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Market factors to watch

By Jon Scheve, Superior Feed Ingredients, LLC

Soybean basis continues to be on fire. My local processor increased their basis bid another 10 cents this week, totaling a 20-cent increase in the last 20 days. I’m seeing end users’ basis values increase in nearly all of the soybean growing areas. However, I have noticed that commercial storage locations are lagging the processors bids by quite a bit, my local elevator has only increased basis 2 cents in the last 20 days.

 

Storing and not selling

Based upon conversations with many grain traders across the U.S., farmers have sold very little of their 2019 bean production. Usually farmers store their corn at home and deliver their beans at harvest, but many this year are instead storing their beans waiting for better values. A lot of farmers still think a trade deal will happen soon and a big rally in prices will follow.

 

China exports

Some U.S. beans have been sold to China over the last few weeks. While this is good news, it’s important to remember that U.S. beans are more competitive globally right now. After March when South America’s crop gets harvested, U.S. export pace could slow considerably. This could keep futures prices under $9.50 in late spring and early summer.

The market continues to hope for an end to the trade war and expects a swift price increase once its resolved. Unfortunately, despite a promising meeting with China three weeks ago, the likelihood for a quick trade war resolution seems to be fading.

 

Carryout

On a positive note, the bean carryout estimates decreased by almost half from last year. While this may sound impressive, it would still be the second highest carryout level in over 10 years.

 

Supply and demand

For prices to improve, the national yield must be cut or demand must increase. We should know more about the supply issue by mid-January. Demand will need either an increase in the crush for soybean meal or an increase in exports likely from a trade war resolution.

Another opportunity would come from a production problem in South America. This would cause world buyers to come to the U.S. to buy their bean needs. However, we are still 30 days away from getting into a weather market in the Southern Hemisphere.

 

Corn harvest pace

While it was the slowest crop ever planted, the harvest pace is only the third slowest ever. By this week in 2009 harvest pace was only 50% and in 1992 it was only 37%. This year is only 4% behind the 2017 pace. In only 6 of the last 32 years, was harvest not 100% finished by Dec. 1. In 2 of those 6 years it was below 80%, while the other 4 were above 95%. Currently we are on pace to be 90% done by the first of December. In 2009 we only had 79% done at the beginning of December and by Christmas we made it to 95% complete. The pace of this harvest seems as though it will be possible for most of the corn crop to be harvested by Christmas unless there are some big snow storms in the next couple of weeks.

 

Basis

With the bean harvest 85% complete, and farmers unwilling to sell at these low prices, basis values have begun to improve as end users scramble to meet their needs. Hopefully, once corn harvest pace exceeds 85%, end user basis bids will begin to improve in the same way.

Many farmers still don’t believe USDA data and are holding their corn hoping for a yield or acre decrease in the January report. This could mean basis bids will need to work harder to help motivate farmers with better cash values to sell before that report.

 

Futures

While many farmers continue to wait for increased prices, end users seem to be interested in buying at or below the $3.70 futures level. One thing holding back a futures rally above $4 is that it would make U.S. corn less competitive globally, which would suppress export levels. Less exports means less demand and higher carryout, which usually results in lower futures prices.

Without a major acre or yield reduction in the January report, corn futures could remain range-bound for a long time. If futures don’t rally it could mean that basis will be doing a lot of heavy lifting on the cash price this spring.

 

Please email jon@superiorfeed.com with any questions or to learn more. Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.

Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results.

 

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