Home / Market Analysis (page 5)

Market Analysis



Crops looking average with pockets of damage

It appears the market is just waiting for the updated USDA corn yield estimate on 8/10/17. Once published, the market will debate why it’s incorrect. Generally the market is trading corn based upon a national yield assumption of around 165-166. With a surprise below 165, $4 corn is a possibility again. An estimate above 166, and $4 is unlikely until a future report shows significant decreased yield.

In the past two weeks I have travelled 1,500 miles around the Corn Belt.

Crop conditions — Southeast Nebraska to Minneapolis

Following highlights some observations during my drive from Beatrice, Neb. to Minneapolis, Minn.

Beatrice — Our farm’s dryland fields missed some needed rain the past few weeks. While fields with less drought-tolerant seed indicate some significant yield drag, fields with drought-tolerant seed are showing average yields. Irrigated fields are still producing well.

Council Bluffs, Iowa — The crops looked good. There were very few signs of any significant stress.

Continue reading

Read More »

Profiting in a sideways market

The latest crop condition estimates are the lowest since 2013 (corn down 2% and beans down 4%). Also, time is running out for the western half of Iowa to get enough rain to produce average corn yields. Forecasts shift every six hours, which contributes to farmer and market uncertainties. This week it rained in the eastern corn belt, but the west continues to struggle with heat and dryness.

These uncertainties are convincing more and more farmers that crops are all but loss, causing people to think “corn HAS to rally to $4.25-$4.50.”

It seems like a lot of people are on the same side in their thinking. This makes me nervous. So, I caution farmers to take a step back and also consider the following:

  • Rumors and threats of drought happen every year
  • Realistically, the market already knows that 25% of the Corn Belt is suffering from dry weather. It’s estimating a 165 national yield with $3.90 Dec corn.
Continue reading

Read More »

Grand slams vs. strike outs in marketing

There is no doubt it will be hot for the next few weeks, it’s mid-July after all. However, it’s the extent of dryness that is uncertain. Every day weather models show varying possibilities, which causes market fluctuations. Iowa, for example, is living on subsoil moisture reserves for now. This may be depleted if it doesn’t rain in a week.

The recent USDA report did not show yield adjustments, only increased acres and feed usage reductions. So, the market will be able to handle some yield reduction. The recent rally after the report may have been overdone as prices seemed to settle back down to levels from two weeks ago before the USDA acres and stocks report on June 30.

Right now the market is estimating a national yield of 167. Some are arguing it should be 165, and a few bulls are calling for 160. When you consider the extra acres the USDA reported and plug in a 164 national yield, the carryout would still be over 1.7 billion bushels.

Continue reading

Read More »

Selling hope to profit the farm

The market was surprised last week when the USDA increased corn acre planting estimates by 1 million. The USDA also indicated that stocks may be higher than the market was anticipating. These adjustments could really hurt the chances of a major corn rally for the rest of the year. At this point, it will take a major weather-related event in July for any substantial rally in the long-term. And, the window for a weather-related event is narrowing, usually after July 4th there is less potential left. Some weather forecasts indicate there is a possibility for hot and dry weather in the western Corn Belt, but it will need to be significant for any fireworks in the next few weeks.

Actual crop conditions are seemingly subjective based upon perspective. Bulls say crop conditions this year compared to last year are much lower. Bears say there is still too much old crop corn in storage and will help the market withstand a decrease in reduced yields.

Continue reading

Read More »

Report is bullish soybean, and wheat; somewhat negative corn

USDA estimates of U.S. corn acres were 90.9 million acres, soybean acres were 89.5 million acres, and wheat acres were 45.7 million acres.  June 1 corn stocks were 5.225 billion bushels, soybean stocks were 963 million bushels, and wheat stocks were 1.184 billion bushels.

Soybeans were higher due to less than expected stocks, wheat was higher due to spring wheat acres less than expected, corn was off the highs due to higher than expected stocks.

All eyes are upon USDA with two big reports, the June 30 Grain Stocks Report and the June 30 Acres Report. Grain stocks are all expected to be above those of last year. It is just a matter of how big the stocks are for corn, soybeans, and wheat. The trade was looking for corn stocks as of June 1 to be 5.123 billion bushels and compares to 4.711 billion bushels last year. Soybean stocks are estimated to be near 983 million bushels, last year they were 872 million bushels.

Continue reading

Read More »

Managing a sideways market with downside protection

Weather is driving the market right now. As forecasts adjust twice a day, the market can shift direction abruptly. At this point it’s really difficult for the market to fully estimate the actual amount of stress the corn crop has sustained so far and its impact on overall future yields. Contributing to the uncertainty is the significant amount of unpriced old crop corn still in storage by many farmers, which will continue to put resistance on higher prices in the short-term.

 

Market action

Uncertain about the market direction going into summer, and with less corn than I desired to have sold for the 2017 crop, I want to make another trade. With what I know today, I expect the market to be trading sideways from here until late in November.

 

New trades I placed:

6/12/17 — Trade #1 when Sep corn futures were $3.89

  • Expected market direction — Probably sideways with some downside potential into fall
  • Trade Detail — Sold Sep $3.90 call for 19 cents
  • This trade amount = 5% of planned production
  • Expires  8/25/17 after the crop condition is well known
  • Potential Benefit: If Sep futures close at $3.90 or below on 8/25, I keep all of the 19 cent premium
  • Potential Concern: no downside protection

For every penny above $3.90 I get 1 cent less premium until $4.09 and I don’t have to sell any corn.

Continue reading

Read More »

Determining your breakeven

Corn

Corn showed signs of life with hot and dry weather forecasted throughout the Midwest the next two weeks. Realistically prolonged dry weather is necessary for a significant rally since subsoil moisture has been plentiful. Trend line yields are definitely still possible. Two good rains (one after Father’s Day and another after the 4th) is really all it takes to have a great crop.

The downhill slide of beans

Beans have dropped nearly $1.50 off their high earlier this year. Many traders expected beans to rally like last year, but this didn’t happen for at least two reasons.

  • Significant palm oil reductions due to El Niño last year forced China to grind more soybeans earlier this year. This caused an overabundance of soymeal sitting in storage right now. With palm oil production back to normal levels there is less demand for soy oil and with plenty of soymeal in storage there is no increased push for soybeans.
Continue reading

Read More »

Bullish or bearish as planting season wraps up?

Last week the USDA published the first crop conditions report for 2017. This report is really irrelevant because historically it has very little correlation to final yields. No crop is made or lost in May. Weather will now be driving the market with the most important dates being 6/15 to 7/15. As a rule, hot and dry is always a bigger concern than cold and wet. Until mid-July the market will react to the two-week weather models that adjust twice a day.

There are rumors of about 1.5 million acres being lost to prevent plant. While possible, this isn’t necessarily all that bullish unless the national yield drops below 168. Trend-line yields suggest that with normal weather throughout the Corn Belt, yields will be above 168.

Keeping perspective

Advisors often suggest that the USDA estimates are unrealistic because they would require farmers every year to produce yields that are equal to their second or third largest harvests ever.

Continue reading

Read More »

Being objective about the markets (in a wet planting season)

With the constant rain in Arkansas, Missouri, Indiana, southern Illinois and western Ohio, farmers are getting worried they won’t get corn planted. Some are surprised the market hasn’t responded with a rally. Prices likely haven’t increased for the following reasons. As a percent of the total U.S. production, these areas collectively don’t produce a lot of corn. These areas only account for about 10% of total acres and not every acre is a loss. The trade learned in 2015 that heavy rains throughout the Corn Belt may drown some areas, but other areas will thrive and see increased production.

Last year many farmers in these areas finished planting the last week of May and the first week of June and still had a reasonable sized crop. It’s important to remember the entire Corn Belt will never have perfect conditions. There will always be areas affected not only negatively, but positively as well.

Continue reading

Read More »

Don’t give away your risk premiums with specialty crops

Last week many speculated as many as 2 million wheat acres were damaged after cold weather struck much of the Midwest. While this caused a nice wheat futures rally Monday, it was short-lived because this represents only about 100 million bushels, or 10% of forecasted total wheat carryout. This is likely not a big enough issue to change prices long-term.

Even with the cold weather and threats of replant, corn prices can’t build any momentum. With 2.3 billion bushels of carryout and farmers sitting on too much unpriced stored corn, traders are starting to realize a production issue is necessary for any substantial rally. For the week, corn was up only about a nickel and for the past four months the range has been less than 30 cents.

Despite being frustrated with current prices, I have plans and orders in place if there is a quick price surge and a profitable opportunity presents itself.

Continue reading

Read More »

Identifying good brokers

Planting Progress

On our farm in SE Nebraska corn planting is complete and beans are underway. The balance of the central corn states are making progress on corn plantings and are likely on pace with the five-year average. While north of I-90 weather is limiting planting. This is still within normal range, but if cold and wet conditions continues to linger then upside potential in the market is possible.

 

Wheat

Some are suggesting that wheat may be damaged by cold temperatures, which may motivate farmers to put it up for hay, or tear it up and plant it to corn. Others say the cold weather may reduce test weight but increase protein levels. There is still a lot of wheat in storage from last year with low protein and heavy test weight, this could ultimately provide for great blending opportunities and limit any upside potential. Without a wheat rally it will be very difficult for corn futures to move significantly higher.

Continue reading

Read More »

Making money when the market isn’t moving

Corn

Corn futures decreased 14 cents last week. There could be a 60-cent weather premium already built into Dec corn futures. Trend-line yields would likely push prices back to $3.25 at harvest. Weather is key variable for the next few months.

It’s still too early to worry about not getting the crop planted. With the recent cold and rainy weather, it doesn’t appear there will be a lot more corn acres. This is at least non-bearish news.

 

Beans

Beans only decreased slightly (4 cents) last week. Supply and demand suggests futures don’t need to rally significantly. Similar to corn, weather is the key factor moving forward. Likely a $1 per bushel weather premium is in the market right now.

 

Market action

Following is the detail and rationale of a recent trade made back in late February which expired on Friday.

  • Trade Detail — Sold May $3.75 straddle for 23 cents on 2/27/17
  • Straddle — selling a put and call at the same value
  • Expired — 4/21/17 (last trading day for May options)
  • Why this date?
Continue reading

Read More »

Markets watching as planting season gets rolling

Weather will once again dominate grain markets for the next three months. The U.S. Climate Prediction Center is not currently seeing an active El Niño or La Niña. It is extremely important to monitor for that activity. The Center does see increasing odds for an El Niño in the Northern Hemisphere by late summer or fall. It’s arrival will be crucial for summer weather conditions. Other meteorologists suggest that if El Niño begins after early August, summer weather patterns could be hot and dry. Typically the El Niño pattern is not bad for crop production if present during the summer in the U.S.

Corn and soybean planting is the main focus for producers across Ohio and the Midwest for the next three weeks. As of the second week of April, U.S. corn planting progress was 3%, the same as the five year average. Days before the Easter holiday, producers across parts but not all of Ohio were just beginning field preparations to plant corn and soybeans.

Continue reading

Read More »

A look at factors that have a big impact on farm profits

Beans

The Tuesday USDA report surprised many with an increase in world bean stocks, making levels the highest in history. With stocks to use rations also very high (third highest ever), conditions are not bullish and significant rallies are very unlikely.

To put this into perspective, current U.S. stock levels are more than double levels in the last 10 years. In the last 26 years, stock levels were only higher two other years — 2005 and 2006 — the last time bean prices were under $7.

The market seems poised for a long-term downward grind.

 

South America

The South American weather was ideal for corn and beans this year. Production estimates continue to increase. This news hits beans harder than corn because the South American crop is over 50% of the world’s bean production while its only 20% of corn.

 

Corn

The USDA report also showed a slight decline in feed usage and a slight increase in corn for ethanol usage.

Continue reading

Read More »

A lesson in “risk off hedging”

Weather forecasts are favorable for planting the next two weeks, so the market is expecting the 2017 corn will be planted easily. This news combined with positive long-term forecasts means the market is pulling back some, suggesting the possibility of another record corn crop.

Funds reduced their length in bean futures and increased shorts in corn and wheat. If the weather forecasts change, funds may change positions providing upside potential. With 75 days left in the corn weather market, I will be surprised if there isn’t at least one weather scare before July.

 

Market action

Two weeks ago I moved some of my ’17 beans from Nov futures back to Aug futures. I thought there was a strong chance I could catch the inverse, then have it turn back to a profitable carry eventually. The market is shifting to what I expected would happen. Therefore, I’m moving another 20% of my ’17 crop with a similar trade.

Continue reading

Read More »

Corn, soybeans, and wheat bearish

Higher corn and soybean production in Brazil is bearish. U.S. corn ending stocks unchanged, soybean ending stocks up 10 million bushels, wheat ending stocks up 30 million bushels. Watch the close in relation to noon time price activity.

Before the report corn was unchanged, soybeans down 5 cents, wheat unchanged. Shortly after the report corn was down 4 cents, soybeans down 10 cents, wheat down 4 cents.

Today producers likely have more attention than normal focused on the USDA reports at noon. It is because they are in the shop and not out in the fields. Corn planting in the U.S. is 3% complete with 3% average.

USDA 2016-17 U.S. grain and soybean ending stocks

USDA April

Average of

Range of

USDA March

2016-17

analysts’

analysts’

2016-17

end-stocks

estimates

estimates

end-stocks

estimates

estimates

Wheat

1.159

1.147

1.100-1.200

1.129

Corn

2.320

2.352

2.270-2.484

2.320

Soybeans

0.445

0.447

0.410-0.475

0.435

 

Closely watched will be U.S.

Continue reading

Read More »

Running the farm like a business

On Mar 31st (11AM CST) the USDA will announce the 2017 US planting intention estimates. Arguably, this report could have the biggest impact on the market in 2017. Until next Friday, there is little else to talk about.

Many are expecting estimates of 91 million corn acres and 89 million bean acres. If the report shows a more narrow range (i.e. 90 million acres each), corn prices could get a bump, while beans may slide. Right now prices favor beans over corn, so the report will show if farmers have made any adjustments based upon this.

 

Thinking of the farm as a business

A profitable farm is more complicated than planting crops and hoping they pay the bills at the end of the year. Farmers should consider their operations as a company with multiple profit centers working to a common goal. Each profit center must “pull its own weight” without drawing profits from another division.

Continue reading

Read More »

The difference between a speculator and a farmer

The South American harvest is expected to be a record with few shipping problems.

Expect the market to be range-bound until March 31, when U.S. planted acre estimates are published.

 

Market action

With few South American harvest concerns, I moved some of my bean hedges, which were originally placed anticipating a South American production issue similar to last year. On Oct. 5, 2016 I moved my beans hedge position:

  • 70% moved to Aug 2017 futures — 22-cent premium
  • 30% moved to Nov 2017 futures — 5-cent premium.

My rationale at the time for using Nov 2017 futures was that last October I thought we would likely have a South or North American weather scare at some point before next August. Therefore, I thought the only downside risk to the Nov/Aug spread position meant I could miss out on 25 cents of market carry. Plus, the July/Nov spread would likely go from a 20-cent inverse to a 12-cent carry — meaning another 32-cent loss.

Continue reading

Read More »

Capitalizing on wish orders

The Thursday USDA report, as expected, held few surprises. The bean yields in South America continue to grow and could weigh on prices down the road.

News of bird flu outbreaks concerned traders this week. It’s still uncertain how widespread the disease will be, so the market is a little shaky. A widespread outbreak would mean lower demand for corn and bean meal.

With beans more profitable than corn at current values, many wonder how planted acres will be affected. While bean acre increases are expected, estimates still range between 88 to 90 million acres. I’ve heard experts rationalize that farmers “love to plant corn,” so more acre shifts are unlikely. I agree that most farmers love planting corn, but they also love making money, so that specific rationale is a stretch.

Still many farmers can’t or won’t change their crop rotation regardless of the market. Ultimately, it will boil down to a small percent of farmers making changes to their rotation.

Continue reading

Read More »

Capitalizing on a sideways market

Rumors of changes to the Renewable Fuel Standard (RFS) mandate last week shook up the markets Many question if the rumor is valid, because changing the mandate would require an act of Congress, which is not a guarantee or fast process. Regardless, this rumor is viewed as “uncertainty” to the market. With corn around $3.75, downside potential seems limited to between 25 and 50 cents, with upside potential high when weather, usage and acre potential are considered.

Funds will likely want to take advantage of this upside potential and continue to buy market dips instead of selling rallies until summer weather is better known. I expect corn to trade $3.60 to $3.90 for the next few months. Excess old crop will keep prices from going too high and reduced 2017 acres will keep prices from going too low.

 

Market Action

March options expired last Friday with futures closing at $3.63.

Continue reading

Read More »