Clear Focus Hedging News and Views
September 1, 2021

 "Fund Selling or End User Buying?"

The August 12th USDA Reports gave the market a big surprise, coming in with a corn yield well below expectations, and the market responded quickly rallying near limit up in corn and sharpley higher in beans. By days end, however, prices settled back about halfway, but still higher. Since then, we have steadily ground lower, and accelerating the last two days with the end of the month profit taking and hurricane damage in our major Gulf ports which load grain for export. It is unclear at this writing how much delay there will be in getting shipping back to normal, but it could last 2-4 weeks in some facilities. Add some nervousness about new strains of the Covid 19 virus and the selling came. Our title sums up what it boils down to in our mind, how much will funds sell off their large corn long position, and when will end users jump in for more coverage. There are plenty of good reasons for both bulls and bears!



1) Recent rains may help some, but for many they came too late

2) Even in the Eastern belt producers are reporting "we took the top end off" what many felt were record yield possibilities

3) South American weather for planting the new crop may be threatened by another El Nino. A repeat of last years short corn crop?

4) Demand is still strong: some ethanol plants are paying $7 + for corn, and offering incentives to bring new crop in early 

5) Wheat prices have soared limiting substitution for corn in the feed bunk

6) Good cash flow positions make farmers more likely to be "tight holders"



1) Private yield estimates, including Pro Farmer Tour suggest USDA yield estimates may be too low

2) Overall plant health and lack of disease and insect pressure may indicate better yield results when the combines roll

3) Financial incentive from profitable prices encouraged farmers to go all out with inputs. South America will be no different with the coming crop there

4) Harvest should start earlier than normal in many locations, early frost will not be much of a threat and none is indicated in the near future

5) Funds still carry a big long position in corn and technicals have turned south

6) China has been buying "some beans", but well behind last years pace, and have been quiet in the corn trade


We have 2 major reports coming in this month, the monthly Supply/Demand on September 10th, and the Quarterly Grain Stocks Report on the 30th. As opposed to the August 12 report, the next one will include actual field samples by USDA scouts, as well as other information they have gathered. As the crop has matured ahead of normal, it should be more accurate than in later maturing years. At this writing, the trade seems to feel yields and production will be higher than their last estimate, but thats what makes these reports so risky- no one knows what they will come up with. We should also receive more FSA data which last month indicated we could have planted more corn acres this year which would also be a factor in final production and carry out. On the 30th, the Quarterly Stocks Report is always a potential for fireworks, as USDA has to reconcile previous reports with new numbers. Feed use, ethanol production, and exports can all be "adjusted" to make the new numbers fit when we get to the next Supply/Demand Report. Be ready for each, examine your risk either up or down, and plan accordingly. We have seen limit or near limit moves lately after every report, and with 40 cent corn and $1  bean daily limits in price movement, the elevated risk is obvious. 


Our history lessons lead us to believe we could easily sell off lead by funds for a while, but will be watching for any clue that end users are coming in for big buys, such as China. Recent geopolitical events have muddied the waters, but if they need grain, they will buy it. As supplies from other producing nations run low, we may see some of this demand come our way. Hopefully that is the case sooner than later, but until we see these sales, or we see yields coming in low, there are not many reasons to be bullish at this time, and we would look to the end of September/early October for a "harvest low" unless the 2 USDA reports out this month change the landscape. Basis and logistics will likely take care of demand until new crop harvest is in full swing but if as we suspect, farmers become very tight holders, futures and basis may have to rally to encourage enough supply. We feel more strongly about beans in this regard, as many (including us) sold beans "too cheap" last year, and haven't forgotten they rallied to over $16 last spring, and the thought of repeating that is not attractive! We feel that storing beans will be what most folks do, at least until we see how South America fares in their planting season. We have some good re-ownership ideas for both corn and beans if you want to sell at good basis and use the futures and options market to re-own with limited risk, as there are spreads in both futures and options that offer varying degrees of return. Call us for more specifics, and we will not recommend anything that we wouldn't use ourselves, so feel free to question for the idea and the reasoning behind it before you choose to use it. We like the critical questiona!


In conclusion, in this business, they don't allow mulligans or "do overs", so we have to make sure our risk is covered by our own actions and choices. No talking head on the TV has the answer for your opperation. It has been a very exciting but taxing year trying to make sense of each turn in the market. It is easy to forget the fund position, but that is always a potential price mover in a big way. Don't underestimate how far and how fast they can move the market and leave with lost profit in the wind. Managing risk this year may be simply selling cash grain in areas that have exceptional basis or drying and storage cost opportunities and re-owning with a limited risk option strategy. It may mean using storage to capture carry and future basis improvement by storing grain and protecting the downside with put options in case of a "black swan" event appears like a resurgence of covid. While we don't have mulligans to use, we have lots of good choices to manage your risk and protect profitability for this year and next, but only by knowing what you want in terms of price goals and timing of sales to make cash flow needs can we help make a plan that fits each individual. Everyone wants to know where the high and low is, but no one has a clue even if they act like they do, and usually are humbled quickly. Our focus is on where we are profitable, use the tools to make sure we have that level protected, and then use everyting else like basis, carry, spreads, etc. to add 5-10 cents wherever we can. Have a great Labor Day, and call us before the dust starts flying!


 Dates to Remember:

  • Every Monday: Export Inspections, Crop Progress
  • Every Thursday: Export Sales and shipments
  • September 10th: Monthly Supply/Demand Report and Crop Production
  • September 24th: Cattle on Feed, October options expire