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Market Analysis




Missed marketing opportunities

There continues to be reports of corn ear tip back.  In my opinion social media is exaggerating this problem. There are definitely isolated cases, but it doesn’t seem to be a widespread problem. I suspect the people spreading these “reports” are likely unsold or long and hoping for a market rally.

Some in the market point to record demand, which would theoretically lead to a market rally over time.  While this may be true, it will take nearly a year before the market will be impacted. There is still a question surrounding what will be done with the massive wheat supply.  Also, China’s economy continues to be a question mark going forward. They have been auctioning off state reserves and they have slowed their import of DDG’s. The DDG issue could create excessive U.S. inventories, displacing corn and meal in domestic feed usage.

Missed Opportunities

Nearly every farmer (me included) was caught off guard when corn spiked then dropped over six weeks this summer.… Continue reading

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How far off is the USDA?

The USDA increased the average national yield estimate to 175.  Some disagree with this estimate, saying the USDA is using record ear weight, which isn’t likely considering the intense summer heat throughout the Midwest. Others are questioning low population count estimates on the reports, which also doesn’t make much sense given the new seed technology options available to farmers. Right now I’m expecting the national yield to be above trend line, and a record yield is not out of the question. Next month USDA numbers will be based more upon actual field results.

Farmers want to know if the lows are in for the year. I’m not sure if the low is in yet, but I expect we are getting closer. There is still a lot of old crop left to sell before harvest, which could pressure prices yet. The 15/16 carryout was around 1.70 billion and futures remained near $3.70 for most of the year.… Continue reading

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August WASDE report bearish, watch the close

Today’s report is a bearish report. Both corn and soybean production and yields were above trade expectations and near the high end of estimates. Corn production was estimated at 15.153 billion bushels with a yield of 175.1 bushels per acre. Ending stocks were estimated at 2.409 billion bushels. The US soybean production was estimated at 4.060 billion bushels with a yield at 48.9 bushels per acre.

Old crop US corn exports were increased 25 million bushels while new crop corn exports jumped to 2.175 billion bushels, up 125 million bushels from last month. Old crop soybean US exports were up 85 million bushels with new crop exports were up 30 million bushels. The strong demand increases account for keeping soybeans from being down 30 cents or more. The ending stocks of 330 million bushels will keep the bears feeling good for the day. Again watch to see what where grains close.Continue reading

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Crop observations from the west

Everyone is waiting for the first USDA crop yield estimate of the year on Aug. 12. The only way corn will push above $3.50 at this point will be a surprise yield decrease. The trade believes this crop is getting bigger, not smaller, but it’s still unclear how big. Since farmers aren’t selling, corn still manages to stay above $3. It may be boring (or even disappointing) until harvest is over.

Due to perceived crop conditions and weather forecasts, beans aren’t pushing past $10. However, export demand has been strong, keeping the market above $9. We could see continued sideways markets in beans through harvest as well.

Observations from the road

This week I travelled from Minneapolis, MN to central Nebraska (specifically York, NE) and back this week. During the 1,000 mile round trip I stopped every 30 or 40 miles to evaluate how corn ears are developing.

Trip South (Minneapolis to Des Moines on I-35, then I-80 to York, NE)

Throughout Minnesota and Iowa, I didn’t see any fields experiencing stress or dry conditions.… Continue reading

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No dome. No doom. No rally.

Corn

Some estimates indicate crop yields could be record-breaking this year. Good weather combined with technological advances in seed genetics and traits makes this a possibility. Record yields would put tremendous pressure on the market, potentially pushing prices under $3 for the first time since Sep 2009 in the long run.

In the last six months beans, wheat and oats have traded at or below 2009 lows. It may be corn’s turn to test the lows. Fundamentally it is the perfect set up — potential record yields, huge carryout and pressure from competing feed grains.

I’m hoping for a rally in the near term to give me a couple more selling opportunities. It looks like this market could trade sideways for a very long time.

 

Beans

If beans have record yields, it would ease shortage concerns. Add this to the rumors that China is slowing imports and prices could tumble under $9.… Continue reading

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Extreme prices plaguing marketing decisions

Grains this past month can be summed up in just one word, extremes. We have seen both price extremes and weather extremes. The uncertainty of weather has often yielded quick and violent price movement. All summer it has become apparent that we are in a season of extremes. That is not a short-term phenomenon. However, time is running out for weather to have much more impact in coming weeks.

This summer it has been very common to see daily prices for corn and soybeans peak during the overnight trading session, only to reverse and move harshly in the opposite direction during the day session. It can make for some most frustrating thoughts as to pricing or not pricing 2016 corn and soybeans. One moment you are happy and a few hours later you are not. It quickly becomes, “cycle, rinse, repeat.”

It was most interesting to observe the market mentality leading up to the USDA supply and demand report released on July 12. … Continue reading

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Taking a look at the role of USDA reports in the market

The USDA report last week held few surprises. Corn carryout was slightly lower and beans were slightly higher than expected. There are still feed usage questions with all of the excess milo and wheat in the market, but that might not be resolved until sometime in the future.

The corn crop continues to look amazing throughout most of the Corn Belt. Beans are also looking good, but have slipped slightly. Hot and dry forecasts dominate one day and then rain forecasts are shown the next day. Expect concern over corn kernel fill to continue while bean potential to be wide open. Weather’s effects on the corn market may be nearly over after this week.

Corn harvest started in southern Texas, and so far the yields are the best ever for this region. As harvest moves north expect the basis to drift lower as corn is more available. Also with the impressive wheat harvest, storage space may be at a premium this year.… Continue reading

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Why did corn prices spike, then drop?

Corn prices dropped $1 per bushel in the last three weeks, which was unexpected by many.  Several sayings are now popular: “there is a lot of summer to go, prices will bounce back” and “there will be more demand with cheaper prices, so prices have to go up.”

There isn’t any bullish news for corn right now. There are still too many bushels in the market. Last year corn traded on a regular basis at $3.70 futures with 1.8 billion carryout, so it’s difficult to expect higher prices with potentially 2.2 billion carryout. Farmers are hoping increased demand will push up prices, but it may take futures dropping to $3 to find those buyers. However, this won’t necessarily bring $4 corn.  Even if yields were 5/bu/acre less than trend-line, the carryout would be the same as last year.  I think it’s unlikely corn will spend any significant time above $3.75 for a while and I’m concerned prices may stay below $3.50 if weather conditions remain good.… Continue reading

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USDA report not negative

Traders had expected the report to be negative for grain prices. That was not the case today. Ending stocks for old corn was estimated at 1.701 billion bushels, less than trade expectations. New corn ending stocks were 2.081 billion bushels, also less than trade expectations. Old crop soybean ending stocks were 350 million bushels, slightly below expectations. New crop soybean ending stocks were 290 million bushels, at touch above expectations. New crop wheat ending stocks were 1.105 billion bushels, just below expectations.

Other changes within the report had old crop soybean exports up 35 million bushels, no surprise there. New crop soybeans had crush up 10 million bushels while exports were up 20 million bushels. Old corn saw exports up 75 million bushels and corn used for ethanol down 25 million bushels. No surprises there.  New corn had exports up 100 million bushels and corn for ethanol down 25 million bushels.Continue reading

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Make a marketing plan and stick to it

Last week’s USDA report showed few farmers switched intended corn acres to beans. This may cause trouble for corn prices, especially with rains right before pollination in the major corn states.  Weather reports show half of the Corn Belt is good or great while a third struggles. Overall, crop conditions have never been this good for the U.S. as a whole this far into the season. There is another two weeks where weather can have a major impact on corn yield.

Without a yield reduction, it will be difficult reaching $4.  Even a 3% cut in yield from trend line of 166 to a 161 average yield would mean 1.5 billion bushel carryout, which is more than adequate.

Even if weather is good for the next two weeks, there is the slight potential for a frost scare over Labor Day, which could affect prices down the road. Right now though, everyone is watching the weather the next two weeks.… Continue reading

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Watching the basis

The British voted to leave the EU. This decision leaves many unknowns on how this will affect the market long term.  So far, this hasn’t affected the grain markets significantly.  However, with the dollar stronger, beans may be hit as exports will be more expensive.  

Are The Highs Over For The Year?

It depends on the weather. If forecasts remain wet, the highs are likely done.  If weather gets hot and dry, the sky is the limit.  The next three weeks of forecasts will determine the corn market.  Following is a summary of weather conditions:

  • 1/3 of corn belt – great conditions
  • 1/3 of corn belt – dry, needs rain
  • 1/3 of corn belt – “normal” for this time of year

With timely rains, expect trend-line or above average yields.  Large scale dry conditions may bring a market rally back to recent highs.

Wheat

The wheat harvest continues to push north and yields are great.  … Continue reading

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Corn acres bearish surprise today while soybeans are sharply higher

Today’s USDA report showed that U.S. farmers planted 94.188 million acres of corn and 83.688 million acres of soybeans. Corn acres were higher than expected as they went up when the trade was looking for a lower number. The higher corn acres number is a bearish surprise. It shows that the U.S. farmers’ love affair with corn continues. Soybean acres while up, were less than expected.

Prior to the report corn was down 4 cents, soybeans were down 12 cents and wheat was down 1 cent. Soybeans had a huge range shortly after the report as they moved over 30 cents in less than 2 minutes. We are seeing lots of price volatility and price ranges with grains today.

Today’s report is providing end users of corn to get coverage in places they had not expected two weeks ago. At one time corn was down about 17 cents. Thirty minutes into the report we are seeing corn still lower on the day but down just 7 cents.Continue reading

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Conquer your fear of using the futures market

The indication of precipitation in the forecasts will drive these markets for the next four weeks. When the weather models agree, the market feels more confident in its predictions. When the models disagree there is more uncertainty, which is why the market is up one day and down the next. Dry weather will make the market go up while a chance of rain will mean the markets fall. It will be that simple.

The referendum in Britain on June 23 is another important piece to these markets for the next week. If Britain chooses to leave the EU, many view this as bullish the dollar. If Britain remains, the Euro and Sterling will increase at the expense of the dollar. The polls continue to change daily.

Fear of using the futures market

In the past, I’ve explained the benefits of trading futures. Today, I’ll explain the “dreaded” margin call.

As a true hedger, I don’t like calling it a margin call, because that term is most often associated with speculators.… Continue reading

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Production problems and using futures

The USDA report was neutral corn. Increased exports are supportive but a 2 billion bushel carryout next year is burdensome.

The drop in next year’s bean carryout is was very supportive and I was surprised that the market didn’t close significantly higher. Perhaps “buy the rumor sell the fact” was in play.

Wheat was extremely bearish. I don’t normally talk about wheat, but world carryout next year is projected to be 20% higher than what corn will be. Wheat is going to be fed around the world, long term I expect this to hurt corn demand and suppress both wheat and corn prices unless we have a drought.

Last week USDA reported the corn crops looked fantastic, with 75% good/excellent ratings. After warm and dry weather, I expect the USDA will pull back on that estimate. Farmers and funds still remember 2012. While further doom and gloom could bring an additional price rally, I think current prices are a good opportunity to price some 2016 grain.… Continue reading

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Hedging or speculating?

Some 30-day forecasts are indicating potential dryness. In 45 days it will be more clear if the corn crop is going to make yield trend lines.

Soybeans

More positive bean news this week. Soybean meal demand continues to be strong, as many end users were uncovered during this rally. Also some South American bean exports changed to the U.S. last week, causing a bean price surge (dragging corn and wheat with it). Basis levels indicate this bean price surge may be more than a technical trade focus. Everyone wonders how high prices will go, and so far everyone’s predictions have been wrong. Some say it may go down now, because basis levels at processors dropped on Thursday and Friday significantly. Right now, it’s all about money flow, and it’s pointing upwards not down.

Corn

Some estimates show 300 million South American corn bushels were lost due to weather. While a significant number, some say feed wheat, which there is more of in storage globally than corn, is working into Asian markets to replace corn in feed rations.  … Continue reading

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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

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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

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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

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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

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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

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