Market Analysis




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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Missed marketing opportunities

There continues to be reports of corn ear tip back.  In my opinion social media is exaggerating this problem. There are definitely isolated cases, but it doesn’t seem to be a widespread problem. I suspect the people spreading these “reports” are likely unsold or long and hoping for a market rally.

Some in the market point to record demand, which would theoretically lead to a market rally over time.  While this may be true, it will take nearly a year before the market will be impacted. There is still a question surrounding what will be done with the massive wheat supply.  Also, China’s economy continues to be a question mark going forward. They have been auctioning off state reserves and they have slowed their import of DDG’s. The DDG issue could create excessive U.S. inventories, displacing corn and meal in domestic feed usage.

Missed Opportunities

Nearly every farmer (me included) was caught off guard when corn spiked then dropped over six weeks this summer.… Continue reading

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How far off is the USDA?

The USDA increased the average national yield estimate to 175.  Some disagree with this estimate, saying the USDA is using record ear weight, which isn’t likely considering the intense summer heat throughout the Midwest. Others are questioning low population count estimates on the reports, which also doesn’t make much sense given the new seed technology options available to farmers. Right now I’m expecting the national yield to be above trend line, and a record yield is not out of the question. Next month USDA numbers will be based more upon actual field results.

Farmers want to know if the lows are in for the year. I’m not sure if the low is in yet, but I expect we are getting closer. There is still a lot of old crop left to sell before harvest, which could pressure prices yet. The 15/16 carryout was around 1.70 billion and futures remained near $3.70 for most of the year.… Continue reading

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August WASDE report bearish, watch the close

Today’s report is a bearish report. Both corn and soybean production and yields were above trade expectations and near the high end of estimates. Corn production was estimated at 15.153 billion bushels with a yield of 175.1 bushels per acre. Ending stocks were estimated at 2.409 billion bushels. The US soybean production was estimated at 4.060 billion bushels with a yield at 48.9 bushels per acre.

Old crop US corn exports were increased 25 million bushels while new crop corn exports jumped to 2.175 billion bushels, up 125 million bushels from last month. Old crop soybean US exports were up 85 million bushels with new crop exports were up 30 million bushels. The strong demand increases account for keeping soybeans from being down 30 cents or more. The ending stocks of 330 million bushels will keep the bears feeling good for the day. Again watch to see what where grains close.Continue reading

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Crop observations from the west

Everyone is waiting for the first USDA crop yield estimate of the year on Aug. 12. The only way corn will push above $3.50 at this point will be a surprise yield decrease. The trade believes this crop is getting bigger, not smaller, but it’s still unclear how big. Since farmers aren’t selling, corn still manages to stay above $3. It may be boring (or even disappointing) until harvest is over.

Due to perceived crop conditions and weather forecasts, beans aren’t pushing past $10. However, export demand has been strong, keeping the market above $9. We could see continued sideways markets in beans through harvest as well.

Observations from the road

This week I travelled from Minneapolis, MN to central Nebraska (specifically York, NE) and back this week. During the 1,000 mile round trip I stopped every 30 or 40 miles to evaluate how corn ears are developing.

Trip South (Minneapolis to Des Moines on I-35, then I-80 to York, NE)

Throughout Minnesota and Iowa, I didn’t see any fields experiencing stress or dry conditions.… Continue reading

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No dome. No doom. No rally.

Corn

Some estimates indicate crop yields could be record-breaking this year. Good weather combined with technological advances in seed genetics and traits makes this a possibility. Record yields would put tremendous pressure on the market, potentially pushing prices under $3 for the first time since Sep 2009 in the long run.

In the last six months beans, wheat and oats have traded at or below 2009 lows. It may be corn’s turn to test the lows. Fundamentally it is the perfect set up — potential record yields, huge carryout and pressure from competing feed grains.

I’m hoping for a rally in the near term to give me a couple more selling opportunities. It looks like this market could trade sideways for a very long time.

 

Beans

If beans have record yields, it would ease shortage concerns. Add this to the rumors that China is slowing imports and prices could tumble under $9.… Continue reading

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Extreme prices plaguing marketing decisions

Grains this past month can be summed up in just one word, extremes. We have seen both price extremes and weather extremes. The uncertainty of weather has often yielded quick and violent price movement. All summer it has become apparent that we are in a season of extremes. That is not a short-term phenomenon. However, time is running out for weather to have much more impact in coming weeks.

This summer it has been very common to see daily prices for corn and soybeans peak during the overnight trading session, only to reverse and move harshly in the opposite direction during the day session. It can make for some most frustrating thoughts as to pricing or not pricing 2016 corn and soybeans. One moment you are happy and a few hours later you are not. It quickly becomes, “cycle, rinse, repeat.”

It was most interesting to observe the market mentality leading up to the USDA supply and demand report released on July 12. … Continue reading

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Taking a look at the role of USDA reports in the market

The USDA report last week held few surprises. Corn carryout was slightly lower and beans were slightly higher than expected. There are still feed usage questions with all of the excess milo and wheat in the market, but that might not be resolved until sometime in the future.

The corn crop continues to look amazing throughout most of the Corn Belt. Beans are also looking good, but have slipped slightly. Hot and dry forecasts dominate one day and then rain forecasts are shown the next day. Expect concern over corn kernel fill to continue while bean potential to be wide open. Weather’s effects on the corn market may be nearly over after this week.

Corn harvest started in southern Texas, and so far the yields are the best ever for this region. As harvest moves north expect the basis to drift lower as corn is more available. Also with the impressive wheat harvest, storage space may be at a premium this year.… Continue reading

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Why did corn prices spike, then drop?

Corn prices dropped $1 per bushel in the last three weeks, which was unexpected by many.  Several sayings are now popular: “there is a lot of summer to go, prices will bounce back” and “there will be more demand with cheaper prices, so prices have to go up.”

There isn’t any bullish news for corn right now. There are still too many bushels in the market. Last year corn traded on a regular basis at $3.70 futures with 1.8 billion carryout, so it’s difficult to expect higher prices with potentially 2.2 billion carryout. Farmers are hoping increased demand will push up prices, but it may take futures dropping to $3 to find those buyers. However, this won’t necessarily bring $4 corn.  Even if yields were 5/bu/acre less than trend-line, the carryout would be the same as last year.  I think it’s unlikely corn will spend any significant time above $3.75 for a while and I’m concerned prices may stay below $3.50 if weather conditions remain good.… Continue reading

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USDA report not negative

Traders had expected the report to be negative for grain prices. That was not the case today. Ending stocks for old corn was estimated at 1.701 billion bushels, less than trade expectations. New corn ending stocks were 2.081 billion bushels, also less than trade expectations. Old crop soybean ending stocks were 350 million bushels, slightly below expectations. New crop soybean ending stocks were 290 million bushels, at touch above expectations. New crop wheat ending stocks were 1.105 billion bushels, just below expectations.

Other changes within the report had old crop soybean exports up 35 million bushels, no surprise there. New crop soybeans had crush up 10 million bushels while exports were up 20 million bushels. Old corn saw exports up 75 million bushels and corn used for ethanol down 25 million bushels. No surprises there.  New corn had exports up 100 million bushels and corn for ethanol down 25 million bushels.Continue reading

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Make a marketing plan and stick to it

Last week’s USDA report showed few farmers switched intended corn acres to beans. This may cause trouble for corn prices, especially with rains right before pollination in the major corn states.  Weather reports show half of the Corn Belt is good or great while a third struggles. Overall, crop conditions have never been this good for the U.S. as a whole this far into the season. There is another two weeks where weather can have a major impact on corn yield.

Without a yield reduction, it will be difficult reaching $4.  Even a 3% cut in yield from trend line of 166 to a 161 average yield would mean 1.5 billion bushel carryout, which is more than adequate.

Even if weather is good for the next two weeks, there is the slight potential for a frost scare over Labor Day, which could affect prices down the road. Right now though, everyone is watching the weather the next two weeks.… Continue reading

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Watching the basis

The British voted to leave the EU. This decision leaves many unknowns on how this will affect the market long term.  So far, this hasn’t affected the grain markets significantly.  However, with the dollar stronger, beans may be hit as exports will be more expensive.  

Are The Highs Over For The Year?

It depends on the weather. If forecasts remain wet, the highs are likely done.  If weather gets hot and dry, the sky is the limit.  The next three weeks of forecasts will determine the corn market.  Following is a summary of weather conditions:

  • 1/3 of corn belt – great conditions
  • 1/3 of corn belt – dry, needs rain
  • 1/3 of corn belt – “normal” for this time of year

With timely rains, expect trend-line or above average yields.  Large scale dry conditions may bring a market rally back to recent highs.

Wheat

The wheat harvest continues to push north and yields are great.  … Continue reading

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Corn acres bearish surprise today while soybeans are sharply higher

Today’s USDA report showed that U.S. farmers planted 94.188 million acres of corn and 83.688 million acres of soybeans. Corn acres were higher than expected as they went up when the trade was looking for a lower number. The higher corn acres number is a bearish surprise. It shows that the U.S. farmers’ love affair with corn continues. Soybean acres while up, were less than expected.

Prior to the report corn was down 4 cents, soybeans were down 12 cents and wheat was down 1 cent. Soybeans had a huge range shortly after the report as they moved over 30 cents in less than 2 minutes. We are seeing lots of price volatility and price ranges with grains today.

Today’s report is providing end users of corn to get coverage in places they had not expected two weeks ago. At one time corn was down about 17 cents. Thirty minutes into the report we are seeing corn still lower on the day but down just 7 cents.Continue reading

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Conquer your fear of using the futures market

The indication of precipitation in the forecasts will drive these markets for the next four weeks. When the weather models agree, the market feels more confident in its predictions. When the models disagree there is more uncertainty, which is why the market is up one day and down the next. Dry weather will make the market go up while a chance of rain will mean the markets fall. It will be that simple.

The referendum in Britain on June 23 is another important piece to these markets for the next week. If Britain chooses to leave the EU, many view this as bullish the dollar. If Britain remains, the Euro and Sterling will increase at the expense of the dollar. The polls continue to change daily.

Fear of using the futures market

In the past, I’ve explained the benefits of trading futures. Today, I’ll explain the “dreaded” margin call.

As a true hedger, I don’t like calling it a margin call, because that term is most often associated with speculators.… Continue reading

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Production problems and using futures

The USDA report was neutral corn. Increased exports are supportive but a 2 billion bushel carryout next year is burdensome.

The drop in next year’s bean carryout is was very supportive and I was surprised that the market didn’t close significantly higher. Perhaps “buy the rumor sell the fact” was in play.

Wheat was extremely bearish. I don’t normally talk about wheat, but world carryout next year is projected to be 20% higher than what corn will be. Wheat is going to be fed around the world, long term I expect this to hurt corn demand and suppress both wheat and corn prices unless we have a drought.

Last week USDA reported the corn crops looked fantastic, with 75% good/excellent ratings. After warm and dry weather, I expect the USDA will pull back on that estimate. Farmers and funds still remember 2012. While further doom and gloom could bring an additional price rally, I think current prices are a good opportunity to price some 2016 grain.… Continue reading

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Hedging or speculating?

Some 30-day forecasts are indicating potential dryness. In 45 days it will be more clear if the corn crop is going to make yield trend lines.

Soybeans

More positive bean news this week. Soybean meal demand continues to be strong, as many end users were uncovered during this rally. Also some South American bean exports changed to the U.S. last week, causing a bean price surge (dragging corn and wheat with it). Basis levels indicate this bean price surge may be more than a technical trade focus. Everyone wonders how high prices will go, and so far everyone’s predictions have been wrong. Some say it may go down now, because basis levels at processors dropped on Thursday and Friday significantly. Right now, it’s all about money flow, and it’s pointing upwards not down.

Corn

Some estimates show 300 million South American corn bushels were lost due to weather. While a significant number, some say feed wheat, which there is more of in storage globally than corn, is working into Asian markets to replace corn in feed rations.  … Continue reading

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