Market Analysis




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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Crop price support challenges continue

By Doug Tenney, Leist Mercantile

Producers continue to be upset with the price action in corn for 2020 as they hold much larger than normal inventories at the end of May. Gone for months are the hopes of exceeding the highs seen last summer. Instead, devastating demand destruction with the coronavirus has seen corn for ethanol decline 475 million bushels from February through May. When U.S. consumers drive less, gasoline demands shrink. While this is old news, it will haunt corn demand for many, many months into the future. Traders are expecting the corn for ethanol line to shrink an additional 300 million to 400 million bushels for old crop corn by the end of August. July CBOT corn fell below the 50-day moving average late in January. It finally moved above that line which was $3.2875 the last two trading days of May as it reached $3.31 but could not close above that line.… Continue reading

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Will Dec corn reach $2.50?

By Doug Tenney, Leist Mercantile

Grains the first half of May were all lower with corn down 1 cent, soybeans down 17 cents, and wheat down 24 cents compared to the end of April. It should be no surprise that the bearish pattern seen at the end of April continues. Shrinking demand is taking place all around us in many areas of agriculture, particularly the grains. It was the theme seen with the May 12 WASDE Report.

For example, corn for ethanol in marketing year 2019-2020 was cut 100 million bushels. That decline was surprisingly low as many had expected a much more drastic cut. At that time many suggested the corn for ethanol number could be cut an additional 350-450 million bushels in coming months. Looking back only one month, USDA had cut the ethanol number 375 million bushels in April. When you review the weekly corn grind, the decline is sharply affected by the huge number of U.S.… Continue reading

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Setting basis and leaving futures unpriced

By Jon Scheve, Superior Feed Ingredients, LLC

Last week’s USDA report showed 10% less carryout than the trade expected for the 2020 crop. However, it was still 3.3 billion bushels, which is concerning. In the last 33 years, the highest final carryout level ever reached was 2.3 billion bushels. While some farmers may have switched corn acres to beans, or other spring crops, it’s unlikely to be enough to offset 1 billion corn bushels.

 

Setting basis and leaving futures unpriced

This week a couple farmers across the country discussed setting basis levels in their area and moving grain sooner than later. Here are some issues to consider before setting basis for May, June or July delivery without first having futures prices locked in.

 

Willing to set futures price by June 29?

First, a farmer needs to decide if they are willing to set their futures price on this trade by June 29.… Continue reading

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May 12 USDA numbers a neutral surprise

By Doug Tenney, Leist Mercantile

Plenty of numbers today.

Old corn exports were increased 50 million bushels, big surprise, while corn for ethanol was cut 100 million bushels, also a surprise. Old crop soybean exports were cut 100 million bushels, while crush was unchanged.

Shortly after the USDA report was released, corn was unchanged, soybeans down 2 cents, and wheat down 7 cents. Just before the noon report, grains were all lower with corn down 3 cents, soybeans down 2 cents, while wheat was down 5 cents.

Ahead of the report, many had expected it to be neutral to bearish report for grains. Old crop corn demand was expected to drop 150 million to 200 million bushels due to lower exports and lower corn for ethanol. Old crop soybean demand was expected to drop 50 million to 100 million bushels from lower exports.

This report had the first supply and demand tables for 2020-2021 grains.… Continue reading

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Trades don’t always work like you think they will

By Jon Scheve, Superior Feed Ingredients, LLC

The export market heated up this week as China bought U.S. beans for August/September shipment, but then the President suggested the trade deal could be secondary to China, who might be responsible for the coronavirus. Could this mean that the trade war is not yet behind us?

As stay at home orders have started to ease, gasoline usage has increased. With that increase, ethanol stocks have dropped from their record highs too. While still far from normal, both are moving in the right direction.

U.S. beans continue to be crushed at high volume, which is a positive. However, the Brazilian Real’s currency value continues to decrease relative to the U.S. dollar, hampering upside in the bean market here in the U.S.

 

Previous trade detail: Dec. 27, 2019

I sold 25% of my 2019 beans in the July ’20 contract at $9.75 while the March soybeans were trading at $9.50 on the same day.… Continue reading

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Guaranteed revenue?

By Jon Scheve, Superior Feed Ingredients, LLC

This week I heard a story that a few farmers may consider planting corn without applying fertilizer to reduce input costs. They would then take advantage of the insurance revenue guarantee on the yield using their average production history. At first, I thought it was just coffee shop talk. However, within a day several elevator managers and other farmers throughout the Midwest said they were hearing the same thing.

While initially this idea didn’t make sense to me, I gave it some more thought, and realized there may be some logic to this unconventional idea. The following explores the viability of this strategy.

 

Insurance is a revenue guarantee

It is important to remember that insurance guarantees are based upon the total revenue of combining yield and price. For this plan to work, a farmer would need both low yields and low prices. By cutting fertilizer out completely a farmer would almost be guaranteed of reducing their yield by maybe 50%.… Continue reading

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How will acres shape up in #Plant20?

By Doug Tenney, Leist Mercantile

On May 12, USDA will publish their first estimate of supply and demand tables for 2020-2021 crops. With the March 31 planting intentions report estimating 2020 corn acres at 97 million acres, it is easy to assume ending stocks for the new crop year at a number not seen for several years. Ending stocks for Aug. 31, 2021 will reach at least 3 billion bushels in coming months. Some are already indicating it could reach 3.5 billion bushels or even higher with trend line yields and higher acres. Demand destruction seen in recent weeks further increases ending stocks as well.

U.S. corn acres for 2020 were estimated on March 31 to reach 97 million acres. Since then, prices for new crop December 2020 corn reached the $3.40 mark last month. Prices fell from the $3.88 average seen during the month of February 2020 which is when crop insurance revenue prices were calculated for corn.… Continue reading

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Will farmers social distance themselves from corn?

By Jon Scheve, Superior Feed Ingredients, LLC

The April 9 USDA report seemed to factor in a 50% ethanol grind reduction for at least March and April. There may need to be more reductions in future reports if shelter in place continues. The USDA also increased feed usage, likely to make up for reduced DDG production and consumption. With what we know today, these adjustments appear reasonable.

Reduced gas consumption due to shelter in place orders will likely impact corn prices for the rest of the year. Normal gas consumption is unlikely for quite some time, and many are hopeful it will be back to at least 80% by the end of summer.

 

Planted acres

With potentially less ethanol consumption, demand for corn will fall. The estimate from the March 31 USDA report of 97 million planted corn acres could lead to nearly 3.7 billion bushels of carryout next season.… Continue reading

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Day 17 of social distancing

By Jon Scheve, Superior Feed Ingredients, LLC

Navigating the extended homestays has been challenging for many. Teaching, entertaining and keeping kids occupied at home, while parents continue to work the best they can is taking a toll on everyone.

It’s still uncertain how long the restricted movements will last. I was hoping by Memorial Day people would be able to leave their homes again. Unfortunately, I may be having to wait a little longer if other states follow Virginia which issued an order for shelter in place until June 10. Regardless of when the restrictions end it’s still unclear how fast things will get back to normal. One possible scenario is that increased movement will be gradual, with large gatherings in the hundreds or even thousands not allowed for a much longer time period.

And in terms of the economy, it will likely take a while for it to get back to “normal.”… Continue reading

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Fear driving markets and consumer behavior

By Jon Scheve, Superior Feed Ingredients, LLC

It seems the U.S. toilet paper retail supply may be indirectly related to current corn prices. Fear is driving many people to do things they normally wouldn’t do, like hoard face masks and years of toilet paper. In Minneapolis where I live, Costco’s canned goods and cleaning supplies were nearly empty and Target/Walmart’s pharmacy and health sections were extensively picked over.

While exercising caution regarding the coronavirus is important, panic and excessive fear isn’t helpful. Most people who get the virus will ultimately be fine, so it’s important to keep perspective. Experts expect only 5% of coronavirus cases will require ICU visits; however, there are only 100,000 ICU beds available and many are already filled. If just 1% of the U.S. (3 million people) get the virus and 5% of those people need hospitalization (150,000), there won’t be enough beds and medical staff to help the very sick.… Continue reading

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Uncertainty impacting grain markets

By Jon Scheve, Superior Feed Ingredients, LLC

Fear of the coronavirus seems to be spreading faster than the actual disease and this is impacting the grain markets.

 

Meat consumption uncertainty

Some are fearing people won’t want to leave home and will dine out less, resulting in less overall meat consumption. However, there are also stories of supermarkets running low on meat, as people prepare for possible extended home stays. So, the market may be overreacting to the fear of the unknown. Until more is understood about how the virus spreads, the recovery time, and the mortality rate, the market will likely select the direction that seems less risky.

 

Tight corn spreads

Because the markets have dropped so much and so quickly many farmers are simply not selling their grain. This has contributed to the narrowest May/July corn spread since the spring of 2013. Typically, a tight spread indicates a supply shortage where the market wants grain now instead of waiting.… Continue reading

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March 10 WASDE offers neutral numbers

By Doug Tenney, Leist Mercantile

Ahead of the report, many had expected it to be a non-bullish report for grains.

Shortly after the USDA report was released, corn was up 4 cents, soybeans up 8 cents, and wheat up 2 cents. Just before the noon report, grains were all higher with corn up 3 cents, soybeans up 9 cents, and wheat up 3 cents.

Soybean exports and crush were unchanged. Ending stocks at 425 million bushels were unchanged. Corn exports and corn for ethanol were unchanged. Ending stocks were unchanged at 1.892 billion bushels. Brazil soybean production was increased one million tons to 126 million tons. Argentina soybean production was up one million tons to 54 million tons. Wheat exports were unchanged with ending stocks unchanged at 940 million bushels. Trader estimates for ending stocks were little changed from last month for corn, soybeans, and wheat.

The media hysteria with the Coronavirus is ongoing.… Continue reading

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Bearish news continues for corn

By Jon Scheve, Superior Feed Ingredients, LLC

The corn market is facing a lot of bearish news right now:

  • Coronavirus
  • Remaining concerns of African Swine Fever, and a little bird flu
  • Corn movement as farmers need to generate some income
  • Potentially 94 million corn acres being planted this year
  • Lack of China purchases from a phase 1 trade deal
  • A potentially large South American corn crop
  • Weak ethanol margins
  • A strong dollar which leads to a slower export pace.

 

Despite so much negative news, the market continues to perform well with corn futures only down 15 cents since the coronavirus hit. Spreads between March and May futures have narrowed from around 8 cents last month to just under 4 cents. Considering the carryout size reported by the USDA, this seems overly tight. These tight spreads combined with the strong basis levels could indicate that corn futures may have more upside than downside potential going forward.… Continue reading

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Preventing the spread of “free” DP

By Jon Scheve, Superior Feed Ingredients, LLC

Not much is exciting the markets right now beyond the coronavirus, and until more is known about its effects and how it spreads, the market will likely remain under pressure.

 

Preventing the spread of “free” DP

February is when free storage from “free” DP (deferred pricing) starts being advertised throughout most of the Corn Belt. While some also call it “price later opportunities,” or “delayed pricing” it refers to when farmers sign over their grain to an end user, and then wait to price the grain at a later date hopefully at higher values.

On the surface, DP seems like a win-win for farmers and end users. DP is a great way for end users to get a supply of grain during the winter. And, farmers can move their grain now when they aren’t busy, and price later during a potential rally. However, DP actually ends up hurting ALL farmers, those using it and those that do not.… Continue reading

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Corn market history

By Jon Scheve, Superior Feed Ingredients, LLC

The world continues to watch the development of the coronavirus. Many are wondering if it will delay the Phase One deal or impact demand in China or other parts of the world. On a positive note, basis values among end users throughout the U.S. are staying firm, and in many cases are increasing for both corn and beans.

There are so many variables impacting the market that no two marketing years are ever the same. Weather arguably has the biggest impact on the market, and it can’t be forecasted accurately more than two weeks out. So, it’s impossible for anyone to correctly predict the market consistently.

Despite so much uncertainty, farmers still need to make grain marketing decisions every day. And while nothing is ever guaranteed, looking at historical trends can provide some insight on averages and tendencies that can help guide decision-making.

Below are some historical values for December corn futures over the past 3 decades.… Continue reading

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Feb. 11 USDA numbers neutral

By Doug Tenney, Leist Mercantile

Ahead of the report, many had expected it to be a non-bullish report for grains.

This past week, the trade remained confused if additional U.S. grain exports as a result of the Phase One signing would be included in this month’s report. Some thought yes, others no.

The market has been disappointed to see very few U.S. grain sales to China this past month. There were corn sales to China last month along with soybean sales the past few days. Traders and producers alike are expecting to see additional U.S. grain sales to China announced in coming weeks as a result of the Phase One trade deal signed Jan. 15.

Soybean exports were increased 50 million bushels, ending stocks went down 50 million bushels. Wheat exports were increased 25 million bushels and ending stocks went down 25 million bushels. Corn ending stocks were unchanged. Corn exports were lowered 50 million bushels, while seed/industrial went up 50 million bushels.… Continue reading

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