Grain Update – March 2019

USDA Report was a Non-Event

The USDA released its March crop report last Friday which turned out to be mostly anticipated by the market, and it did not send shock waves through the industry.  There was a slight surprise in corn as ending stocks did rise more than expected.  Let’s look at the details.

In the corn market, the USDA did reduce corn used in the production of ethanol by 25 M bu down to 5.55 B bu.  The ethanol industry has been plagued with very slim margins over the last 6 months and this has caused the industry to slow their grind.  The USDA also reduced corn exports by 75 M bu down to 2.375 B bu.  The big crop of corn being grown in Brazil and Argentina today is cheaper than the corn that can be purchased from the US.  China is buying their corn and not ours, and this is weighing on exports.  When the dust settled, corn ending stocks for this year grew by 100 M bu from 1.735 B bu to 1.835 B bu.  This change was not expected by the market and this helped to press the market lower after the report.

On beans, the USDA made small tweaks to the supply and demand table.  The only change was an increase in bean crush by 10 M bu to 2.1 B bu.  Bean crush margins have been and continue to be stronger than normal this year.  This helps explain why crush rates continue to be strong.  Amazingly, the USDA made no adjustment to bean exports at 1.875 B bu.  Comparing last year to this year, the Chinese have purchased 639 M bu less beans this year due to the tariff war.  Yet, when you compare the bean exports from last year of 2.129 B bu to the 1.875 B bu this year, this is only a reduction of 254 M bu.  What about the other 385 M bu?  Maybe the Chinese will come and buy more beans, but the window of opportunity is quickly slamming shut.  It might be possible for another 85 M bu to be sold.  If this happens, the end result of 300 M bu beans from less exports this year will push the final bean export number down to 1.575 M bu and this same 300 M bu will fall right into the ending stock number, and raising it to 1.2 B bu.  This is likely where the ending stock number will grow to and this helps explain why the market did not rally on Friday even though the ending stock number posted was actually reduced by 10 M bu down to 900 M bu.  The market simply does not believe the current export number.

We have heard time and time and time again that the Chinese will come and buy massive amounts of beans from the US.  Obviously, the Trump administration and the Chinese government are continuing to work on a new trade deal.  Trump decided not to increase the tariffs on $200 B of Chinese products from 10% to 25% on March 1st when no agreement was made.  He did not want to disrupt the momentum in the current negotiations.  The best guess today is that a new deal between the US and China will not occur until sometime in April.  In the mean-time, traders are tired of taking positions in anticipation of these Chinese purchases until they actually happen.  They are tired of being hood winked and loosing money when the Chinese purchases don’t develop.  Initially, the bean market popped up at every single new tweet or new headline.  Today, the market is ignoring these false signals and is only rallying when actual bean sales are published.  As of late, the bean market could not even do this as the amount of beans actually purchased are only a fraction of what was promised several weeks ago.

In addition to the loss of bean sales to China, there are two other factors that are pressing the market as of late.  The first is much improving weather in South America.  The second is a massive short position taken in the corn and bean markets by the funds.  Let’s examine these issues.

Northern areas of Brazil had been very dry going back 2 months ago.  Since that time, Brazil’s weather has stabilized, and northern Brazil has received nice rains over the last few weeks.  Argentina did suffer from excessive water in the early growing season, but less rains have fallen as of late.  The end result is that both the corn and bean production in both Argentina and Brazil have stabilized and now are increasing in volume.  Looking at total South American bean production, the current crop is pegged at 181.6 MMT (6.67 B bu) as compared to 171.2 MMT (6.29 B bu) last year.  As you can see, bean production is substantially higher this year, and bean shipped from Brazil or Argentina to China are considerably cheaper than the bean originated from the US going to China.  Also, the US produced 4.412 B bu of beans last year compared to their 6.29 B bu of beans.  South America is now the leading producer of soybeans and helps explain why our bean ending stocks have exploded higher in recent years.

Finally, the funds have a massive short position now in all grains.  In corn, the current estimate is that managed money is short approximately 200,000 contracts.  In beans, they are short approximately 75,000 contracts.  These are huge short positions and help explain why the market has been pressed significantly lower over the last 2 weeks.  The funds are nearing their record short position levels, so their continued selling will likely be limited.  However, anything is possible.  At some point, these funds will likely cover (buy back) their short positions due to a planting scare are a weather problem in the April – June timeframe.  Now is the time for all of you to put firm targets into our system to sell when the market pops back.  Additionally, the USDA will release their Perspective Planting report on March 29th.  This report will finalize the corn and bean acres for this growing season.  This report historically produces a very volatile market reaction and pushes the market based on the new production data.  This could be an opportunity for the funds to cover some of their short positions if acreage comes in significantly different than expectations.  I seriously recommend that all of you have target orders in place ahead of this report.  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.

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 Oct / Nov ’19 into our grain facilities.  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.  These contracts are a very good tool for you to use and they allow the co-op to sell fall trains ahead of the busy harvest period.  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.

Have You Sold New Beans Yet?  Make Values Even Better With Cash Plus Contracts

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 a 21 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 $9.55 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 21 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 on 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 $9.55 level.  Taking off the basis of 90 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 9.55 – 90 = $8.65   The worst case is that you would have another set of new beans sold at $8.65 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a decent price considering our posted new crop price is at $8.36 today.  Please check this out.  This is another excellent contract which puts more money in your pocket.  Please click here to see our current cash grain bids.

What Are The Charts Telling Us?

Looking at the charts today, all grains made a fresh high about a month ago.  Since then, we have been pulling back.  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 $3.61, Resistance at $3.75, Place Targets at $3.70

New Corn – Dec 19 Corn Futures – Support at $3.86, Resistance at $3.91, Place Targets at $3.91

Cash Beans – May 19 Bean Futures – Support at $8.89, Resistance at $9.07, Place Targets at $9.00

New Beans – Nov 19 Bean Futures – Support at $9.24, Resistance at $9.35, Place Targets at $9.32

New Wheat – July 19 Wheat Futures – Support at $4.36, Resistance at $4.60, Place Targets at $4.55

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

Take Advantage Of Selling Opportunities With Online Targets

Just prior or after the monthly USDA grain reports, volatility really ramps up in the grain markets.  This causes the futures levels to move around much more than during the rest of the month.  I encourage all of you who need to sell grain to use targets to take advantage of a pop in the market.  It is simply amazing what these markets can do in a very short amount of time.  There is simply no way we can communicate to all of you during a 15 minute rally that happens right during a crop report.  That is why targets work so well.  It allows you to have resting orders already in position at Chicago so when the market starts to gyrate, your orders get picked off and you can take advantage of a very nice pop in the market. Targets are a great tool to help you lock in better returns for your farming operation.  You can call us and we can enter them for you, or you can do it all by yourself by entering them online through our Online Bid Center by clicking here.

CHS Larsen Co-op To Host Grain Marketing Meetings

On April 3rd and 4th, we will be hosting 3 Grain Marketing Meetings throughout our draw area.  Meetings will be held in New London, Waupaca, and Larsen.  Brian Rydlund from CHS Hedging will be joining us to go over the current S&D’s and also offer his recommendations for contracting and marketing.  It will be a lively discussion on current grain topics.  You are welcome to attend.  For more information on the location, times, and how to RSVP, 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 – Grain Dept Manager

Leave a Reply

© 2019 CHS Inc.