Market Analysis




Big crop forecasts sending markets lower

By Jon Scheve, Superior Feed Ingredients, LLC

The corn market finished last week on the lows. The estimated 2020 corn yields are increasing every day, while many farmers still sit on unsold 2019 corn. Time is running out to get old crop sold and moved before harvest starts.

Weather

A change in price direction due to weather is unlikely right now. National yield estimates are above 180 and the latest drought index shows only 18% of the Corn Belt is facing drought conditions.

Western Iowa is currently experiencing dry conditions. However, keep in mind that western Iowa also has some of the best subsoil moisture capacity in the U.S. too.

So, while there may be drier conditions in western Iowa, yields may not be as bad as some believe in that area. Plus, I’m hearing preliminary yield reports ranging between “very good” and “potentially record good” on the fringes of the Corn Belt.… Continue reading

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Time for a price rally is running out

By Doug Tenney, Leist Mercantile

Time is quickly running out for soybean prices to rally prior to harvest. Hints of hot, dry weather in August often have the ability to rally soybean prices 50 to 70 cents in quick order. Prices for November soybeans continue to be broad ranged as they moved from $8.31 to $9.12 during April through July. Often factored into soybean prices has been the buying or lack of buying sprees from China. The Phase One trade deal reached earlier this year between the U.S. and China called for China to buy $36 billion of U.S. agricultural goods. Various publications have offered a plethora of opinions about the success of reaching that lofty level. China stated up-front and early on, it wants to buy U.S. agricultural goods only when it falls into their plan of necessary pricing of goods needed for import months into the future. In addition, their desire is to buy U.S.Continue reading

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Hitting singles to stay in the game

By Jon Scheve, Superior Feed Ingredients, LLC

With few issues during pollination, the chances for a widespread corn yield reduction decreases daily. Market participants indicate national average yields between 176 and 181, which would leave USDA balance sheets with the largest carryout in over 30 years.

Corn’s export market has been strong and helped maintain a steady trading range. However, South America’s corn crop will be harvested soon, and with limited storage, it will be moved quickly. This could limit U.S. corn’s upside potential as we approach our harvest time.

 

Market action

In early and mid-June there were a lot of unknowns, including corn planted acres and yield potential. It seemed unlikely corn would trade above $3.50 without a significant event. With some 2019 crop left to sell, and a lot of 2020 corn still unpriced, I made the following trades.

 

Trade 1 – 6/8/20 – Sold August call

When September corn was trading $3.38, I sold a $3.40 August call for 10 cents on 10% of my production.… Continue reading

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Is the massive Chinese purchase of U.S. corn a sign of better things to come?

By Doug Tenney, Leist Mercantile

To date, the huge rains in the Yangtze River valley in China have been in the press very little. In early July, up to 30 inches of rain fell in a 7-day period. This region is not a major corn and soybean production area. The Three Gorges dam had been built mainly to generate electricity but was expected to mitigate catastrophic flooding.

However, on July, 14 a huge U.S. corn sale did grab lot of press headlines. On that day USDA announced China had bought 1.7 million tons of U.S. corn. It was the third largest U.S. corn sale in history along with the largest one-day sale to China. Disappointingly, corn closed down three cents.

Hot and dry weather in August could provide price fireworks for soybeans but less for corn.

The July 10 USDA Supply and Demand Report (WASDE) was a vanilla report with little fanfare.Continue reading

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Observations from latest USDA report

By Jon Scheve, Superior Feed Ingredients, LLC

Corn

The USDA updated their balance sheets with the new acres reported on June 30. The following chart shows only the categories I think most affect final carryout. The green and orange columns are the July 10 USDA numbers while the blue columns are my estimates of possible yields and demand going forward.

 

Feed demand

It seems like it’s difficult for the USDA to know exactly how many on farm bushels farmers are using for feed each year, so this estimate could potentially change some down the road. I think the USDA has still overvalued U.S. feed demand even with a drop this month, so I’ve decreased it slightly in my estimates.

 

Ethanol demand

COVID-19 is still having a major impact. If schools are not back to normal this fall it means more people will still be working from home and less commuting to the office.… Continue reading

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Not much excitement with the July 10 report

By Doug Tenney, Leist Mercantile

Don’t put away the sunscreen protection just yet. Another heat wave with 90 degree temperatures returns the middle of next week across Ohio.

The huge U.S. 2020 acres decline for corn with the June 30 report paints a much different picture compared to last month. Last month USDA had new corn ending stocks at 3.323 billion bushels. Some had expected that number would eventually reach 4 billion bushels. Corn ending stocks for 2020-21 were expected to be cut with the 5 million acres decline from June 30.

Bigger changes for corn had been expected with this report. However, few changes were expected for soybeans and wheat. With the flare-up of the Coronavirus the past two weeks, U.S. export totals for corn, soybeans, and wheat were expected to be reduced. Demand for grains continues to be anemic. However, yesterday’s weekly U.S. grain sales report were surprisingly better than expected.… Continue reading

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Market still responding to uncommonly bullish June Acres Report

By Doug Tenney, Leist Mercantile

November CBOT soybeans reached their highest level in months in early July at $9.03. Keep this $9.03 high in the back of your mind as that July 3 price action partially but not completely filled a gap of $9.035 to $9.00 from March 9. The multi-day rally just before the July 4th holiday had rebounded during eight weeks of time from the lows of $8.31 in late April. The cause of the rally was twofold, both weather and a June 30 Acres Report.

Confusion, not clarity was again the theme, just like last June. Surprise of surprises — it was an uncommonly bullish June Acres Report. This report put 2020 U.S. soybean acres at 83.8 million acres along with corn at 92 million acres. Both corn and soybean acres were below trade expectations. Grains responded with December CBOT corn closing higher 16 cents while November CBOT soybeans were higher by 21 cents.… Continue reading

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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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