Grain Update – November 8, 2018

 

11/8/18

USDA To Release Monthly Grain Report On 11/8/18

The USDA will release its monthly grain report on Thursday, November 8, at 11 am CST.  The market is expecting the corn yield to be reduced by 1-2 bushels down to 180 or so.  As harvest has moved north, many of the areas in the northern corn belt were forced to deal with flooding conditions in June.  This has caused more yield variance than normal, and it has also caused vomitoxin levels to rise in some of these flooded areas as well.  We have also seen some lower test weights in corn than previously thought.  Lower test weights lower the bushel per acre yield as well, and also affect corn quality.  We have seen some major hog producers in western Iowa now raise concerns about the lower quality corn with higher vomitoxin levels.  With this new threat, they may now be forced to buy their corn from another region to secure better quality corn so their feed ration quality does not deteriorate.

On beans, we continue to see really good yields.  However, many farmers are telling us that with the abnormally wet weather in October, that harvest loss on beans is much higher than normal.  As the combines harvest beans still left in the field, the pods are busting open before they can be brought into the combine.  Shatter loss is much higher than normal this year.  Some reports out of western Iowa indicate that this shatter loss is high as 10 bushels per acre.  The beans are yielding very well, but if the beans can’t be harvested and are still laying on top of the ground after being cut, it does not matter.  It will be interesting to see how the USDA deals with this today.

The other factor that the USDA must deal with is the lack of bean exports to China.  Last month, the USDA did not reduce bean exports, and still had them pegged at 2.06 B bu.  With China being absent this year, this bean export number is much too high, and the USDA will likely cut 100 -200 M bu off of this export number today.  Unfortunately, this cut will likely go right to the bottom line on the bean complex and this will likely push ‘18/19 bean ending stocks from 885 M bu carryout to something much closer to 1.0 B bu carryout.  And unfortunately, if this happens, this will likely pressure bean futures lower for the coming days.

Speaking of exports, the market will also be looking at corn exports as well.  At the beginning of harvest, corn exports were on fire and corn demand was very solid. However, in recent weeks, we have seen corn exports be dramatically reduced, and this is starting to cause concern for the market.  On top of this, we have seen the profitability levels for ethanol producers drop considerably in the last month.  Currently, ethanol margins are now deeply in the red.  This is causing a significant demand component of the corn market be under stress and not aggressive in buying corn to produce ethanol.  Much of this loss in ethanol margin stems from the lower price of crude oil which is in direct competition for motor fuels.  If the corn market is now forced to deal with reduced demand from ethanol and reduced demand from exports, the corn ending stocks could grow as well in the coming months.  However, I don’t see a big change today, as the corn ending stocks today should stay close to 1.8 B bu.  If the corn carryout approaches 2.0 B bu in the coming months, this will put a lid on corn gains.

The other factor to consider is the acreage for the coming year.  With the bean price substantially lower than in past years, we can build a case that the US farmer will plant much more corn in the spring of 2019 as compared to last year.  This past year, we planted 89 M acres of corn in the US.  Next year, I would not be surprised if final corn acres climb to 94 – 95 M acres as the farmer does not like the lower futures price or the substantially wider basis for new crop ’19 soybeans.  In the end, this will lower the price for new crop ’19 corn and the farmer will need to be much more proactive in locking in ‘19/20 corn sales than in the past.  Dec ’19 corn futures are currently trading at $4.04 at Chicago.  Looking at the charts, it looks to me that we see substantial resistance at the $4.15 level and at $4.25 level.  There are many things that can affect this market in the months ahead, but generally speaking if we can see and opportunity to sell Dec ’19 corn futures between $4.15 and $4.25, I believe you need to very seriously consider locking in a significant portion of the corn pricing need and remove this risk from your business.  Fortunately, there is an entire year before these prices become effective.  This means that the call premiums are nice and fluffy as the time values are large and ripe for selling.  We can sell calls against these futures contracts to add 10-15 cents extra premium to help add extra margin to your operation.  The easiest way to do this is with our Cash Plus contracts.  Please see below.  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.

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 Corn – Dec 18 Corn Futures – Support at $3.60, Resistance at $3.78, Place Targets at $3.75

New Corn – Dec 19 Corn Futures – Support at $3.96, Resistance at $4.08, Place Targets at $4.05

Cash Beans – Jan 19 Bean Futures – Support at $8.44, Resistance at $9.00, Place Targets at $8.90

New Beans – Nov 19 Bean Futures – Support at $8.97, Resistance at $9.43, Place Targets at $9.35

New Wheat – July 19 Wheat Futures – Support at $5.26, Resistance at $5.62, Place Targets at $5.55

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 $7.72 for cash beans and $8.21 for Oct / Nov ’19 beans delivered into Readfield or Center Valley.  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 26 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 bean futures at the $9.80 level if on October 23rd 2019 the price of November 2019 soybean futures closes at or above the $9.80 level.  This is a win-win for you.  You will be paid a 26 cents premium now on your cash beans.  If on October 23rd, November 2019 bean futures close at or above $9.80, you will have the same quantity of beans sold at $9.80 futures, less the basis of 110 cents under November (this could vary slightly), equals a new crop bean contract at $8.70 for Oct / Nov ’19 delivery into Readfield or Center Valley.  This is a very good price considering our posted new crop bean bid is $8.21 and represents a 49 cent premium over our posted new crop bid.  If on Oct 23rd 2019, November bean futures close lower than $9.80, then you keep your 26 cent cash premium, and have no other obligation.  This contract has been very popular as of late, and if you still own old beans, you should seriously consider it.

CHS ProAdvantage Signups Continue Until Dec 8th

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.

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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