support at $3.91, Resistance at $4.08, Place Targets at $4.03

Cash Beans – Mar 19 Bean Futures – Support at $8.80, Resistance at $9.41, Place Targets at $9.31

New Beans – Nov 19 Bean Futures – Support at $9.23, Resistance at $9.71, Place Targets at $9.65

New Wheat – July 19 Wheat Futures – Support at $5.17, Resistance at $5.50, Place Targets at $5.40

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

February Results For CHS ProAdvantage Contracts

For those of you who have placed bushels in the CHS ProAdvantage program, we have the updated pricing results for February.  Again, ProAdvantage is our fully managed contracts that we offered during December for patrons who wanted a completely “hands off” approach to grain marketing.  You simply gave the trading professionals at CHS a portion of your production for next harvest, and they take care of the rest.  Behind the scenes they are aggressively buying and selling complex futures and options positions to generate as much profit as possible on your bushels by the end of the program.  The goal is to give you the highest possible futures price at the end of the program as possible by using trading techniques and options that typically are not available to the individual farmer.  The signup period is obviously over.  However, we can see each month how they are progressing, and look at their current values as they trade through the period.  We can also see the percentage of the crop they have sold, which gives you a clue to how bullish or bearish they are.  For those of you enrolled in the program, and you did not receive the results yet, here they are.  This is an interesting read.  Don’t worry if you don’t completely understand all of the information.  If you have any questions about anything, and you want help, please call me and I will explain it to you.  Please click here to see the Feb results.

As always, if I can help you with anything, please call me at the main office in New London at 419-279-3809 or send me an email at marcus.cordonnier@chsinc.com.

Marcus Cordonnier

Leave a Reply

© 2019 CHS Inc.