CFGAG News and Views   May 1, 2019


"Weather And China"  


With the month of April finally past, we look back at what has been a rather discouraging 33 days or so. A few factors have combined to deal us a hand of depressed prices and really no selling opportunities as of yet. Lets get the bad news, (which is now old news) behind us so we can look ahead for some possible daylight:


1) Bearish Stocks, planting intentions, and monthly Supply/Demand numbers from USDA

2) Increasing production numbers for corn and beans in Brazil and Argentina

3) Strength in the US $ combined with weakness in South American currency

4) Improving wheat crop prospects in the hard red winter areas, (soft red not so much) and also Black Sea Regions

5) All-time record short positions in spec money accounts.


With that digested, a quick glance at the weather forecast and planting progress so far has many asking "why hasnt the market reacted?" The simple answer is that the market has seen planting delays before, only to recover quickly when the weather breaks and farmers do what they do, work long hours and find a way to get it done. There are few exceptions, and perhaps the market has grown too complacent but for now we seem to have at least found a bottom in corn price last Thursday. Which brings us back to the title of this month's article. China and Weather.


1) Can we get 92 million acres of corn planted in a timely enough manner to achieve trend yield of 176 bpa.?

2) If not, how much can we get and what is the potential yield?

3) Will the China trade talks yield some big grain purchases from the US/ 

4) If so, how much and how soon?

5) Will any of the above cause the funds to exit short positions? And how fast?


What all of this tells us is we need to be ready. Ready to react quickly or preferably have orders in to make sales at profitable levels. We have learned long ago that farmers are capable of making quick work of planting, and with large crops to sell in South America, we need to recognize that profitable sales opportunities may be short lived. The perfect storm would be more adverse planting weather combined with a China deal that includes large purchases of grain and products and large fund short covering. This could all happen very soon, or at least parts of the list, but with the US $ at 2 year highs, we must also assume that large sales would be made by our competitors. There simply is no way to guess how much and how far we could rally, but that is precisely why we own "courage calls" to limit our emotional reluctance to "sell too soon". Therefore, we are still suggesting the following:


1) Sell old crop corn on good basis opportunities, with "extra" carryout, rallies in futures are likely basis killers

2) Sell or protect new crop corn prices at $4 or more, we are slightly lowering our targets given report numbers

3) Sell old crop beans on any decent rally or basis pop, without a deal with China, we just have too many beans left

4) Sell or protect new crop beans on any rally north of $9.50 for the same reasons

5) Have orders in for HTA contracts in at the elevator for bushels you can not or do not want to store

6) Make sales or buy puts on remaining bushels in increments above your profit level on corn

7) Consider put/call spreads on beans to lock in a floor but allow for some upside potential


We cannot emphasize enough how good business sense is important here. It is so easy to get lulled into thinking China may come in and buy so much that prices will suddenly explode to the upside. They might, but they might not. World supplies of grain are more than adequate at this time, and we would have to bet that a big rally will bring big sales, so trying to predict a magic number for a high is simply a wild guess. We have said many times that the only number that matters  to us is a price that is profitable. Period. If you are not confident in sales, buy puts. If you think there is significantly more upside, own cheap calls to make sure. Options are insurance, and each must buy coverage according to their own situation and personal feeling of the market. Making that decision is one we can help with by going over all the possible outcomes of time and distance of strike prices and month of expiration. Call us while we have some rainy days to visit.


In conclusion, adverse weather has the potential to rally the corn market, and any real buys by China and a solid trade agreement with them could give us what we have waited so long for, a real chance to lock in a price that makes us profitable. We are still watching and waiting for some real numbers to work with, right now our benchmarks of 92 million corn acres and trend yield of 176 are what we are working with. Will the next 2 weeks weather make that easier or harder to achieve? Will China buy enough to drop our carryout to levels that would inspire fund and end user buying? By the time we write again in a month we should have a lot more answers, but in the meantime we look for our opportunities to make sales. Its time to get ready, get orders in, and be ready if and when the weather breaks.


Dates to Remember:

Every Monday: Export Inspections, Crop Progress

Every Thursday: Export Sales and shipments

May 10th : Monthly Supply/Demand Report

May 24th Cattle on Feed



Mike Daube: 888-391-6330 or 574-586-3784

Allen Gard: 573-7694193



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