Market Analysis




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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Trade deals, coronavirus keep markets uncertain

By Doug Tenney, Leist Mercantile

President Trump signed the USMCA or U.S., Mexico, and Canada Agreement. It has now been passed by the U.S. and Mexico, Canada has yet to ratify this agreement. The USMAC replaces NAFTA, which was a great agreement from the Clinton administration back in the 1990s. Some are calling it NAFTA 2.0. The new trade agreement replaces the 25-year NAFTA agreement. It should give the U.S. more access into those markets. Early indications suggest it will result in more automotive production in the U.S. In addition, this agreement should be beneficial for U.S. dairy farmers. Mexico, from an agricultural perspective, has been in the news in the past two months as they have purchased U.S. corn on multiple occasions.

The Phase One trade deal was signed last month by the U.S. and China. It calls for China to purchase 40 billion dollars in U.S. agricultural goods in each of the next two years.… Continue reading

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Hoping for a rally while managing risk

By Jon Scheve, Superior Feed Ingredients, LLC

For the first time in 7 weeks, March corn finished the week outside of the $3.85 to $3.90 range with a close at $3.81.

The market is being cautious with the coronavirus. After 2 weeks, the mortality rate is still around 2%, compared to the 2003 SARS outbreak which was near 10%. There is concern all over the world as many countries continue to report the spread of the virus. Some reports indicate that doctors and scientists need at least 45 days from the start of a new disease to truly understand the outbreak potential. This likely means another month of market uncertainty.

U.S. corn is competitive globally right now, which should support the current price level and could mean better prices down the road. Beans have had a difficult month, dropping nearly 90 cents. First, China hasn’t announced any major purchases since signing the Phase One trade deal.… Continue reading

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Stagnant market sets stage for straddles

By Jon Scheve, Superior Feed Ingredients, LLC

U.S. corn prices are currently competitive globally; however, the market is watching to see how the coronavirus impacts the world economy. Despite positive movement on Thursday, March corn reversed on Friday and finished between $3.85 to $3.90 for the sixth straight week.

Market action

Following details three straddle trades I’ve done recently.

 

February straddle trade:

On 11/20/19 when March corn was trading $3.80, I sold a February $3.85 straddle (selling both a $3.85 put and a $3.85 call) on 10% of my 2019 production and collecting 20 cents total of premium.

 

What does this mean?

  • If March corn is $3.85 on 1/24/20, I could keep nearly all of the 20 cents.
  • For very penny corn is below $3.85 I get less of the premium penny for penny until $3.65
  • At $3.65 or lower I lose money penny for penny on this trade.
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Will China live up to Phase One promises?

By Doug Tenney, Leist Mercantile

Jan. 15 was supposed to be a big deal for U.S. farmers with the Phase One trade deal signing between the U.S. and China. U.S. Ag Secretary Sonny Perdue called the signing, “A bonanza for U.S. agriculture.” The “tale of the tape,” would say otherwise. Decades ago, grain and other commodity prices were spit out via ticker tape, not a computer screen. Closes at the CBOT in the two days following the trade deal signing detail soybeans closing 18 cents lower while corn declined 13 cents. One summary suggests the market is unimpressed with the details of Phase One — not exactly what U.S. producers had envisioned in their 20 months of waiting for the trade war to end. During this period, it was an arena which often shouted declining prices and stressed margins. The words, “need and price,” stand out in this agreement. Bottom line, it means China will be buying based on their needs and not upon what the U.S.… Continue reading

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Setting futures goals

By Jon Scheve, Superior Feed Ingredients, LLC

Phase 1 of the China trade deal was signed, but few specifics have been provided.

Corn

March corn futures have continued to trade at some point every day within a tight range of $3.85 to $3.90 for the last 24 trading sessions.

With corn carryout tighter than levels from the past 3 years, any additional exports or yield reductions in upcoming reports could provide corn with some upside potential.

 

Beans

March beans have been more volatile over the last 24 trading sessions, trading between $9.20 and $9.60.

This year’s carryout is the second highest in the last decade. Without additional exports, upside price potential may be limited, especially if South America has good growing conditions.

 

Market action – Selling beans and setting basis

 

Bean futures

The last time I sold bean futures was on 2/9/18 for the last of my 2018 production at $10.07, which was a couple months before the trade war started.… Continue reading

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USDA observations

By Jon Scheve, Superior Feed Ingredients, LLC

The Jan. 10 USDA report wasn’t as big of a market mover as some expected. Corn and beans closed only up 2 cents after the report. Following are some highlights.

 

Planted and harvested acres

A surprise was the USDA reducing planted and harvested acres slightly for 2018 as well as 2019. However, the difference in harvested acres between the 2 years was still less than a 1-million-acre reduction.

 

Yields

Probably a bigger surprise was that yields were increased by 1 bushel per acre instead of a slight reduction. The USDA announced they will resurvey 5 northern states in the spring, it seems unlikely the national yield average would increase from those unharvested acres. Therefore, a carryout reduction is still possible later this year.

 

Total production

After taking into considering the acre reduction for both crop years, there was only a slight increase of 50 million bushels in total production with the surprise yield increase.… Continue reading

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Corn neutral, soybeans bearish in Jan. 10 report

By Doug Tenney, Leist Mercantile

Corn and soybean production and yield both increased. That was a surprise. Corn and soybeans did not fall apart. Corn ending stocks were lower than expected which helped offset the higher corn production. Soybean ending stocks were unchanged, that was a surprise. Soybean stocks were larger than expected, also a surprise.

Shortly after the USDA report was released, corn was unchanged, soybeans down cents, and wheat down 1 cent. Shortly before the noon report, corn was down 3 cents, soybeans down 2 cents, and wheat down 2 cents.

The report today has long been awaited. Two numbers were heavily watched for this report, U.S. corn production, and U.S. stocks of soybeans on Dec. 1, 2019.

There are a bunch of numbers for the U.S. and world grain production. Corn supply bulls were hoping for major reductions in corn production and yields. Corn demand bears were quick to highlight the declining export demand since last May, which was 425 million bushels along with shrinking corn used for ethanol at 125 million bushels.… Continue reading

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Looking back at crop marketing in 2019

By Jon Scheve, Superior Feed Ingredients, LLC

Corn and beans remained range-bound through the holidays as everyone waits for the Jan. 10 crop report and Phase 1 completion of the trade deal. Basis has also stayed strong as farmers aren’t selling, most likely because futures are lower than what farmers would like, given the year we had.

Like nearly every farmer, I wish I would have sold more corn in the summer rally of 2019. But, as we all know, unpredictable weather conditions generated a lot of surprises and uncertainty throughout the year, which had a big impact on the market.

That’s why this week I reviewed my notes from the year to revisit market conditions and my decision-making rationale along the way. Re-evaluating past decisions can bring better perspective and help me build stronger grain marketing plans in the future. Following summarizes my insights and trade decisions.

 

March/April

The March USDA report indicated that U.S.… Continue reading

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Why are basis values so different by geographic area?

By Jon Scheve, Superior Feed Ingredients, LLC

I’ve often been asked why basis is so high in some areas but lower in others. There are many factors contributing to these variances, but it’s important to realize that basis values across the U.S. also correlate with each other.

Land values and basis values

While local yields can impact land values the most, basis values have a strong relation to those values as well. I’ve seen social media posts recently with farmers comparing basis values across the U.S., specifically that Ohio is getting +50 while parts of North Dakotas get -80. While this might frustrate some farmers, it’s important to realize that average basis values are actually “baked” into land values and cash rents. For instance, Ohio usually has a +20 basis in a normal year; but Ohio’s land costs are typically double of North Dakota’s, where -70 basis is common.

Basis values move together

When basis values in one area move in any price direction, other areas shifted similarly.… Continue reading

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A variety of factors shaping the basis

By Jon Scheve, Superior Feed Ingredients, LLC

The U.S. and China indicated last Friday they are close to completing a deal to end the 19-month trade war. Potentially, China could buy $40 billion worth of agricultural products in 2020, up 50% from $27 billion in 2017. However, which commodities and how much of each would be purchased are unclear and nothing has been signed.

The market didn’t react well to all of the unknowns in the news. Initially corn was up 8 cents and beans were up 16 cents, but by the end of the day corn was only up 3 cents and beans were up just 8 cents. Perhaps the market still remembers last month’s trade deal that ultimately fell apart. Still the news is probably more bullish than bearish for both crops.

 

Basis

There has been a lot of discussion recently if basis will remain strong or if it’s time to sell.… Continue reading

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