9-6-19

September WASDE report will be released on the 12th

Pres. Trump’s “giant biofuel package” will reportedly be a 5% or 1 billion gallon increase in the overall mandate.  The proposed mandate for 2020 is 20.04 billion gallons.  Ethanol and advanced biofuel would each be raised 500 million gallons.  For corn, that equates to about 175 million bushels of additional corn grind.  Doesn’t help cut the carryout much if true.

Weekly export sales were poor for corn and wheat, good for beans, neutral for products.  Looks like we’ll miss the 18/19 export target for corn while beans will exceed it slightly.   

US tariffs on Chinese goods did take effect on September 1.

Nothing significantly new on the trade war. Talks are supposed to resume in Washington in October with some lower level phone conversations taking place before then.

CZ first support at 356 ½, then 350 and 335 ½; first resistance at 365, then around 378-380.  Contract low is 356 ½.
SX support at 858 ¼, then 852 ½; first resistance 880-883, then 889-890.
WZ support at 450 ½, then 442 ¼; resistance at 468 ½, then 474.

The weather remains cool across the Midwest and the market is aware we need some heat to finish the crop.  A saving grace is the absence of a killing frost in the near-term forecasts. 

Tuesday’s crop progress:
Corn conditions improved 1% to 58% good/excellent vs. 67% last year
Corn maturity was 6% vs. 13% on average
Corn was 41% dented vs. 63% on average
Corn was 81% in the dough stage vs. 93% on average
Soybean conditions were steady at 55% good/excellent and 66% last year
Soybeans 86% setting pods vs. 96% on average. That means about 11 million acres haven’t set pods
Soybeans 96% blooming vs. 100% on average
Spring wheat conditions fell 2% to 67% good/excellent
Spring wheat harvest is 55% complete vs. 86% last year and 78% on average

Weather and politics will stay in the forefront of news items until the WASDE report.  We know the crop needs time and cooperative weather to get to the finish line.  At these levels, it doesn’t feel like the market has factored in much of a weather premium.  As for politics, traders are tired of all talk and no action.  Funds are carrying a mediocre net short position and don’t seem in any hurry to move much in either direction.  Traders want definitive action on the trade war with China to get excited, so we’ll watch and wait.

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6-14-19

Up, up, and away we go. Another week comes to a close but not after going for a great ride. Strong price advances hit the market this week upon an extremely favorable WASDE report, of which production and yield saw significant reductions. They slashed the projected yield forecast 10 BPA to 166 BPA.  This was well below the 172.4 BPA trade estimate and an unprecedented change for this report.  Planted acreage was cut 3 million acres to 89.8 million acres, again a bold move for the USDA to make on this report.  But again, this year is unlike any other year with record slow planting and wet conditions. As a result, both July and December corn jumped to new contract highs coming in at $4.5725 and $4.65 respectively, with grains of $.3725 and $.2975 for the week. In addition to a bullish WASDE, weather and development concerns continue to provide support, along with news of the 5% tariff on Mexican imports coming to a halt. Reportedly, President Trump was satisfied with Mexico’s move to stem illegal immigrants that flow across the border. Taking a look into the soybean market, the WASDE report was not outright bullish for soybeans, but uncertainty over how the next few weeks’ weather plays out and strength in corn supported prices.  July and November soybeans each skyrocketed 40 ½ cents higher this week to close at $8.96 ¾ and $9.23 ½ per bushel respectively.

July soybeans: now targeting the 200-day MA at 906 ½, then 925 ¾ - 931 ½. Next support at 864 ½, then 853 before the gap from 831 ½ - 837 ½.   The contract low is 791.  The contract high is 1050. November soybeans: closed above the 200-day MA, putting next resistance at 940 ¼.  Support at 888, then the gap from 858 – 864 ½, then 843.  The contract low is 815 ½. The contract high is 1015.

July corn: . New contract high at 457 ¼.  Next resistance 469 and beyond.  First support at 424 ¼, then the 404 ¾ - 407 gap.  The contract low is 343.

December corn: New contract high at 465. Next resistance 479, but no real reason it will stop there.  Short term support at 442, with longer term support at the 420 - 422 ½ gap.

Funds are now estimated to be net long 127.3K corn, net short 90.4K soybeans, and net short 3.4K Chicago wheat.

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The months end brought an interesting mix of weather concerns, delayed planting, price surges, as well as some political turmoil. Looking at how markets have responded, we continued to see bullish trends earlier last week, adding to the momentum gained from the challenges weather has brought to the U.S. Although we saw rain in some areas over the weekend, there were drier areas that gave opportunity for producers to plant what they could manage. Corn planting is estimated at 67%-68% complete for today’s report and soybean planting at 37%-39% complete with some estimates as low as 32% and as high as 43%.  Average corn planting for this date is 97% complete and average bean planting is 79% complete.

The shortened week still gave a push on price, closing up higher on both Corn and Soybeans for the week, with Corn claiming its highest traded level since June of 2016, capturing the largest rally over the past 2 years. Price changes from last Friday (May 24th) through Thursday’s (30th)  close: CN up 32 cents, CZ up 32 ½, SN up 59 ¼, SX up 59 ¼, SMN up 26.90, BON up 77, WN up 25, KWN up 37, and MWN up 15 ½ cents. COT report, as of May 28th, showed funds were still net short 25,000 corn, but as of Friday they were estimated to be net long 32,200 corn contracts.  For soybeans, as of May 28th they were net short 134,900 but as of Friday they were estimated net short 101,000 contracts.

On Thursday, Trump announced he would impose a 5% tariff, effective June 10th, on all goods from Mexico until its leaders took unspecified steps to avoid illegal immigration to the U.S. Trump tweeted, “The Tariff will gradually increase until the Illegal immigration problem is remedied…at which time the Tariffs will be removed. Details from the White House to follow.” Details revealed the tariffs could bump up to as high as 25% by October, which is of concern seeing as Mexico imports nearly 25% of our annual U.S corn crop directly affecting our corn demand.

Conversely, Trump also announced the uplifting of restrictions on sales of higher ethanol blends in gasoline, which will allow gas stations to sell 15% corn-based ethanol gas called E15 (previously restricted to 10%). “We estimate this one change will generate over a billion new gallons of ethanol demand in the next five years," said Emily Skor, chief executive of biofuel trade group Growth Energy, adding it could also boost the market for American grain by some 2 billion bushels over time.  This is considered to be a win for the U.S farm lobby, which has argued that the Obama-era restrictions hurt growers by limiting demand for corn based fuel.

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Stressful, burdensome, challenging, unfortunate. All words that have been used to describe the type of Spring planting season we have been facing. We’ve all heard the saying, “when the going gets tough, the tough gets going”, which is a great mantra for all involved in the challenges we are facing in Agriculture this year. Even though Mother Nature has provided conditions far less than desirable, there are still some positives to consider through this time. 

Taking a technical look at how the markets have been reacting, we have been fortunate to see a string of 8 consecutive higher closes in corn gaining a total of $0.38 during that rally which still has some upside potential. We received support from the uncertainty of weather conditions, delayed planting, and the estimation of lost corn acres due to prevent plant action.

July corn: First support at the 200-day MA at 386 ½, then 381.  Next resistance at 400.  The contract high is 445, the contract low 343.

December corn: first support at 400, then the 200-day MA at 396 ½.  Resistance at 423 ¾ - 424.  The contract low is 363 ¾.  The contract high is 424.

July soybeans: first support 820, then 802 ½. Resistance at the 20-day MA at 833, then 848 ¼, before around 875-885.  The contract low is 791.  The contract high is 1050.

November soybeans: First support at 846, then 827 ½. Resistance at 872 ¼, then 871 ½, then mostly air until 898.  The contract low is 815 ½. The contract high is 1015.

Funds are estimated to be net short 182K corn contracts, short 54.4K Chicago wheat contracts, and short 155.8K soybean contracts.

A USDA news release today revealed that U.S Secretary of Agriculture Sonny Perdue confirmed the U.S Department of Agriculture will take several actions to assist farmers in response to trade damage from unjustified retaliation and trade disruption. The USDA has constructed the following programs to assist farmers:

USDA’s 2019 Market Facilitation Program (MFP) authorized under the Commodity Credit Corp (CCC) Charter Act and administered by the FSA, will provide $14.5 billion in direct payments to producers. Producer payments will be received based on a single county rate multiplied by a farm’s total plantings to those crops in aggregate in 2019. These per acre payments are not dependent on which of those crops are planted in 2019, and therefor will not distort planting decisions.

CCC Charter Act authority will be used to implement a $1.4 billion Food Purchase & Distribution Program (FPDP) through the Agricultural Marketing Service (AMS) to purchase surplus commodities affected by trade retaliation for distribution to food banks, schools, and other outlets serving low-income individuals.

Finally, the CCC Charter Act authority will use $100 million to be issued through the Agricultural Trade Promotion Program (ATP) administered by the Foreign Agriculture Service (FAS) to assist in developing new export markets on behalf of producers.

Complete details regarding eligibility and payments rates will be released at a later date so be sure to keep updated on incoming information regarding the relief programs.

If you have concerns about underfilling your New Crop Corn contracts, contact the Main Office for the following information:

2019 Prevent Plant Contract Program

If you have a New Crop Corn Contract that was made with FCE before 5-18-19 and are considering cancellation due to prevent plant for your corn acres, to help you limit your risk please contact Ben or Laura at the Main Office to discuss a contract cancellation program. This program ends at noon on 6-14-19.

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5/10/19

Trending topics in the market lately: Planting Delays, China/Trade War, and the WASDE report.

Planting progress is slow, no doubt about that. Next report on May 13th the five-year average shows 65% planted and we are expected to be in low 30’s. The only year slower than current pace in the last 20 years is 2013. Will the weather hold off next week and allow us to get something in the ground? We certainly hope so. Prevent plant dates are May 31st for corn and June 10th for soybeans.

Trade war talks were at a pretty good point (supposedly) until Sunday when China announced they were backing out of a few critical issues that were thought to be resolved. Additional tariff increase went into effect at midnight 5/10/19. On $200 billion worth of Chinese goods the rate is now 25% and we are also prepared to put 25% tariffs on another $325 billion worth of goods. Regardless of the trade war however, South American products are still cheaper than the U.S. and Chinese soybean demand is down nearly 42 MT due to ASF. Trade talks will continue, as we have been hearing for the last 13 months…

Exports haven’t been anything to brag about. We have seen some old and new crop corn booked but other than that business has been null. As South American crops make their way to export, it is a little worrisome that our demand will drop drastically by the summer.  USDA is projecting 100 MMT out of Brazil and 49 MMT from Argentina for corn and 117 MMT Brazil and 56 MMT Argentina for soybeans.

WASDE report out today didn’t bring any bullish news. Biggest changes for corn include: increasing corn 18/19 ending stocks by .06 BBu, increasing 19/20 production by .10 BBu, and increasing 19/20 ending stocks by .882 BBu to 2.485 billion bushels. Soybean changes shouldn’t come as a surprise-we cut 100 million from total exports that went straight to carryout increasing it to a total of 995 MBu for 18/19 crop year. We also increased 19/20 ending stocks by 247 MBu to 970. The good news is that corn only closed down 1’4 after initially being down as much as 7 cents following the report.

We continue to put new contract lows in, most recently was December corn at 3.71, July beans at 8.065 and November beans at 8.30. Will we see a cash price with a “6” in front of it again? Probably, unless our lows are in, but who really knows at this point?

Do you have an HTA to set basis on for July or New Crop corn? I wouldn’t get too greedy. Basis may break as farmer grain comes to town this summer and we still have huge stock numbers weighing over our heads with little demand.

Still hanging onto old crop beans and are afraid to sell them? Consider buying a call. An $8.40 call right now is about 12 cents and this will protect your downside while leaving the upside unlimited. Call the main office with questions or to check on premiums.

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5/2/19

I’ve had a few people ask about my thoughts on 2019 crop and if we are going to get back up to $3.50 Oct delivery-a point where some would consider selling again. With so many unknowns in the market (weather, exports, stocks, acres etc.) it is hard to know what to do. However, doing something is better than doing nothing. We aren’t at $3.50 cash today but we could be if one uses an OTC contract.  A popular OTC Contract, referred to as an Accumulator, is trending around the $4.00 futures mark. Although it is not as high as it has been previously this year, you could still end up with $3.50 cash corn.

A few different options are available for Accumulators. One where you can get knocked-out early vs not getting knocked-out at all, or one where you double-up at expiry vs doubling-up weekly.

The following is an example of a quote from this morning, 5/2/19, for December 19 futures with a weekly double-up: $4.09 Enhancement level futures, $3.71 Naked Floor Level at 0 cost to the producer.

 

As this Accumulator works throughout the next couple of months, you are guaranteed $4.09 futures. Less a current $0.49 basis that equals $3.60 cash. This is for bushels out of the field at harvest. If futures don't settle above $3.71, you will not accumulate anything for that week. 

As you read above there is potential for double-ups in this example. Every week you are going to know if there is a double up on bushels or not. Example: Say you are selling 100 bushels each week and on a Friday, futures settle at $4.15. This will mean that you are selling 200 bushels that week instead of 100. This is a good thing because you won’t be surprised if the contract doubles-up on the last trade day like other Accumulators are structured; you will know what you have sold the entire contract period.

Values are also good for March 2020 futures-some reaching $4.30 futures. That could be $3.78 for March delivery.

If you have questions or comments regarding any OTC structure do not hesitate to reach out to Laura or Ben in the main office at 507-768-3448. We will be happy to help.

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4/26/19

Beans continue the downward trend while corn tries to give back a little of what it has taken away the last week, or more specifically since the Stocks & Acreage Report on March 29th. Worries about delayed planting are peaking some interest, although more so for farmers. Crop Progress report today was expecting 15-18% corn planted verses 27% on average; actual number was 15%, exactly the same as one year ago. Soybeans are at 3% planted verses 6% average.  Still no need to be concerned. The U.S. proved that last year when we planted over half of the crop in a matter of a week in the month of May.

Something to watch in my opinion- China’s mandate for national use of E10 by 2020. Speculative positions say they will need approximately 5 billion gallons of ethanol a year and they currently produce roughly 1 billion gallons. Even if they add more capacity there of say 1 billion gallons, they are still going to have to import a lot, opening the door for U.S. exports. A resolution of the Trade War could include ethanol as one of the commodities that China will buy from us as well. Again, this is a very big picture and a long ways from being set in stone, but it's fun to ponder the thought. 

Spreads have widened, corn hitting 10 cents last week to the July. Futures roll from May to July on the 1st so if you see basis get “worse” do not be alarmed, cash to cash it is still the same. Do you have a July HTA to set basis on yet? Keep an eye on that as basis could potentially get wider as we see more farmer movement this summer.

May WASDE report comes out on May 10th as well as the Crop Production report. Not expecting anything new and exciting but between that and Crop Progress Reports that come every Monday hopefully that’ll bring some fresh news to the market.

 

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4/18/19

Anddd we wait. The past week in the grain markets has been uneventful to say the least. The anticipation of farmers getting in the field continues to build and the lack of farmer selling is evident as processors bids continue to stay strong. The good news is, there isn’t a lot of snow left on the ground after the rain we received and with 75-degree weather coming this weekend it’ll feel like spring. Now if we could just get about 4 weeks of this type of weather…

Crop Progress Reports started a couple of weeks ago and they come out at 3:00pm on Mondays. We are a little bit behind average, although, as US planting continues to get pushed back, South America crop continues to increase.  This summer we are not competitive with S. American values and Ukraine is knocking down their bid to stay competitive; we continue to be the residual supplier. 

May as well continue to beat the same dead horse and say there is nothing new trade talk related. A year plus later we are sick of hearing the same headlines. Something that needs to be brought up though is the African Swine Fever. Some estimates predict China will lose up to 200 million pigs-half of their total production. There is the possibility of a great shortage of pork in China and the world is going to have to fill that gap. To compare the U.S. with Chinese production, see the chart below. We clearly can’t meet all of their needs, but we can help. However, tariffs on US pork exports to china are subject to 62% and as of 2018 we are only the 5th largest pork exporter to China.  It’s hard to say what is going to happen today and we can’t really predict the protein needs until the disease is controlled but it is interesting to watch nonetheless.

The CME Group reevaluated the Price Limits for Grains and Oilseed Futures. Effective 5/1/19, corn futures limit will stay the same at .25 cents/bushel and soybeans are now .65/bushel (up from 60 cents).

We continue to hover above our support levels: May at 355 ¼ (contract low), then 352 ¾ (March contract low). Soybeans support at 871 ½, then 853.

The second Averager signup ends next Wednesday. Have you enrolled your bushels yet?

Happy Easter everybody! 

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4/9/19

USDA April WASDE Report out today. What should have been a pretty bearish reaction, specifically for corn, actually ended up having the market stay neutral. Here is quick chart for reference: 

 

You’ll notice that they decreased 18/19 soybean ending stocks by 5 million bushels, and increased corn ending stocks by 200 million bushels. USDA is estimating a 2.035-billion-bushel carryout. World corn ending stocks were increased by 5.48 mmt to 314.01 mmt, much higher than the average estimate.

As expected, ethanol grind and exports were both down by 50 mbu and 75 mbu respectively. Exports were decreased mostly in part due to South American crops and our competitiveness with them; they currently have cheaper corn than the U.S.

South America increased their corn production by 2.5 mmt. This is higher than what they and Dr. Cordonnier were predicting (he was at 94.5 for Brazil and 47.0 for Argentina). The Safrinha corn crop in Mato Gross is still growing but farmers are optimistic and weather continues to be beneficial. Argentina corn and soybeans are finishing strong.

Something to keep in mind is that the Funds are still extremely short. If they came back in and bought like crazy it may not make the market jump far but there is the potential.  However, a few weeks ago, they bought over 50k contracts and the market only moved a few cents up.  There is also a lot of corn on the farm that is going to have to come to town at some point that we need to be considering.

Our Second Averager starts on 4-24-19. This runs for 11 weeks; finishes on 7-3-19. Bushels flat price weekly and at the end of the 11-week period you have a cash contract. It’s a good way to get some corn or beans sold when you are unsure of what to do. Plus, we are in the average seasonal high selling time.   Call the main office or your location manager to enroll bushels today!

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3/28/19

Export sales for the week were disappointing, particularly for beans. Expected range on beans was 18-29MBu and actual sales were a whopping 6.7MBu. Corn was in a range of 28-47MBu with actual sales of 35.6. China was our biggest corn buyer.

USDA announced the sale of 120 tmt of SRW to Egypt and 150 tmt of HRW to Iraq this morning.

Argentina is shaping up for a near record corn crop. Last week they were 8.5% harvested which is slightly behind the normal pace but that should pick up on account of dryer weather coming. Reports thus far are very good and above initial expectations; some areas are 200-250+ bu/ac. Their current production estimate is 46.0mmt-compared to last year’s production of 32.0mmt.

Brazil Safrinha (second corn crop) is currently being made and has a lot of growing left to do, however, early estimates show they may harvest 66.22mmt. That would be 22.9% above 2017-18 production. This crop will not show up to export facilities until July-September however South America as a whole is shaping up to have a 1.055 Bbu better corn production this year compared to last. That’s a lot of corn that the US has to be competitive with. Also note, we have a strong dollar right now.

China’s sow herd in the province of Shandong (the largest producing province) has dropped 41% due to ASF. Interesting fact, only 1 case of ASF has been reported in Shandong. In 2017, they produced 47 million hogs. Makes you question how bad the ASF really is over there and if it is worse than what is being reported to us.

U.S. Trade officials arrive in Beijing today for a new round of trade talks with Chinese officials. This is the first round of meetings and will be followed by another in Washington next week. There is no official end in sight as the two sides still have disagreements over Intellectual Property. Six areas they are working on written agreements are: forced technology transfer and cyber theft, IP rights, services, currency, agriculture and non-tariff barriers to trade.

Friday, March 29th, is the Prospective Planting and Quarterly Stocks report at 11:00.

Corn Acreage range of 89.5-92.7 million acres. Last year we planted 89.129 million.

Bean Acreage range of 84.263-88.00 million acres. Last year we planted 89.196 million.

Corn Stocks range of 7.620-8.800 billion bushesl. Dec 1, 2018 we were at 11.952 BBu.

Bean Stocks range of 2.095-2.797 billion bushels. Dec 1, 2018 we were at 3.736 BBu.

Double digit moves are common following the report. For reference:

2018, corn up 14 cents. 2017, corn up 7 cents. 2016, corn down 16 cents.

2018, beans up 27 cents. 2017, beans down 17 cents. 2016, beans up 1 cent.

I do not expect the market to show effects from the Midwest flooding in this report as the survey was sent out before the catastrophe happened. That is not to say that we won’t potentially see effects from the flooding and grain stocks damage, however remember that it is a small piece of the pie, we still have a huge carryout and there is a lot of time left.

In case the market were to jump up, do you have your offers in? Call us at the office to place orders-507-768-3448.