Are crops still undervalued?

By Jon Scheve, Superior Feed Ingredients, LLC

Last week:

  • July corn finished up 46 cents
  • December corn finish up 30 cents
  • November soybeans finished up 40 cents
  • July wheat finished up 30 cents.

 

Corn

Corn managed to erase most of its losses from the previous week, likely due in part to the cash market’s desire to find corn for immediate use. It seems farmers are uninterested in selling corn with July futures below $8. Also, many farmers think there could be substantial upside potential with any July dry weather and are just not selling anything at these values.

 

USDA report

The June USDA report is one of the least important reports of the marketing year, and this year was no different. One of the few notable adjustments was in export demand. Beans had an increase while corn had a slight reduction.

 

Ukraine

The market continues to be extremely volatile because no one knows how much grain will get exported out of Ukraine. This uncertainty could hang over the market for weeks, if not months.

 

Corn basis

The basis market was indicating a potential futures rally. Last week the July corn board did increase, and it also rose faster than September futures. This results in a spread increase, which when combined with the huge basis rally the previous week, likely indicates old crop corn futures are still undervalued.

 

Looking forward

With the corn export pace not being as high as originally forecasted yet basis values extremely high and the spread increasing, it could suggest the 2021 crop size was overstated or farmers are just holding on to their last old crop bushels waiting to see what summer weather is like.

Last year most U.S. farmers emptied their bins by harvest, but the Ukraine war had not started yet. Maybe some farmers have plenty of bin space this season because they completely emptied out last year, and they are planting more beans this year which leaves them with more room to hold over grain into next year. From a cash flow perspective many farmers may not be as pressed to move the grain from their bins as quickly as they usually would. This could give them the flexibility to hold out longer for much higher prices if dry weather shows next month or the situation in Ukraine does not get resolved.

 

Bottomline

War and weather are unpredictable. We don’t know anything more on those two fronts than we did a month ago. The market is now waiting on the June 30 report to see how many corn and bean acres got planted.

 

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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