Market Analysis




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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What tools are in your marketing tool box?

 

Corn

Yield estimates on last week’s USDA report were as expected, while harvested acres increased slightly. With this report the likely trading range could be $3.20 to $3.60 through Dec 2016. There was a surge in prices late this week, but I don’t expect it to continue. As prices increased, basis levels began slipping across the Corn Belt, indicating farmers are willing to sell.

Little new crop has been priced, so even the smallest rally will encourage farmers to sell some corn. End users seem to be willing buyers under $3.30. So, $3.40 may be the fair market value over the winter.

 

Beans

There were no surprises in the report for beans. Right now the market is determining the necessary premium when considering South American weather. Good to average growing conditions would mean levels are overpriced and will need to go lower. Add this to many farmers planting more beans in 2017 and there is potential for substantial downside risk long-term.… Continue reading

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Soybeans bullish to neutral, corn neutral

Prior to the report corn was at $3.47 up 1.5 cents. Soybeans were $9.53 down one cent. At 12:20 pm corn was down 3 cents, soybeans up 6 cents, and wheat was up 2 cents. 

The corn yield was estimated at 173.4 bushels per acre, right in line with trade expectations.  Corn production was 15.057 billion bushels. Corn harvested acres increased by 200,000 acres. Ending stocks for corn declined to 2.320 billion bushels, down from last month at 2.384 billion bushels.

The soybean yield was estimated at 51.4 bushels per acres and again right at the trader estimate. Soybean production was 4.269 billion bushel, up from last month at 4.201 billion bushels.  Soybean harvested acres were unchanged. Ending stocks were higher by 30 million bushels at 395 million bushels. Some could call the report bullish for soybeans as ending stocks did increase but came in below the trade estimate of 413 million bushels.Continue reading

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A look at market carry and spreads

Early last week the market was positive, but it turned negative at the end. Right now corn seems range bound from $3.30 to $3.50. Slow harvest progress has helped keep prices from testing the lows. This week however looks to be a wide open window for harvest to move forward for the entire Corn Belt.

As harvest continues, both corn and bean yield reports are increasing. Soon the South American weather will be a focus. Perhaps the USDA report will provide information to move stagnate prices.

 

Market carry and spreads

In order for farmers to be as profitable as possible, they need to understand how cash prices are derived for their grain. I frequently mention that cash prices combine futures, basis and market carry. Futures are easy to understand and more and more farmers are paying attention to basis. Still, market carry eludes many farmers.

Market carry is a function of increasing spread prices between futures contracts.… Continue reading

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When will we see the harvest lows?

Corn and soybean harvest is in progress for Ohio and the Midwest. September’s many dry days along with temperatures in the 80s and above greatly aided corn harvest for producers. Those warm, dry days reduced corn moisture significantly after Sept. 15. Numerous reports indicated it had dropped five points or more in just one week. Many producers across Ohio had corn harvest well underway before soybeans had been touched. It was odd to see the number of corn fields empty while soybeans anxiously waited their turn. U.S. harvest progress for corn the last week of September reached 15% and soybean harvest stood at 10%. Both were behind five-year harvest averages. Rains across Ohio the last week of September were anywhere from one to three inches in the southern half of the state, bringing harvest progress to a standstill for almost a week. That rainfall came from the southeast, breaking typical weather patterns of moving from the west or southwest.… Continue reading

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Trade on likelihood not hope

Have we hit the market low?

Many wonder if the market low has passed because markets frequently rally going into October. I’m not sure for several reasons.

  • There are hints that China may start exporting some corn for the first time in 10 years.
  • Harvest is starting slower than usual. Friday I drove from Lincoln, Neb. to Minneapolis and was surprised with how few acres were harvested along I-80 and I-35. I get a sense the market hasn’t been affected much by harvest pressure.
  • Yields are expected to be big this harvest. In fact, some elevators in the western Corn Belt have already started limiting dumping hours.
  • While many farmers are very reluctant to sell at current levels, some landlord shares may get sold across the scale, which may push prices lower in the next few weeks.

 

Harvest reports

Corn is drying fast in the field. Within a week moisture levels on our farm went from 20% to below 15%.… Continue reading

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Report friendly for corn prices

Today’s report was friendly for corn, neutral for soybeans, and negative for wheat. However, wheat is not moving sharply lower in spite of wheat stocks much higher than expected.

Today’s USDA reports consist of quarterly grain stocks as of Sept. 1 along with U.S. wheat production estimates for 2017. Typically this report is not a huge deal nor is it a price changer. Traders are already looking ahead to the Oct. 12 supply and demand report.

The U.S. corn stocks as of Sept. 1 were 1.738 billion bushels. The average trade estimate was 1.754 billion bushels. Last year in September 2015 the U.S. corn stocks were 1.731 billion bushels.

The U.S. soybean stocks as of Sept. 1 were 197 million bushels. The average trade estimate was 201 million bushels. A year ago the soybean stocks on Sept. 1 were 191 million bushels.

U.S. wheat stocks as of Sept. 1 were 2.527 billion bushels.… Continue reading

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Too much wheat impacting markets

USDA reduced corn yield estimates one bushel and raised bean yield estimates two bushels. The market reacted with corn prices decreasing 4 cents and bean prices 14 for the week. This isn’t unusual though.  Prices typically trend lower from the report until right before harvest.  It’s happened 13 out of the last 15 years.

Wheat

I rarely mention wheat, but right now it’s important to understand how it’s impacting the market.  Simply put, there is too much wheat in the U.S. and globally.  This is keeping prices low enough to encourage its use as feed instead of corn.  This could have a large impact on corn demand going forward.

Also, these lower prices may impact acres next year.  There were already 4 million fewer wheat acres this year (7% less). These lower prices may motivate farmers to plant other crops.  While some may plant small grains, or cotton, many will likely plant corn or soybeans.  … Continue reading

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Soybean marketing success in 2015

Beans

Bean demand remains strong for old and new crop, which caused a nice rally this week. However, there continues to be bearish concerns that China’s 2016/17 imports may not be as high as forecasted — 40 million bushels may not get sold pending who is predicting.

Right now, everyone has eyes on the South American weather. It’s still too early to predict anything other than average yields at this point, so there is likely still weather premium in the market. The chance for La Niña to form continues to drop each week. While massive rains reduced yields in South America significantly last year, it doesn’t mean it will happen again this year.

There are still many questions around how many acres of beans will be planted in South America. Many in the trade believe the farmer in the southern hemisphere will plant as many beans as they did last year. … Continue reading

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Bearish numbers for soybeans

The report today was bearish for soybeans with ending stocks increasing from 330 million bushels to 365 million bushels. The U.S. soybean yield was estimated at 50.6, compared to last month at 48.9, while trade estimates were 49.2 Old crop soybean exports did increase by 60 million bushels which was at the top end of estimates. New crop soybean demand increased by 45 million bushels as exports were up 35 million bushels and crush was increased by 10 million bushels. With ending stocks up so much due to the increased production it was unable to hold the gains seen earlier in the day.

U.S. soybean production was estimated at 4.201 billion bushels, up 141 million bushels from last month. The last two weeks soybean prices have moved some days on the bigger supply while other days it was increased demand. In the end today, the higher production is now apparent.

U.S.… Continue reading

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How low do we go?

Farmers certainly don’t want to be sellers at this price level. However, some were probably forced out of positions they carried for the last year on “free” DP grain that came to an end on Aug. 31. Many are saying the end is near, but that may mean 10% from the bottom. Corn could potentially drop another 30 cents, which is scary for unpriced farmers.

I also think it’s close to bottom, but I don’t know when it will be. Wheat is trading at 10-year lows (below $4) and is working into the feed market. So, bushels traditionally filled by corn, are not going to happen. Some farmers are signing up for LDP right now. Hopefully Brazil will need some feed wheat or corn and buy from the U.S., but I’m not sure it will help the markets much. Will we see a yield reduction in the September USDA report? Will it be large enough to make a difference?… Continue reading

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Understanding stocks to use ratio

Sep corn futures breached the $3.18 low from two years ago. This opens the door to test the magical $3 level, which has been unseen since 2009. Wheat traded well under $4 for the first time in 10 years. No one knows when the low will happen in corn. It could be like the summer run-up where the market may over-run to the low side before bouncing back up. The early harvest reports may have a big impact yet on market direction.

 

Corn

The trade is trying to determine final yields and will be relying on early harvest reports. Right now most trade estimates are between 171 and 173. Farmers are hoping for less than 170 to help drive prices higher.

 

Understanding stocks to usage ratio (Carryout/total demand)

Many people are discussing the high demand for U.S. corn as a possible rationale for increased prices. While this may happen, farmers also need to consider potential carryout levels, which will likely be the highest since 1988 this year.… Continue reading

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