Clear Focus Hedging News and Views
April 3, 2023

"Stocks Friendly, Planting Intentions ??)

The March 31st report release brought another surprise in that corn and bean stocks as of March 1 were lower than the average trade guess, prompting a quick rally in both. When the Planting Intentions were released shortly after, new crop corn sold off as the acre number came in at the high end of expectations, and bean acres came in at the very low end of expectations. All bean contracts finished much higher on the day, while only old crop corn was strong while new crop finished fractionally lower. Now the big debate begins:

Will decisions change from March 1 intentions?
Will the snowpack in the Northern Plains melt in time for soils to dry out and warm up for corn planting?
Will the soggy Delta region dry out in time for corn, or will the delay cause some to reconsider corn acres?
Did the reports change anyone's mind on what to plant?
When we get a lot of numbers as we did last Friday, we like to take some time and go through things like the State-by-State breakdown of each crop and look at total acres "intended" verse historically. Some interesting numbers jump out at first glance:

Total acres of all crops came in at 254.8 million. Last year it was 249.6.
This number implies less prevented plant than 2021 when we had the lowest amount of prevented plant in many years
Every State that is experiencing questionable weather showed increases in corn acres over last year, especially Minnesota, the Dakota's, and the Delta
Wheat plantings came in over a million acres higher than the average guess. Drought in the Southern Plains may lead to many abandoned acres. What will be planted instead, if anything?
There are more, but these factors highlight the uncertainty going forward, and the markets job now will be to watch the weather both here and in South America to discover the price that satisfies the balance of supply and demand. There are more "moving parts" to this market that will also be "market movers" especially beans:

Brazil harvest is caught up to average pace, and the Safrina corn crop planting is about wrapped up. Selling pace is well behind average on a record crop. How fast will they sell?
Argentina crops are a disaster by recent standards, but farmers are still holding a significant amount of last year's beans. The Government is about to offer a "sweetened exchange rate" on their currency. Will more be sold soon?
Brazil beans are quoted at around $1.50 less than US beans. Will we be able to sell any? Will the price difference be enough to send Brazil beans to the US Southeast ports?
China and Brazil recently signed an agreement to bypass the US $ and trade in their own currencies. Will this affect US trade with China?
After visiting with our contacts in Brazil, the answer to #4 above is that in the short term probably not, it will take some time to set up a clearing house and manage the transactions, but longer term there is concern that with China investing heavily in Brazil infrastructure, we will have a harder time maintaining our bean trade with China, and if their corn crop is good, (and so far is in very good shape) our corn sales could suffer as well. In the past 2 weeks China has bought a lot of corn from the US, but still well behind last year's amount, so watching weather in Brazil the next 2 months will likely tell us if there is more to come or if China will source more from Brazil in the summer months. In looking at market prices on the board now, is the inverted markets in corn and beans. 21 ½ cents May corn over July, and 24 ¾ cents May beans over July. It would appear that the market is content that Brazilian crops, and their availability, will be sufficient to satisfy demand at a lower price in a month or so. Why is this important?

Commercial grain entities do not want to buy grain now based on the May contract without having it "sold" now. Regional basis levels remain highly variable based on last year's crop size in those areas/
It has been reported that some are bidding off the July now in beans, and the expectation is more will come to that sooner rather than later.
Board price will become less relevant as local basis will become the flat price driver. Check yours often if you are still holding a lot of 2022 crops!
Export sales, (or the lack thereof) in the next month will be very important to higher or lower prices for old crop, as cheaper Brazilian supplies are possible
What this boils down to is assessing our price risk going forward. IF Brazil weather is favorable, they simply have too many bushels to try to store, something will have to move no matter the price. We like to compare their situation to our own when crops exceed expectations. Do we pay for storage or pile it outside in rainy weather and risk quality discounts, or just "sell the extra" and take it to the bank. On our farm we sell it, store all we can, but we don't pay for storage. We prefer to sell and own some call options if we are really bullish. Remove all downside risk, replace it with limited risk of the cost of the call option, and either pay off high interest debt, or invest in something that pays rather than costs money like storage. Looking at the aforementioned inverses in the corn and bean markets, it makes sense to us to do just that with old crop corn and beans, sell them if basis is good, and invest in some new crop options to "stay in the game" with 2022 crop, but also have a "courage call" in our pocket to sell any good rally above the spring insurance price for both cold and beans. We have long fought the battle of fear of missing out on a big rally, causing us to miss selling opportunities when we were very profitable. After a few years of very high prices historically, it may be even harder this year, but with higher input costs and smaller margins very possible, we can't overlook our responsibility to preach risk management. While we don't make specific recommendations, we want to make sure you are aware of the potential risks, and also the tools available to manage that risk that make you uncomfortable. Now that we have more numbers to work with from USDA, we think we can make some reasonable assumptions on possible price ranges. Call or visit us for specific ideas.

In conclusion, we are just entering the "too season" too hot, too cold, too wet and too dry somewhere to grow crops. These are the times for all to make sure emotions are in check, and profitable business decisions are front and center. Social media is alive with all kinds of ideas, most of which we put in the category of "market noise", as it should be well known by now that the news follows the market, it does not drive it. Many times we read opinions that are more reasons than future price drivers, and to try to outguess the outcome is just a dart toss. Right now, the funds are long beans and especially meal, about neutral corn, and very short the Chicago wheat. Simple spread unwinding can cause some strange price action in all grains and months of different contracts, causing some equally strange interpretations of them. This is why we want to focus on profitability, and not some questionable analysis. Last Friday morning we were made aware of a recommendation to "lift all hedges", and for us, the thought of lifting good hedges when a major report is imminent is not something we want to do. Maybe defend the sale with options, but to abandon a good sale right before a major risk report, assuming all the risk of the downside goes against our philosophy of risk management. If you exit hedges. where do you reenter the market? It puts all the stress of making a good decision back on your back when you have a profitable price locked in and plays into the "fear of missing out" verses the comfort of knowing you are going to be profitable. The markets are closed on Good Friday, they will open back up Easter Sunday evening. Have a Blessed Easter, and call or stop by to talk over all the above.

Every Monday: Export Inspections
Every Thursday: Export Sales
April 11: Crop Production, Monthly Supply/Demand Reports
April 21: Cattle on Feed
April 21: May options expire

Mike Daube: 574-586-3784 or 574-910-3818 cell
Allen Gard: 573-221-9234
Peter Schram: 317-910-1473