Grain Update – November 29, 2018

11/29/18

Trump and China’s Xi Will Meet This Weekend.  Can A Deal Be Reached?  Harvest Nears Completion.

The big news as of late is that Trump will meet with China’s President Xi over the weekend in Buenos Aires at the G20 Summit.  As you can imagine, the grain industry is very hopeful that a deal can be reached with China at some point, so the 25% soybean tariff can be lifted.  Up to this point, each country has been standing staunchly behind their guns, but I get a sense that China may be in a position to finally negotiate.  The tariffs are hurting their economy and their bean processors are really getting squeezed.  On our side, we are suffering from a lack of their demand for our beans.  Beans are stacking up in a big way all across the Corn Belt, and bean basis levels in all areas are depressed by 25 to 50 cents depending on the area.  Nearby bean futures have rebounded significantly since the beginning of October, but the loss in basis has hurt the American farmer.

Unfortunately, the world is a competitive place, and when one trading relationship does not work, the market usually finds an alternative solution.  If the US and China can’t work out a trading solution rather quickly, other countries will step up and supply China with the beans that they need, permanently destroying our demand base.  We have seen Russia, in recent weeks, take steps to make selling big volumes of soybeans to China much easier and workable.  They would like nothing more than to supply China with beans.  We have also seen the Brazilian farmer be much more aggressive in planting early varieties of soybeans this year.  Instead of harvesting them on Feb 1st, some will be ready to cut a month earlier than normal.  Why? So they can supply China with more beans because they know China is not buying US beans, at least not yet.  The Brazilian bean crop has in fantastic shape.  The beans are nearly all planted and they have had adequate moisture.  A huge bean crop is on the horizon for them, if the weather holds.  This is a double wammy for the US.  Their large bean crop will continue to pressure bean futures, and they are directly taking away our demand base.  Not a good deal folks.  Stay tuned as the bean market is very volatile as of late.  Huge price swings can be caused by a simple tweet.  The results of the meeting will likely dominate the markets Sunday night and early next week.

Harvest is finally starting to wrap up in most areas of the Corn Belt.  The USDA pegged both corn and bean harvest at 94% complete in the nation.  There are some pockets that still have corn and beans let, but this is the exception.  These crops will not sit until we get consistent cold and dry weather to freeze the fields with little snow to slow down harvesting.  We will see on Dec 11th what the USDA pegs the corn and bean yields at.  I would not be surprised if the yield could be slightly reduced on both again.  Beans suffered heavy shatter loss and the tops of the plant broke off due to excessive rains on a mature plant.  Additionally, many areas suffered corn yield loss due to extreme dryness or too much rain in June.  The USDA will peg the final yield in its January report.

Its not too early to start thinking about protecting next years corn production.  Nobody likes the current cash bean price.  As discussed above, the lack of China bean demand has caused the bean prices this year to be relatively weak.  Thus, most US farmers will likely plant more corn next year.  My guess is that we could plant at least 92.5 M corn acres next year, and if the weather cooperates during April, we could see as much as 95 M corn acres planted next year.  What do you think this will do to Dec ’19 corn futures?  Once we pass the 50% mark on corn planting in early May, watch out.  The market will likely suck the risk premium out of the market at press futures lower, and possibly significantly so, into harvest next fall.  Dec ’19 corn futures are currently trading at $3.95 and the chart shows significant resistance around the $4.08 level.  Personally, I would have targets in to sell Dec ’19 corn futures at $4.00 and sell at least 10% of next years production every nickel higher.  I believe it will be very difficult for Dec ’19 corn futures to rally higher than $4.25, assuming normal weather and planting.  Obviously, if the crop does not get planted, or we have a drought, all bets are off.

Corn basis has already started to strengthen in many areas of the Corn Belt.  The delayed harvest has caused the processor to firm up quicker than normal, and now that harvest is complete in many areas, and the bin door is slammed shut, the basis will be forced to do more of the heavy lifting.  Corn basis should work firmer in the coming days and months as the processor and feed demand picks up.

Bean basis is different.  It has been soft all year, and this will likely not change anytime soon.  That being said, very little beans are moving now, so the processor has been firming his bids too stimulate movement.  But will we get back to historical basis levels this year?  Doubtful.  Also, we are looking a having a huge amount of bean ending stocks this year.  When is the last time we have carried over 1.2 B bu of beans?  I don’t think its ever been this large.  This will pressure futures, basis, and spreads all year long.  That being said, if the US and China can work out an agreement of the weekend, this would have a dramatic effect on the bean market.  Futures, basis, and spreads would all instantaneously strengthen, but after all of the market gyrations, we will still be carrying over 1.2 B bu of beans.  No matter how you slice it, this is still a big pile of beans.  To see where the cash grain prices are today, please click here.  To talk to one of our grain originators about a contract, or to schedule an appointment for one of us to visit you at your farm, please click here.

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 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 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 8th, 2018.

Recommendations For Corn & Bean Meal Consumers (Livestock Producers)

The corn market broke lower over the last week and many took this opportunity to lock in their corn needs for the next several months.  The corn basis has been relatively firm in many areas, and will likely remain so.  If you need to buy corn, especially if we see corn futures continue to drop, sooner is better than later.  The price of bean meal has been sliding lower in recent weeks, and the chart looks to be wedging to the down side.  This tells me that there is a decent chance that bean meal will move lower in the near future.  Jan ’19 bean meal futures have bounced off of the $303 level 4 times in the last few months and is currently trading at $309.  If we can break down through the $303 level, it will likely break hard to the down side.  I would be patient buying bean meal, buying only hand to mouth, until the market gives us further direction.

Cash Corn – March 19 Corn Futures – Support at $3.56, Resistance at $3.75, Place Targets at $3.60

Cash Bean Meal – Jan 19 Meal Futures – Support at $303, Resistance at $312, Place Targets at $305

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 $3.75, Place Targets at $3.74

New Corn – Dec 19 Corn Futures – Support at $3.91, Resistance at $4.05, Place Targets at $4.00

Cash Beans – Jan 19 Bean Futures – Support at $8.56, Resistance at $9.00, Place Targets at $8.95

New Beans – Nov 19 Bean Futures – Support at $9.10, Resistance at $9.50, Place Targets at $9.40

New Wheat – July 19 Wheat Futures – Support at $5.17, Resistance at $5.48, Place Targets at $5.42

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

Still Own Old Beans?  The Cash Price Still Not Good Enough?  Cash Plus Is The Answer

We are currently bidding $7.85 for cash beans and $8.24 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 29 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 $9.70 level if on October 23rd 2019, the price of November soybean futures closes at or above the $9.70 level.  This is a win-win for you.  You will be paid a 29 cent premium now on your cash beans.  If on October 23rd , November bean futures close at or above $9.70, you will have the same quantity of beans sold at $9.70 futures, less the basis of 110 cents under November (this could vary slightly), equals a new crop bean contract at $8.60 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a good price considering our posted new crop bean bid is $8.27 and represents a 33 cent premium over our posted new crop bid.  If on Oct 23rd , November bean futures close lower than $9.70, then you keep your 29 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.

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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