Market Analysis




Focusing on 2017 instead of 2016

The USDA report published on Thursday held few surprises. Basically we have too much corn and wheat, and most likely too many beans. Expect more sideways trading in the short-term.

South America Update

South American weather has been “normal.” Many expect record yields in Brazil and trend-line yields in Argentina. Combined yields may exceed early season predictions. Also, export paces seems strong with few logistical issues so far.

Basis

Basis levels in the U.S. are extremely low for this time of year. This signifies end users are having no problem getting the supply they need and that prices are higher than they need to encourage farmer selling.

Export

U.S. exporting is pacing above normal, which may indicate the USDA underestimated demand. It may be too soon to tell though. South America may have an impact in the upcoming months.

Soybeans

Soybean futures values are nearly $1.80 per bushel higher this year than last year at this time.… Continue reading

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Developing a strong marketing strategy

Iowa State University just reported their 2017 corn and bean breakeven points. It showed that the average Iowa bean farmer can lock in 2017 crop profits with current fall market prices. That is not necessarily the case for corn. Corn on corn farmers would likely lose with today’s prices, while corn on beans are showing some profitability.

I think many farmers will take notice and plant more beans in 2017. Still, South American bean production is an unknown. If we assume a small issue in South America supply, which leads to increases for U.S. prices, the added bean acres in 2017 may be offset. However, if bean acres exceed 90 million acres and South America doesn’t have a reduced supply, then substantially lower values are a real concern.

 

Market Action

With corn prices so low, I’m always looking for ways to add additional premium to my corn prices. Rather than wait around for prices to go up, which they may not, I manufacture trades that allow me to add premium to my corn prices, while minimizing risk.… Continue reading

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Will tight-fisted corn sales continue?

Corn prices continue to dominate the thoughts of producers this winter. They have plenty of 2016 corn yet to sell as shown by the quarterly grain stocks report from last month. This report had Dec. 1, 2016 U.S. corn stocks at 12.6 billion bushels, up 10% from December 2015, a new Dec. 1 record. Corn has been stuck in a trading range of $3.70 to $3.40 since the end of harvest last fall. Producers continue to seek prices closer to $4 to loosen the tightly closed bin doors sealed with a thud last fall. Corn basis levels at ethanol plants across Ohio have fallen 10 to 15 cents from levels seen early last month. You can easily wonder why basis levels had declined in spite of little movement from producers. Commercials were actively selling corn hedged on inbound receipts from last fall. They were capturing basis improvement while coring and emptying bins to add to the bottom line.… Continue reading

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Market action for sideways prices

Soybean market commentary

Argentina weather remains good, which could mean an increase in bean yield estimates.  If this continues, global supply will be high and likely push down prices. The key will be plenty of rain through the growing season, and then dry weather during harvest. Expect volatility for the next few months, as many speculators remember last year’s events.

Corn market commentary

Corn continues to trade sideways. Farmers are selling when the market rallies, but quickly stop when the market pulls back. Two billion bushels of carryout will continue to hold this market back. It seems to be another year of boring winter trading months.

Looking forward, many wonder how many acres U.S. farmers will plant in 2017.  Some don’t believe early surveys suggesting reduced corn acres. However, farmers I talk to say that it’s difficult to not take the guaranteed profits of beans, when corn isn’t at profitable prices right now.… Continue reading

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More on options: Making the right call with calls

Results from a recent Farm Futures survey show farmers will plant roughly the same number of corn and bean acres — around 90.5 million acres. If true, this would be long term bearish for beans and long term relatively bullish for corn.

 

Estimating South America’s soybeans

At the start of the growing season the USDA predicted 159 million metric tons (mmt), or about 6.3 billion bean bushels, would be produced in South America (Brazil 102 mmt/Argentina 57 mmt). Considering the favorable weather conditions in Brazil, 105 mmt is possible. Argentina, on the other hand, has had excessive rain in parts and dry conditions in others, so yield estimates are wide ranging. In the last USDA report there were no production reductions, but the trade is skeptical. Currently ranges are 48 to 57 mmt. The under/over bet seems to be around 53 mmt.

If the average estimates (Brazil 105 mmt/Argentina 53 mmt) happen, the expected mmt will be missed by only 1 mmt or 40 million bushels.… Continue reading

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More about options

Arguably, the report last week was the third most important report of the year (after planting intentions in late March and the actual planting and stock report in late June). It showed the final yield results for 2016.

 

Corn

There were few changes to the corn bottom line. Corn still shows a 2.3 billion bushel carryout, which is 30% bigger than last year. There will need to be a substantial reduction in acres (and most likely yields too) to support a substantial rally.

 

Beans

The report shows a small reduction in the U.S. crop production, which may be seen as bullish. However, there is still a 400 million bushel carryout. Also, the USDA increased the South American crop estimates more than the US crop reduction. This is despite some flooding in Argentina, because the Brazil harvest is supposed to be a record.

Regardless of this news, bean futures remain strong.… Continue reading

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Option strategies

Frequently farmers ask for my opinion on buying puts. While generally I’m not a big fan, purchasing puts can be a useful tool in a farmer’s toolbox. However, farmers must be careful to fully understand and consider both the advantages and disadvantages of using them. Regardless of my opinion on buying puts, I think it’s important that farmers understand all of their options when it comes to marketing their grain, so they can develop a plan that works best for them and provides the most piece of mind. Outlined below are several common put buying strategy options and the pros and cons for each scenario.

 

What is a “put” option?

Purchasing a put is the right to sell grain at a desired price. That price is called the strike price.

 

Why would farmers purchase puts?

Farmers purchase puts to guarantee a floor price for their grain. Purchasing puts allows for unlimited upside potential if the market rallies, but protects farmers if prices fall below a certain price point.… Continue reading

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Mixed results from big January report

The numbers from today are mixed for grains. Two surprises with soybeans today. First, soybean numbers were bullish with U.S. production at 4.307 billion bushels and the yield at 52.1 bushels per acre. Both were below trade expectations and below last month. That was the surprise. In addition, soybean ending stocks were pegged at 420 million bushels, 60 million bushels below last month. Ending stocks were also below expectations. World ending stocks for soybeans were 82.3 million tons and below expected as well as last month. The second surprise would be that Argentina soybean production was unchanged at 57 million tons with all of the rain of the past two weeks. Soybean production in Brazil increased two million tons to 104 million tons. No surprise with the Brazil number.

Before the report corn was unchanged, soybeans were down 2 cents, and wheat was up 1 cent. At 12:30 pm corn was down 2 cents, soybeans up 17 cents, and wheat was up 7 cents.… Continue reading

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Really, $6 beans? Probably not.

Corn

Corn pushed to the top of the trading range last week. However, with 2.3 billion corn bushels carryout (compared to 1.8 billion last year), farmers are anxious to sell, so prices pulled back by Friday. It will likely take a significant drop in corn acres next year and a weather event to see $4 by summer. Expect sideways trading for the next 80 days and it could be a tight range of $3.45 to $3.60 on the March futures.

 

Beans

Prices continue to inch lower week by week. Currently, there appears to be enough beans in the U.S. to meet demand. In South America, Brazil is on track to produce a record crop while pockets of Argentina are too wet. This may mean 100 million bushels will be lost in Argentina, but Brazil’s record crop may make up for it.

Still many speculators are betting what happened last year will happen again.… Continue reading

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Using the “dreaded” margin call

There may be potential dry weather issues in Brazil (two regions — Minas Gerais and Bahia). The market is adjusting to this bullish news, but keep in mind these two regions only account for about 8% of Brazil’s total bean production. It would be like if Ohio (7% of the U.S. bean production) was suffering from dry weather, while the rest of the U.S. had near perfect weather. It may affect prices slightly, but it won’t be a major threat.

Also, farmers should keep things in perspective on corn as well, while Brazil is the third largest corn producing country in the world, it still produces significantly less than the U.S. For instance, South America has two corn crop seasons that combined produce only what Illinois and Indiana produce in one year.

 

Current known vs future unknown

Often farmers get caught up in what might happen in the market. They analyze and scrutinize details and data to try and predict the future.… Continue reading

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Weather to dominate markets

Weather features will dominate U.S. grain markets for at least the next 60 days. Those weather features will be in both North America and South America. As the U.S. began the winter weather season last month, several items stood out. First, the Plains and the hard red winter wheat grown in that area went into dormancy among the latest dates in history. That late dormancy was a result of one of the warmest and driest record fall periods. The same dry and warm conditions seen in the U.S. Plains were also dominant in the Midwest. Harvest in Ohio took place with very few rain delays this fall. Second, the southern half of the U.S. will see relatively warm and dry conditions. It will bring concerns of potential winter kill for U.S. wheat if the winter lacks sufficient snow cover to protect the wheat plant. Third, the northern half of the U.S.… Continue reading

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Protect soybean profits for 2017

It was another week of relatively boring, range-bound markets. With the holidays approaching it seems like the trend will continue.

Since harvest I’ve been presenting Grain Marketing Workshops to farmers throughout the Midwest. During these meetings, I’ve had the chance to talk to many farmers about future plans. Many farmers have indicated they will plant more beans in 2017, since beans currently are above $10 and corn is under $4. Obviously this is anecdotal information. We won’t receive confirmation on this until the March 31 USDA report.

If this does happen, corn may have more upside potential several months from now, maybe even $4 by summer. For the time-being though (the next 100 days) I expect unexciting trading in the corn market.

Dry weather concerns in Argentina are keeping prices firmly above $10. However, the Brazil harvest is expected to be a record and the problems of last year are unlikely.… Continue reading

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Double call strategy sale

Brazil’s weather has been good recently, some are expecting a record crop.  If this happens, the U.S. export program may slow when the Brazil bean harvest starts in 45 days which could lead to a ceiling on prices.

Several weeks ago I mentioned that Nov ’17 bean prices compared to Dec ’17 corn prices are incentivizing farmers to plant more beans in 2017. I’ve noticed recently that some in the trades are now pointing this out as well.  It will soon be debated if beans are correctly priced, with corn being substantially underpriced. Or, are corn values priced appropriately with beans overvalued?

In the meantime, beans are one of the few crops showing profits for 2017. I expect this will drive farmers to increase bean acres next year.

Market Action

Last week I discussed the importance of tracking the goals and strategies for every trade farmers do.  Then when the market moves significantly later, I can objectively determine the merits of each trade, which helps me in future trades and marketing strategy.… Continue reading

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Option spread protection trade

There was little news during the holiday week. Highlights:

  • South American weather conditions remain good, but dry weather could still have an impact
  • EPA increased renewable fuels, should cause increased demand for soybeans and corn
  • Goldman Sachs issued their first commodity buy order in over four years, which may help grain prices long-term

Corn remains in a tight 25 cent trading range. Farmers aren’t selling at the low end of the range, which helped prices this week. However, any selling by farmers will likely keep a ceiling in place.

Beans continue to rally despite adequate world stockpiles. Some funds are analyzing macro markets and using beans as an inflation hedge. Long-term markets can’t dissociate from fundamentals. For the rally to continue into 2017 a supply distribution is needed.

 

Market Action

On the final trading day for Dec ’16 options, I had 13 different options working. With so many trades, it’s very important to record details of each trade, including goals and strategy.… Continue reading

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Market history shows there is no certainty in the future

As they say in the North, “winter is coming.” Last weekend I mowed the yard at 60 degrees. Today it is 32 degrees and snow is on the ground.

Harvest is mostly done. At this point the market will have to rally to get farmers selling, because bins are closed and locked tight. Seasonally the market tends to rally from Mid-November through Christmas.

Many now wonder how high markets can go considering how much grain was produced. The dollar strengthened last week, which long-term may slow export demand. Corn is now trading in a tight range between $3.40 to $3.60. Beans are holding at $9.80, but may retest $10 soon. It’s hard to tell if beans will push above $10.20 on the Jan. It may take a weather issue in South America to get the prices to rally above that level.

 

Bean Marketing

Beans have had a wild and unpredictable ride this past year.… Continue reading

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Collecting on the carry

Beans

On a positive note, beans rallied early last week due to palm oil prices increasing to highs not seen in several years. This increased demand for soy oil as a substitute in some Asian markets.

On the flip side, the USDA report published last week was bearish. National yield averages were a bushel higher than last month’s USDA report. This means that exports will need to remain strong to relieve a potential burdensome bean carryout. Unfortunately, recent global news also isn’t positive. There are rumors that China may be capping speculative commodity buyers. Also, after another corruption charge in Brazil, their currency dropped in value. This will likely keep South American beans cheaper and put pressure on the market.

 

Corn

The USDA report last week shocked many as the national yield estimate increased back over 175. At this level, a 2.4 billion carryout is likely. Still, prices stayed $3.40+, which is a positive sign long term.… Continue reading

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Report bearish for corn and soybeans

The report was bearish for corn and soybeans with production and ending stocks higher than expected. Before the report corn was down 3 cents, soybeans up 2 cents, and wheat was unchanged. At 12:20 pm corn was down 11 cents, soybeans down 20 cents, while wheat was down 8 cents.

Overall traders were expecting corn yields to be reduced ever so slightly and ending stocks to be unchanged due to feed usage being reduced. Corn fed to livestock was unchanged. High stocks of feed quality wheat continue to be in strong competition with corn in which ingredient gets fed to livestock in coming months. 

Many expected soybean production to increase as the U.S. yield climbed higher. Higher production without demand changes would increase ending stocks. Traders were expecting the soybean yield to increase at least one bushel per acre. In addition, soybean exports did increase 25 million bushels as expected.

U.S.Continue reading

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Soybean prices not falling out of bed

This past year the U.S. had 94.5 million acres of corn. U.S. soybeans reached 83.7 million acres. This compares to 2015 when the U.S. corn was 88 million acres while soybeans were 82.7 million acres. As we look ahead to 2017, early ideas suggest soybean acres will increase at the expense of corn acres, which should decline. At no surprise to anyone, wheat acres across the U.S. continue to shrink. This year the U.S. planted 55 million acres of wheat. USDA estimates the U.S. will plant 50.2 million acres this next season. When there is a world wide huge mountain of wheat stocks, it is no wonder wheat prices are at 10 year lows. Ohio’s producers are seeing above average to fantastic soybean yields in many parts of the state. Many will see new farm records as yields were beyond expectations compared to earlier projections. While it is the extreme, various reports indicated soybean yields reaching 80 bushels or higher in numerous areas in Ohio.… Continue reading

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Do not give your storage away

Soybeans

Beans surprised everyone last week by rallying over $10. If exports remain strong, bean prices may stay at these levels. However, Gulf basis levels (export values) are at 10-year lows, these low basis levels often are an indicator that futures prices are too high longer term.

Eyes are on South American weather as the summer approaches. Similar to last year for North America, there are drought/La Niña concerns going into summer, which are propping up prices. If La Niña does not develop, just like it didn’t in our growing season, then prices won’t likely stay at current levels.

 

Corn

Corn continues to go nowhere and still is trading under $3.60. End users are mostly only buying immediate needs at these prices, waiting for prices to dip back below $3.40. Farmers, on the other hand, are largely waiting for better prices, because in recent years they have been rewarded for holding.… Continue reading

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Should I sell beans for cash now or sell for July delivery?

Farmers have been more concerned with harvesting than selling lately, which contributed to last week’s rally. However, I don’t think many farmers took advantage.

I don’t know if the rally will continue as farmers finish harvest this week (we finished safely last Wednesday). Many may sell immediately after harvest to ease cash-flow concerns and limit storage fees. On the other hand, government payment checks were just issued, so cash flow may not be a concern for farmers. I expect the market to be range bound between $3.20 to $3.60 for corn and less than $10 for beans in the short-term.

Beans

Increased exports and demand for soybean oil helped beans rally. These events also helped corn and wheat. As long as bean demand is strong, prices should stay positive. However, if bean demand falters, the large crop will likely push prices lower.

Corn

Yield reports continue to be positive. Even areas affected by drought are better than expected.… Continue reading

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