Will price levels hold?

By Jon Scheve, Superior Feed Ingredients, LLC

China’s purchasing of corn and beans is the biggest factor impacting the market right now. Everything else seems to be noise. If buying continues to outpace any potential cancellations, stocks will decrease, and prices should trend higher. If the reverse happens then the market will have difficulty remaining at these levels.

Soybean outlook

Most U.S. beans have already been shipped, and while some of the remaining ones could still be canceled, there is less opportunity every day for that to happen. This means old crop carryout is tight and its likely next year’s will be too pending planting intentions. Beans seem to have more upside potential than downside risk at this point. 

Corn outlook

China added more purchases this week, which suggests the USDA will likely need to increase export estimates and decrease carryout in upcoming reports. Unlike beans, a lot of corn has not been shipped out of the U.S. yet, so some cancellation risk remains. The market will be focused on exports and purchases for at least another month until weather in the U.S. increasingly becomes just as important for impacting prices.

Brazil

Last week, Brazil’s central bank raised interest rates for the first time in 6 years. Some in the trade suspect this will lead to the Brazilian currency increasing in value compared to the U.S. dollar. This could make it easier to export U.S. product over Brazilian. Last May when soybean prices hit their low, the Brazilian currency also hit its lowest value compared to the U.S. dollar. Since then, the Dollar has dropped in value compared to the Brazilian Real and export pace has also picked up here. 

Spreads and basis

Last week’s spread action suggests the market needs physical grain now. As the corn and bean boards were dropping on Thursday, May futures dropped less than July futures. Then on Friday as the board rallied back, May gained more than July on both crops again. Additionally, basis values stayed firm for both corn and beans throughout much of the Midwest.

Corn demand at ethanol plants

Some Midwest farmers are reporting long lines at ethanol plants over the last week or two, with several saying lines were longer now than at harvest. This suggests many farmers are cleaning out bins before planting season starts in April. There is growing concern among ethanol plants about what happens to the remaining corn supply as farmers start getting busy for planting. Elevators have been transporting large quantities by rail for export rather than by truck to local ethanol plants this spring. There is uncertainty to where ethanol plants will be able to source their corn needs as summer approaches.

How many bushels of unpriced grain are farmers holding in on-farm storage?

It’s hard to say. Farmers with remaining unpriced corn or beans that I’ve spoken to are unsure what price they want for those last bushels. When pressed, most say they plan to wait until after July 4th to decide. April, May, and June could be interesting for futures, basis, and spreads. I suspect many of these farmers won’t worry about old crop values until they see how the weather is shaping up in the middle of summer on their new crop.

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

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One comment

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