CFGAG News and Views   June 1, 2020


"A Big Month-Weather And Reports" 


As we start a new month, this one seems especially critical in terms of getting a price we can live with and stay solvent. With all the negativity in the market place associated with Covid 19 since the end of February, it has been a long painful grind lower with seemingly little hope of getting prices back to profitable levels. Demand destruction due to ethanol plant closures and slowdowns, a very strong US dollar verses Brazil and Argentine currency, and nervousness over trade with China have combined to add more negativity. Add in an early start to planting and it would seem almost hopeless. There can be no doubt that lots of "negative news' has been priced in at this time, and at least for the past week we seem to be at least stabilizing, at least not making new lows. Is there any reason to be positive?

There are always two sides to a market, so lets look at some positive possibilities:



1) Funds are now short about 275,000 contracts of corn, second highest on record. Bean and Wheat positions are almost neutral

2) Crude oil prices continue to rally slowly but firmly, and ethanol production is increasing the past 3 week

3) Export demand is still solid, and corn prices are quite competitive world wide

4) Prevent plant acres for corn could be 3-4 million acres, primarily in the Dakota's and the Delta, while some switching from corn to beans is definitely possible in the Eastern corn belt

5) Recent reports from Brazil indicate a 3-4 mmt reduction in corn production due to adverse weather for the Safrina crop

6) Cold and wet weather in the east have largely negated the early planting advantage. Emergence and early development have likely brought us back to "normal"


While many of the above have not been talked about much given the negative psychology in the market place, they will be topics of interest leading up to the major reports this month, the first being the monthly supply/demand report on June 11th. We could see USDA adjust South American production which they did not do last month, and we should get some hints as to what they see going forward in terms of world supply and demand given weather conditions in Russia, Ukraine, and Europe. The really big reports will come out June 30th when we get the Planted Acres Report and the Quarterly Grains Stocks numbers. We cannot emphasize enough how important these numbers are in terms of price direction and long term implications. Weather is ALWAYS critical, and will continue to be, but the markets reaction to the potential change in carryout could easily define what our profit fate will be or not be. All our focus will be directed on trying to prepare for these reports and their possible implications. While we have some reasons for hope in the list above, we have to realistically look at what COULD happen if that list doesn't pan out into a decent price outlook. While the negatives have been well publicized, we also list the negatives:


1) Early planting "could" have increased corn acres in the western belt

2) Trade with China could be in question due to conflicts over the virus issue

3) Feed demand may be in question with producers reducing herd and flock sizes

4) Weather so far, while not ideal, has not yet threatened the idea of at least trend line yields

5) Traders are well aware of the possibility of a corn carryout exceeding 3 billion bushels

6) There is no threat of a grain shortage in the world, end users have no reason to "load up" yet other than prices are historically cheap and quality reasonably good.


For those with crop insurance, we remind you to make sure you have a handle on your guarantee and where your "synthetic put option" kicks in. Somewhere around $3.30 December futures is the average we have been looking at but all individuals are different so we need to be sure we know what your price is. There is no reason to sell if the price is at or below that number, you have protection there. After that, we need to know what price makes you profitable, as IF we get any kind of decent rally ahead of the reports listed above, we need to get the orders in to  get a floor under us while hoping for more. We have to be ready, this year with the many possible negatives ahead could really inflict price pain, and as the title of this article says, its either weather or some bullish report, or the potential of a 3 billion bushel carryout could put a "2" in front of our price for some time to come. We do not want that risk on our farm, and we don't want it for yours either.


IF you are friendly the market and expect a rally:  


1) Hold off on sales, and buy calls or call spreads to sell aggressively against on any decent rally, maybe targeting 3.70 December corn and 9.00 November beans

2) Old crop calls are very reasonable right now, consider owning  August calls to sell against later. July corn at 3.50 and July beans at 9.00 may be good targets

3) Make sure you are watching basis for any good opportunity soon to lock that in. The longer we go without major selling makes basis risk very real unless a major crop issue develops this year. We want to be well covered by the end of June.

4) IF ethanol plants reopen, and soon, there may be a short term demand spike for coverage. This will be entirely a local issue, be prepared to act 

5) Make sure you have orders in at price levels that are acceptable for either cash sales, HTA's, put options, or futures sales.


IF you are negative price and expect steady to lower:


1) Buy puts, and consider selling calls at price levels you would be happy to sell grain for this year

2) Make sales as you see fit, you can always buy calls if your mindset changes. Selling cash on a good basis is usually a good idea and replace those sales with low risk re ownership positions removes a lot of risk

3) Keep cash flow in mind, match sales months to cash flow needs and be flexible with option tools to keep upside open through high risk reports and weather

4) If you own puts, you can always buy futures against them to re own. Your risk is limited on the futures by the strike price of the puts you own.

5) If you buy puts, and the market rallies, they can be rolled up to raise price floor if enough time is left before expiration to justify the move.


On our farm, we are on "hold" as to any new sales on both old and new crop corn and beans. We do not like selling when the funds are this short, we prefer to make sales when the funds get long 100,000 or more, but that may not happen this year, so we will watch price action leading to the reports listed, the first being June 11th, and be ready to make sales or buy puts on any good rally. We will note local basis has improved about 10 cents the last 2 weeks, and hopefully with more driving activity and fuel usage, ethanol plants will continue to reopen and increase production, and instead of negative basis we can get to even money or better locally. It may be a good move to lock in some basis contracts for July, especially if cash flow is needed, as grain can be delivered and an advance of funds can pay the bills. We will be looking to do that ourselves, while putting in firm offers to sell at our target prices, or buying puts if we feel like more up is possible, again being realistic given our crop prospects. We are looking at both corn and beans in these terms, looking for 3.50 July corn or better, 3.70 December corn,  and 9.00 beans for both old and new crop as targets for some type of action. Once June 11th  has passed, we will adjust our targets if necessary, and look to get at least some coverage on before June 30th in terms of puts or sales depending on cash flow needs this fall. Depending on your storage and cash flow situation, this is a VERY individual decision. We plan to market more beans off the combine this fall given what we know now, but that could change depending on how the market reacts. Make sure you keep in touch and go over your individual needs before taking any action that may limit your potential profits longer term. For example, depending on your local basis, it may be more advantageous to store more of one and less of another, or even sell and re own to eliminate storage charges. Its a lot of
"what ifs" but every nickel and dime add up this year and we want them all!


In conclusion, we cannot be more clear on the importance of the next 30 days. We hope that our normal growing season rally happens this month for whatever reason, and we can take advantage of it. We are hopeful, as it would seem that most if not all negatives have been factored into our present price, and all we need is some friendly spark to ignite a decent rally, but how much and for how long is anyone's  guess, and we don't like guessing. We want to have a definitive action plan based on our numbers and hopefully show a positive result. There are simply no guarantees, the market will do what it wants and ignore any personal pain or gain. We have learned the hard way too often that what we think or feel is right may not match up with the market. While much negative psychology is present, turning it positive may be harder to do, but if it does, we remind those that claimed we were going to $5 corn last year and beyond, things didn't work out too well. What we have also learned is that having a disciplined plan based on realistic goals and objectives has been a better way overall, leading to more comfort, timely bill paying, and a banker that smiles when we visit with him or her. This month is EXTREMELY important, be safe, be ready, and be comfortable with your plan



Dates to Remember:

  • Every Monday: Export Inspections, Crop Progress
  • Every Thursday: Export Sales and shipments
  • June 11th: Monthly Supply/Demand Report and Crop Production
  • June 19th: Cattle on Feed
  • June 26th: July Options expire




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

Allen Gard: 573-769-4193



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