Market Analysis




Volatile day following USDA reports

By Doug Tenney, Leist Mercantile

With the USDA report today for grain stocks numbers on Sept. 1, 2020, corn stocks of 2.0 billion bushels, soybeans 523 million bushels, and wheat 2.16 billion bushels.

Corn, soybeans, and wheat stocks were all below trader estimates, that is the bullish news today. Grains stocks trade estimates were: corn 2.250 billion bushels; soybeans 576 million bushels; wheat 2.242 billion bushels. Last year at this time, stocks were: corn 2.221 billion bushels; soybeans 909 million bushels; wheat 2.346 billion bushels.

In addition, traders had expected changes to the 2019 corn and soybean production numbers. Shortly after the noon release, corn was up 9 cents, soybeans up 22 cents, and wheat up 20 cents. Just before the report, corn was unchanged, soybeans up 9 cents, and wheat up 11 cents.

The stocks report today had been expected to be boring. However, to put the numbers in perspective and examining reports back to 2005, traders have missed the corn number compared to USDA as much as 17%.… Continue reading

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What’s in your marketing toolbox?

By Jon Scheve, Superior Feed Ingredients, LLC

Given current perceived carryout estimates, corn prices seem a little high for the start of harvest. While some suggest carryout could fall to levels similar to the past couple years, it will likely take more demand or a big supply reduction to keep prices as high as last week until after harvest.

The bean market has been running hard and is finally getting tired. It needed to pull back some. Exports have been good, but they will need to continue to be strong. Focus will start to shift to weather in South America very soon.

What is in your toolbox?

This weekend I was on the farm helping with harvest. While fixing a broken sickle, I looked inside the toolbox at the many tools we carry on the combine to fix potential problems in the field. It reminded me of all the grain marketing tools we use to price the grain we are harvesting.… Continue reading

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Building on $10 beans

By Jon Scheve, Superior Feed Ingredients, LLC

The buying continued this week, with all grains posting healthy gains. Beans continued their rally and are up $1.80 per bushel from Aug. 10. Several reasons for the huge run up are the low potential yields, big purchases by China and possible adverse weather in South America during their upcoming growing season.

Corn seems to be along for the ride. There have been some nice export sales, but corn yield potential looks pretty good at this point.

Early harvest reports

As the corn harvest begins, early observations suggest that areas that looked very good in July haven’t been impacted much by the late August heat. Even the areas that were dry in both July and August are seeing yields generally in line with what farmers were expecting.

Early bean harvest reports are limited and show wide-ranging yields. So far, many farmers are disappointed with early yields, a few say it’s better than average.… Continue reading

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September report neutral to bullish

By Doug Tenney, Leist Mercantile

A plethora of numbers were released today with the USDA WASDE report at 12 noon ET.

No major surprises today.

Key numbers to watch today included the U.S. corn and soybean yields as well as corn and soybean imports into China.

USDA projects the U.S. corn yield at 178.5 bushels with the U.S. soybean yield at 51.9 bushels. On grain imports into China, soybean imports are pegged at 99 million tons and corn imports of  7 million tons.

Traders were already expecting a volatile day hours before the report. Shortly after the report was released, corn was up 3 cents, soybeans up 16 cents, and wheat down 2 cents. At the 8:45 a.m. grains pause, corn was up 2 cents, soybeans up 6 cents with wheat up 1 cent. Just before the report release corn was up 2 cents, soybeans up 10 cents, and wheat down 1 cent.… Continue reading

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Will beans hit $10?

By Jon Scheve, Superior Feed Ingredients, LLC

This week a bean trader told me, “it’s not a matter of if beans hit $10 but when.” With a little 2019 futures position left to sell, and all of my 2020 bean crop unsold, this was music to my ears.  However, it brings back memories from 14 months ago, when the potential for $5 corn seemed like only a matter of time.

How realistic are $10 beans?

There are so many factors affecting prices, that it’s impossible to accurately predict when the high will occur.  Instead, I prefer to make a list of why prices could go either direction, and then evaluate the likelihood of each scenario happening.  This helps me when making grain marketing decisions for my farm.

Reasons to be bullish are:

Inflation

The Fed said keeping the economy running and bringing unemployment levels down were a higher priority than keeping inflation in check right now. … Continue reading

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China ramps up corn and soybean purchases

By Doug Tenney, Leist Mercantile

China was an active buyer of U.S. corn and soybeans during August. That trend continued into the first week of September. It appears their appetite for U.S. grains is large. The concern of China meeting their Phase 1 trade deal agreement of $36 billion of U.S. agricultural goods in the first year of the agreement garners significantly less attention than it did earlier this summer. The amount of U.S. corn China will purchase in the current marketing year ending next Aug. 31 continues to increase. Current USDA estimates had China purchasing 7 million tons of U.S. corn. Yet, just days into the new marketing year the first week of September, they had already purchased a total of 9 million tons of U.S. corn. Estimates of total corn imports into China are as high as 15 million to 20 million tons. The U.S. share could reach 12 million tons. … Continue reading

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Making the most of unprofitable prices

By Jon Scheve, Superior Feed Ingredients, LLC

The market continues to go nowhere. Iowa’s storm damage doesn’t seem large enough to impact overall prices, and while dry weather pockets may hurt bean yields some, it’s unlikely to affect much of the corn this late in the growing season.

As harvest approaches, farmers will be clearing old crop out of bins, which may keep downward pressure on prices for another month.

With prices at unprofitable levels, I made 2 recent trades that helped me pick up some added premium that I’ll add to previous trades. These kinds of trades can help me maximize my profit potential in a down market.

Straddle trade

On 4/22/20 when September corn was trading at $3.27, I sold a $3.20 straddle (selling both a $3.20 put and a $3.20 call) on 10% of my 2019 production collecting 43 cents. As I was selling the straddle, I bought a $2.90 September put for 7 cents. These… Continue reading

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Managing basis

By Jon Scheve, Superior Feed Ingredients, LLC

After last Monday’s devastating winds across Iowa, there have been a lot of predictions on how many bushels will be lost. However, it will take at least a couple of weeks before the market feels like it knows the full scope. Historically though, actual damages from these types of weather events are often initially overstated.

The market is also evaluating export pace and volume, expected prevent plant acres and inflation. While there are many reasons that corn could rally, it’s important to remember that there are simply too many corn bushels still left in the bins from the last crop.

If prices do rally, export pace and demand would likely be reduced and that could offset lost bushels from the storms. While the USDA did post a 2.75-billion-bushel carryout for the upcoming year, there needs to be a pretty sizable drop to come in below a 2.30-billion-bushel carryout which would still be the largest carryout in over 30 years.… Continue reading

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Bearish soybeans, neutral corn and wheat

By Doug Tenney, Leist Mercantile

The U.S. corn yield was 181.8 bushels per acre with the U.S. soybean yield at 53.3 bushels per acre. Corn production was 15.278 billion bushels, last month it was 15.0 billion bushels. Soybean production was 4.425 billion bushels, last month it was 4.135 billion bushels.

Expect in coming months that big crops will get bigger, past history shows this to be a great barometer.

Farmer yield estimates are used heavily to determine corn and soybean yields for this report along with last month’s report. Actual field visits and yield reports will be used with the September and October reports.

The general mood from analysts going into this report was not bullish and expected crops to get bigger (supply) with usage decreasing (demand). Trader estimates had the U.S. corn yield at 180.5 bushels, last month USDA was 178.5, while the trader estimate for the U.S. soybean yield was 51.2 bushels, last month USDA was 49.8.… Continue reading

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Big crop forecasts sending markets lower

By Jon Scheve, Superior Feed Ingredients, LLC

The corn market finished last week on the lows. The estimated 2020 corn yields are increasing every day, while many farmers still sit on unsold 2019 corn. Time is running out to get old crop sold and moved before harvest starts.

Weather

A change in price direction due to weather is unlikely right now. National yield estimates are above 180 and the latest drought index shows only 18% of the Corn Belt is facing drought conditions.

Western Iowa is currently experiencing dry conditions. However, keep in mind that western Iowa also has some of the best subsoil moisture capacity in the U.S. too.

So, while there may be drier conditions in western Iowa, yields may not be as bad as some believe in that area. Plus, I’m hearing preliminary yield reports ranging between “very good” and “potentially record good” on the fringes of the Corn Belt.… Continue reading

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Time for a price rally is running out

By Doug Tenney, Leist Mercantile

Time is quickly running out for soybean prices to rally prior to harvest. Hints of hot, dry weather in August often have the ability to rally soybean prices 50 to 70 cents in quick order. Prices for November soybeans continue to be broad ranged as they moved from $8.31 to $9.12 during April through July. Often factored into soybean prices has been the buying or lack of buying sprees from China. The Phase One trade deal reached earlier this year between the U.S. and China called for China to buy $36 billion of U.S. agricultural goods. Various publications have offered a plethora of opinions about the success of reaching that lofty level. China stated up-front and early on, it wants to buy U.S. agricultural goods only when it falls into their plan of necessary pricing of goods needed for import months into the future. In addition, their desire is to buy U.S.Continue reading

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Hitting singles to stay in the game

By Jon Scheve, Superior Feed Ingredients, LLC

With few issues during pollination, the chances for a widespread corn yield reduction decreases daily. Market participants indicate national average yields between 176 and 181, which would leave USDA balance sheets with the largest carryout in over 30 years.

Corn’s export market has been strong and helped maintain a steady trading range. However, South America’s corn crop will be harvested soon, and with limited storage, it will be moved quickly. This could limit U.S. corn’s upside potential as we approach our harvest time.

 

Market action

In early and mid-June there were a lot of unknowns, including corn planted acres and yield potential. It seemed unlikely corn would trade above $3.50 without a significant event. With some 2019 crop left to sell, and a lot of 2020 corn still unpriced, I made the following trades.

 

Trade 1 – 6/8/20 – Sold August call

When September corn was trading $3.38, I sold a $3.40 August call for 10 cents on 10% of my production.… Continue reading

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Is the massive Chinese purchase of U.S. corn a sign of better things to come?

By Doug Tenney, Leist Mercantile

To date, the huge rains in the Yangtze River valley in China have been in the press very little. In early July, up to 30 inches of rain fell in a 7-day period. This region is not a major corn and soybean production area. The Three Gorges dam had been built mainly to generate electricity but was expected to mitigate catastrophic flooding.

However, on July, 14 a huge U.S. corn sale did grab lot of press headlines. On that day USDA announced China had bought 1.7 million tons of U.S. corn. It was the third largest U.S. corn sale in history along with the largest one-day sale to China. Disappointingly, corn closed down three cents.

Hot and dry weather in August could provide price fireworks for soybeans but less for corn.

The July 10 USDA Supply and Demand Report (WASDE) was a vanilla report with little fanfare.Continue reading

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Observations from latest USDA report

By Jon Scheve, Superior Feed Ingredients, LLC

Corn

The USDA updated their balance sheets with the new acres reported on June 30. The following chart shows only the categories I think most affect final carryout. The green and orange columns are the July 10 USDA numbers while the blue columns are my estimates of possible yields and demand going forward.

 

Feed demand

It seems like it’s difficult for the USDA to know exactly how many on farm bushels farmers are using for feed each year, so this estimate could potentially change some down the road. I think the USDA has still overvalued U.S. feed demand even with a drop this month, so I’ve decreased it slightly in my estimates.

 

Ethanol demand

COVID-19 is still having a major impact. If schools are not back to normal this fall it means more people will still be working from home and less commuting to the office.… Continue reading

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Not much excitement with the July 10 report

By Doug Tenney, Leist Mercantile

Don’t put away the sunscreen protection just yet. Another heat wave with 90 degree temperatures returns the middle of next week across Ohio.

The huge U.S. 2020 acres decline for corn with the June 30 report paints a much different picture compared to last month. Last month USDA had new corn ending stocks at 3.323 billion bushels. Some had expected that number would eventually reach 4 billion bushels. Corn ending stocks for 2020-21 were expected to be cut with the 5 million acres decline from June 30.

Bigger changes for corn had been expected with this report. However, few changes were expected for soybeans and wheat. With the flare-up of the Coronavirus the past two weeks, U.S. export totals for corn, soybeans, and wheat were expected to be reduced. Demand for grains continues to be anemic. However, yesterday’s weekly U.S. grain sales report were surprisingly better than expected.… Continue reading

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Market still responding to uncommonly bullish June Acres Report

By Doug Tenney, Leist Mercantile

November CBOT soybeans reached their highest level in months in early July at $9.03. Keep this $9.03 high in the back of your mind as that July 3 price action partially but not completely filled a gap of $9.035 to $9.00 from March 9. The multi-day rally just before the July 4th holiday had rebounded during eight weeks of time from the lows of $8.31 in late April. The cause of the rally was twofold, both weather and a June 30 Acres Report.

Confusion, not clarity was again the theme, just like last June. Surprise of surprises — it was an uncommonly bullish June Acres Report. This report put 2020 U.S. soybean acres at 83.8 million acres along with corn at 92 million acres. Both corn and soybean acres were below trade expectations. Grains responded with December CBOT corn closing higher 16 cents while November CBOT soybeans were higher by 21 cents.… Continue reading

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COVID trouble with straddles

By Jon Scheve, Superior Feed Ingredients, LLC

Due to COVID-19, two recent straddle trades didn’t go as planned. While it’s always disappointing when this happens, it’s important to review what happened, what can be learned from the situation, and how to move forward in a positive way.

 

My history with selling straddles

Since 2016, selling straddles has represented about 30% of my grain marketing strategy. I use them to try and capture profit from a sideways market. The trade involves selling both a put and a call at the same strike price.

Selling straddles can force sales at higher values, which makes for a strong strategy. As a producer I’m happy with rallies because, I always have more grain to sell at higher prices. Selling straddles helps me maximize profit potential when the market stays sideways, which has happened a lot in the last 3 years.

 

The downside of selling straddles

Straddles don’t have a built-in floor price, which opens me up to unlimited downside risk.… Continue reading

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Bullish corn and soybeans

By Doug Tenney, Leist Mercantile

Corn acres were below the low end of expected and corn stocks bigger than expected, but quickly erased with the low corn acres.

The market is focused with razor-edge attention on today’s USDA reports at 12 noon ET. Today there were two reports from USDA, Acreage, and Grain Stocks. The Acreage Report will detail U.S. planted acres in 2020 and Grain Stocks as of June 1.

June 1 corn stocks will be the key number for today. The acres theme for the past several weeks has been for corn acres to decline while soybean acres would increase in comparison to the March intentions numbers.

Here are the stocks numbers: corn 5.224 billion bushels, soybeans 1.386 billion bushels, and wheat 1.044 billion bushels.

U.S. 2020 acres: corn 92.0 million acres, soybean 83.8 million acres, and wheat 44.3 million acres. All three were below trade estimates.

Shortly after the noon release, corn was up 15 cents, soybeans up 21 cents, and wheat up 7 cents.… Continue reading

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Weather, China and soybean crush key market factors

By Doug Tenney, Leist Mercantile

U.S. soybean crush continues to be exceptionally strong, marking two new monthly records in 2020. It is evidenced from two fronts. First is the chain of increases as published in the monthly Supply and Demand Reports (WASDE) in two of the past three monthly reports. In April, soybean crush for the 2019-20 crop year increased 20 million bushels to 2.125 billion bushels. Again, in June, crush increased 15 million bushels to 2.140 billion bushels. Second, in May U.S. crushers, according to NOPA (National Oilseed Processors Association) processed 169.5 million bushels of soybeans as it crushed (pun intended) the previous May record set in May 2018 at 163.5 million bushels of soybeans. The May number would be the fifth highest for any month on record. May closely followed March 2020, when the monthly NOPA crush number set an all-time record for any month, at 181 million bushels of soybeans crushed.… Continue reading

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USDA Report Neutral

By Doug Tenney, Leist Mercantile

What a difference a year makes! This year, corn has seen excellent corn planting progress in major production states compared to last year. Ohio and Indiana are exceptions as they were planted later than the western cornbelt states.

Ahead of the report, many had expected it to be bearish with USDA reducing corn for ethanol, corn exports, and soybean exports.

For today, don’t expect the same kind of same kind of USDA report and price action seen with the June 11, 2019 report date. The June 2019 report reduced corn acres by 3 million. In addition, yield was cut 10 bushels per acre. December 2019 CBOT corn was up 12 cents that day. The early June 2019 corn planting progress was near record slow.

Last month USDA had much smaller demand changes for old corn than many had expected. At that time they tipped their hand that reports into August on old crop corn and old crop soybean demand changes would be hand to mouth, one month at a time.Continue reading

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