Market Analysis




Can the sustained crop price rally continue?

Grains — especially soybeans — have launched and sustained an impressive rally since mid-April. Old crop soybeans have seen a most unexpected rally into early June with the July CBOT reaching $11.69 early this month. The first week of April they were near $9.18. Think back for a moment to all of the negative news that has bombarded your mind all winter and spring. Much like a lingering morning fog. There was nothing but doom and gloom. Declining farm income, yet again this year, seemed certain. So farmers this spring did what they always do. The fields got planted to corn or soybeans. Brazil was destined to see soybean production of at least 100 million tons. That record number was expected to get even larger as harvest concluded. With huge world grain supplies, dreaded headlines of $2 corn and $7 soybeans seemed likely. Looking back, it was the perfect recipe for a surprise to even the biggest bear of the bears.… Continue reading

Read More »

Markets offering reasons to use futures for sales

Corn has rallied, largely due to fund speculation. Some funds reduced their bean longs to buy corn in anticipation of acre switches in the east. Demand for export, ethanol and feed has been steady because there’s been little pull back in basis, which has also supported corn prices.

Interestingly, farmers seem reluctant to sell on this corn rally, thinking corn could go higher like beans did last month. This may happen. However, there are a few things to keep in mind. If funds buy 1 billion bushels of bean futures, it is equivalent to 25% of total U.S. yearly production. One billion bushels of corn represents only 7%. Also, farmers tend to store corn and move beans at harvest, so there is a lot of corn sitting in storage. A lot of farmers are waiting on a corn rally. So, generally speaking it’s easier for funds to manipulate the bean market compared to corn.… Continue reading

Read More »

Market still worried about weather

The market continues to worry about the upcoming summer weather. Some forecasts show warm/dry weather in early June. Also, continued uncertainty over South America’s bean production is keeping a floor in place until summer weather is known. Export and feed demand looks strong according to USDA, but it is uncertain if the estimates are attainable.

How many acres will be switched from corn to beans? Many are estimating nearly 1.5 million corn acres will be lost to beans. Until the June 30 report, this uncertainty provides market strength for corn. Reuters news found that since 1980, seven of 10 years soybean acres increased from the March report to the June report, corn acres also increased. The 2015 prevent plant acres coming back into production as well as reductions in wheat, milo and other minor cereal crops could help acre count for both corn and soybeans.

Corn bottom line: if yields and acres are reduced, better prices in the future are likely.… Continue reading

Read More »

Taking advantage of pricing opportunities for corn and soybeans

Beans

The USDA unexpectedly increased estimated exports for 2016 and 2017, which opened up opportunities for farmers. Still questions remain:

  • Will export pacing stay strong in 2017
  • Future U.S. Dollar value
  • South American crop size (USDA estimates a decrease, which helps U.S. exports).

The USDA also reduced 2017 carryout estimates by 25%. Bears say carryout levels and the “stocks to use” ratio remain the second highest in 10 years. Fundamentally, the market doesn’t have to go higher. Bulls say demand will exceed supply if USDA numbers come to fruition and prices still have plenty of upside.

Planting delays in Ohio and some indecision in the western Corn Belt are making acreage estimates uncertain. Acre counts will remain unclear until the June 30 USDA report. This may impact prices substantially months from now.

 

Corn

The USDA reported little bullish news. Carryout is expected to be over 2.1 billion bushels next year (highest in a decade).… Continue reading

Read More »

Marketing for those who cannot predict the future

Corn

Brazil’s corn production loss estimates are fluctuating between 200 to 400 million bushels. While this may sound high, it is actually helping to ease some large carryout concerns. Estimates are showing the U.S. will likely have the largest corn carryout in the last 10 years come August. This hasn’t happened since before the 2007 ethanol mandate, which coincides with the last time corn traded below $3 for an extended period.

Adding to the mix, China continues to be a wildcard in terms of storage and carryout. Estimates of China’s corn storage levels range between 4 billion by the USDA to 9 billion bushels by some Chinese firms. Also, there continues to be rumors of quality issues with the stored corn. China may have to export some to blend off lower quality corn and replace with fresh inventory this fall. All these unknowns make it difficult to be bullish corn without a weather issue.… Continue reading

Read More »

Four P factors at work in the markets

During April, four “P” factors were at work — planters, politics, precipitation, and prices.

Planters

Planters were rolling across Ohio and the Midwest the last two weeks of April. In numerous Ohio locations the nearly 14-day long dry period mid-month was significant. It permitted fertilizer applications and planting to quickly accelerate corn planting progress. It was amazing to hear how quickly planting could progress when conditions were near ideal or even ideal. While it is not new news, I was surprised to hear of the current technology to produce maximum corn yields. The goal by many has become somewhat simple in scope, but nearly brilliant in magnitude. It is simply this: get the whole field to emerge the same day, and ideally within just a few hours. Emerging plants four days after the vast majority have emerged will be similar to the “runt” of the litter. The ear produced most likely will be extremely small, just a “nubbin.”… Continue reading

Read More »

Another wild week for markets…

Another wild week for the markets. Is it irrational exuberance?

Soybeans continue to show strength in the futures market.  Following are some reasons for the continued rally:

  • Fear of lost/reduced bushels in Argentina
  • More potential for U.S. exports to fill China’s increased demand
  • Decrease in the dollar’s value
  • Limited coverage by end users on soybean meal caused a panic to cover shorts in the market
  • Funds switched positions during the last two months to sizable long positions
  • Summer weather uncertainty may cause those short futures to exit positions until later in growing year
  • The market may still be worried that corn acres are trying to be bought back at the last minute
  • Bean’s technical “picture” still looks positive.

In my opinion, some of these reasons why we could be at a near term top:

  • Argentina’s “loss of bushes” represents only 2% of the world’s production or 10% of world projected carryout
  • It’s uncertain that soybean meal end users will continue to be strong buyers in the long-term if weather looks favorable
  • Even if funds that are long decide to reduce risk and sell, who is going to step up and buy?
Continue reading

Read More »

Has the corn basis peaked?

Corn basis levels appear to have reached a near-term peak early this month. Ethanol plants in central and western Ohio had reached 26 to 34 over the May CBOT corn. With price rallies the first two weeks in April, it appears plenty of old crop corn was moving from farmers’ bins. In the face of that price rally, corn basis then declined 4 to 9 cents in just a few days. Those price rallies had old crop corn at $4 or higher in numerous Ohio locations. That seemed to be the magic level that producers had desired for months. Corn movement was heavy from farms across Ohio and the Midwest. No doubt those ethanol plants and end users were able to book their needs for at least a month on the corn rally. It will be most interesting to see how the corn basis moves for the next eight weeks. Those weeks will get us though planting season, and into the critical pollination periods of the first two weeks of July.… Continue reading

Read More »

Marketing to manage risk

With good weather forecasted for the week, corn planting started across the Midwest. I anticipate a high percent of corn acres will be planted this week.  Early planting like this is not bullish because it usually leads to higher yield potential.

Beans continue to rally due to inflation worries in the macro economy.  Strength of the Brazilian Real verses the Dollar may lead to better export potential from the U.S.  Also, early corn planting indicates that not as many corn acres will be switched to beans as estimated.

Fundamentally this bean rally seems a bit overdone. Technically, the market could continue to rally. However, some say this rally put a weather premium back into the market. Beans may be in for a wild ride, prices could range from $7.50 to $11 depending acres and yields this summer.

Over the last few weeks there have been countless corn and soybean predictions.  Corn estimates ranging from less than $3 to over $6 causes sensational headlines, but doesn’t help producers make decisions.… Continue reading

Read More »

Switching corn acres?

The dust settled last week after the USDA news reporting upcoming massive corn acre estimates. With the recent 20-cent corn decline and 50-cent bean rally (over the last several weeks), many traders think farmers will switch more corn acres to beans. While logical, I’m not sure that will happen at levels traders anticipate. Farmers I speak with are not planning to make changes due to logistics or sunk fertilizer costs already applied.

Similarly in the Dakotas, some traders think corn acres could be switched to spring wheat. Again while logical, after running the numbers, most farmers would need wheat to rally another 50 cents (compared to corn) to make this more profitable.

Weather in the Delta may bring an opportunity to switch acres, but it’s such a small growing region that farmers in that area would need to switch 50% of acres to beans to have any impact. This isn’t likely.… Continue reading

Read More »

Big corn acres won’t support higher prices

The USDA confirmed what I’ve suspected the past few months — the intended corn acres are going to be too high to support higher prices. Before the Friday report it paid to plant corn over soybeans, but now the huge advantage corn had over beans is gone. For many, the profit could be similar. Everyone will have to wait for the June 30 report to see how many soybean acres are planted instead of corn, but I don’t expect more than 2 million acres today.

It’s important to note, a loss of 2 million corn acres isn’t likely bullish. Even with that acre reduction and 164-bushel average trend line yield, the carryout would be higher than this year. To hit $4 corn again, average yields would need to be closer to 158.

This doesn’t make me bullish beans either, though. Currently bean acres are expected to be similar to last year.… Continue reading

Read More »

Corn bearish, soybeans neutral

U.S. corn acres were estimated at a shocking 93.6 million acres, up from the average estimate at 90 million acres. Corn was down 5 cents before the report came out. Within minutes it was 12-14 cents lower. Soybean acres were estimated at 82.2 million acres, down slightly from the 83.06 million acres trade estimate. Wheat acres were pegged at 49.5 million acres, down from trade estimates by nearly two million acres.

It is going to take some time to get your head around a corn acres number that was over 3.5 million acres above trade estimates. The number does show the U.S. farmer’s love affair for corn does continue.

U.S. corn stocks were estimated at 7.808 billion bushels, a new record for the March time frame. That estimate was just 7 million bushels below trade estimates. Soybean stocks were estimated at 1.531 billion bushels, 30 million bushels below trade estimates. U.S.… Continue reading

Read More »

Markets awaiting planting intentions

Beans had a “fundamental disconnect” last week when funds went from a short position to a long position within a week. By the close of Thursday, the bean market “bought” some corn acres back, which it didn’t really need.

The biggest USDA report of the year will be released March 31.  It will show how many corn acres are planned for 2016.  The trade is expecting around 90 million corn acres and 83 million bean acres.  Above these number expect market drops and below these numbers a rally may occur.

I continue to see breakeven points for clients that favor planting corn over beans in most locations throughout the Corn Belt.  The farmer’s yield potential estimates drives which crop they will grow.  Many farmers don’t like to change their rotation, but even if a small percent of farmers would adjust large portions of their acres, it would affect the market.

What will the large number of prevent acres from last year be planted to this year continues to be a lingering question.  … Continue reading

Read More »

Planning for high yielding soybeans

When planning for the upcoming growing season, it can be easy to focus more energy on corn production as it has traditionally been the more intensively managed crop. However, producers who put in the effort to manage their soybean crop have proven it is possible to attain high yields of 70+ bushels per acre. Below are some tips for planning to produce high-yielding soybeans in 2016.

• Quality seed: Planting the right seed sets the stage for the entire growing season. Growers should plant genetics with high yield potential. Choose varieties that have been tested at several locations and across multiple years. Growers should choose varieties adapted to their soil types and management practices. As with corn, choosing varieties with strong disease packages and agronomic traits with aid in achieving higher yields.

• Planting date: University research has proven that timely, early planting is one way to increase soybean yields. As with corn, planting soybeans by early May improves yield potential.  … Continue reading

Read More »

Break even point and yield estimates

With little bullish old crop news, corn continues to trade a very tight range. There continues to be too much grain in bins and farmers using deferred pricing (DP) to push prices higher. End users seem to have good coverage on. No one knows when or if this will change.

Bean prices rallied to recent highs with the U.S. dollar losing some value to the Brazilian Real, helping U.S. export potential. One issue, the early spring may push cattle to pasture sooner in the Southern states, which would mean feed demand reduction. Similar to corn, many think too many beans are still stored on farms, which may limit upside potential.

Weather story

This spring there has been a flower “super bloom” in the Death Valley desert. This phenomenon has happened twice in the last 30 years (1998 and 2005). In both years the corn crop yield was near normal. Also, corn prices peaked in March for 1998 and July for 2005 with both losing 80 cents in value from the high by December.… Continue reading

Read More »

Markets shift to watching the weather

Producers have been active with fertilizer applications and any tillage preparations ahead of planting. You can’t help but feel that this planting season is different from those of the past. Gone are the positive returns per acre for corn and soybeans seen in previous years. At one conference I attended in January, Illinois customers were advised to give up rented acres if cash rents were greater than $225 per acre. It is no wonder Ohio Extension personnel suggested flexible rents several years ago, which can be adjusted lower when grain prices moved lower.

The USDA March 31 Planting Intentions Report, along with the quarterly stocks report, are now history. A big question continues to be, “Will producers plant more soybeans than expected?” Last year it was thought that soybean acres could be as much as two million acres more than those expected with the March intentions report. That did not happen.… Continue reading

Read More »

Neutral report, a yawner

Today’s USDA crop report looks to be dismissed and nearly soon forgotten if you believe the news stories prior to the noon release. Grains overnight were mixed with corn and wheat lower while soybeans were higher. The report today deals solely with the supply and demand report. Production numbers for 2015 will not be changed. Usage and ending stocks will be the numbers that the market, analysts, and producers will key on.

U.S. corn and wheat ending stocks were unchanged, no big surprise. Corn exports were unchanged, no big surprise. Soybean ending stocks went up 10 million bushels to 460 million bushels due to crush lowered by the same amount. This had been well expected by the trade.

Prior to the report corn was down 3 cents, soybeans up 3 cents, wheat down 3 cents. Shortly after the report release, corn was down 1 cent, soybeans down 3 cents, while wheat was down 1 cent.Continue reading

Read More »

Finding weather trends

Corn continues to trade in a 20-cent range. Weather conditions appear favorable for early planting, which makes above trend-line yields possible. While some in the market estimate there is enough weather premium in Dec futures at $3.75, many think above average yields will bring $3 corn or lower.  Many farmers are hoping for a 50-cent weather driven rally to catch up on sales.  Both sides are keeping corn “stranded” in a narrow trading range.

Beans recovered nicely on Friday to stay in the current 60-cent trading range they had been in. Fundamentally the bean story isn’t bullish. There may be a $1+ per bushel weather premium factored in due to La Nina potential in August. Farmers will likely continue holding beans because many are underwater at these levels.  Beans could continue to trade sideways temporarily.

A longtime friend of this weekly newsletter sent me an article about a possible correlation of Great Lakes ice coverage and the national corn yield.  … Continue reading

Read More »

Running the farm as a business

A profitable farm is more complicated than planting crops and hoping they pay the bills at the end of the year. Farmers should consider their operations as a company with multiple profit centers working to a common goal. Each profit center must “pull its own weight” without drawing profits from another division. Successful farmers understand each profit center independently and how it maximizes profit for the farm operation.

There are four large divisions (some with smaller subsets):

• Land ownership

• Custom operations

• Grain storage

• Farmer.

 

Land ownership

This is where I see farmers “cheat” the most, because most farmers are very passionate about working the land. I ask all my clients, “Are you paying yourself a fair market rental price for use of your land?” Smart farmers factor that into their costs. In theory, some farmers could spend their time on the beach while hiring someone else to do the hard work of farming the land.… Continue reading

Read More »

USDA offers plentiful numbers for the sideways market to digest

Last month USDA held their annual outlook conference. During this conference they provide 10-year projections for U.S. grains. Typically, during the first day they provide acres estimates for U.S. grains. Then during the second day they publish additional numbers that include supply and demand estimates, including ending stocks.

There are a bunch of numbers. To highlight a few: USDA estimated 2016 corn acres at 90 million acres, up from last year’s 88 million acres. Soybeans for 2016 were projected at 82.5 million acres. This is down ever so slightly from last year’s 82.7 million acres. Wheat acres continue their trend of shrinking from previous years, projected this year to be just 51 million acres. Last year U.S. wheat acres were 54.6 million acres. One way of looking at 2016 acres is to total corn, soybeans, and wheat, the three major U.S. crops. USDA puts the total for those three at 223.5 million acres, last year that total was 225.3 million acres.… Continue reading

Read More »