Clear Focus Hedging News and Views
May 1, 2023
"The Bad and the Ugly"
The past two weeks have been nothing but ugly for the producer's side of the market, with grain prices in a free fall, and major support levels on the charts violated in both old and new crop. Wheat prices have fallen enough that some analysts reporting we now have the lowest price in the world for soft red wheat. Hard to believe when just a year ago, we were looking at wheat prices in excess of $11, with corn and bean prices on fire as well. September 23 futures were pushing $7 per bushel, and it looked like rationing would be the case. So what happened?
  1. A safe "grain corridor" was created to allow Ukrainian grain to move out of the Black Sea, and 3 border countries to Ukraine allowed grain to move by rail and truck through their country.
  2.  Russia produced the largest wheat crop in their history, adding to world carry out projections
  3. While money flowed in to commodities, spec positions grew larger
  4. Great pricing opportunities were available, but no one wanted to sell as the bullish enthusiasm grew.
The "shortage" of grain (or the perception of a shortage) was gradually put to rest, but grain markets maintained a substantial inverse, with old crop front month prices exceeding the next month, offering no carry in the market, and consequently no incentive for commercials to bid up for grain they could not sell right away. So combined with the extremely strong basis in the western belt due to drought and high fuel prices adding to the costs of moving grain, it took a lot longer for the market to come into balance. We still maintain large inverses in May corn and beans over July, but with the crops in Brazil coming to market, (and they are large) the pressure is now on the July contract, as most commercials shifted bids to July last month, and demand is still lacking. China cancelled som previous purchases of corn as well, adding to the downside pressure, and planting progress as reported every Monday afternoon showed average progress so far. Later today we will get another update, with most expectations of maintaining a normal pace. Is there anything positive out there? Repeating the old addage of the market follows the news rather than leads it, everyone seems like a raging bear lately, but there are some positives to look at.
  1. Corn trade in July futures was impressive, printing a low early of 5.72, but rallying to post a higher close on the day at 5.85. Is the selling done for now?
  2. While corn and bean planting progress has been "normal", cold and damp conditions still hamper some areas. Will emergence numbers be behing normal?
  3. With December corn closing Friday 64 cents below the spring insurance price, will the Northern Plains have the incentive to plant as much corn as projected March 31?
  4. Recent rains in the Southern Plains have helped relieve severe drought conditions, but did it come in time to help the wheat crop?
  5. End users are profitable, with room to spare, and the funds now have a big short in Chicago wheat, a small short in corn, and a more modest long in beans. Plenty of ammo if conditions warrent money flow in.
We will be closely watching the July corn contract, especially the low posted last Friday of $5.72. If a new month brings in money flow on the buy side, it will make that low even more important to watch. Crop progress will also be closely watched, as emergence and later condition ratings will be monitored as well. Some have reported that replanting will be necessary as some crops were trying to emerge last week when widespread frost was reported. Some replant is normal every year, and the weather forecast going forward is more favorable, but anything that signals a lower acre number and/or lower yield portential may spark some buying. With the recent price drop, we would also hope to see some increased export business, and perhaps some end user pricing as well. Caution is advised however, as there are still concerns about the downside:
  1. Brazil's bean crop harvest is nearly complete, with prices low enough to ship a few cargos to the Southest US. Safrinha corn is doing very well overall, and selling portential is there as well
  2. Argentina farmers have been slow to increase selling, as new crop estimates continue to fall. There are still significant bushels to sell there, question is when?
  3. World economics and political tensions are both concerns. We have not made any new trade deals lately, and seem to be on the outside looking in as new alliances are formed with Brazil and China the headliner
  4. The US is still on the verge of recession, with the latest growth numbers disappointing
While watching all the above for pricing signals, we want to make sure to watch the spreads as well. For those who hedged new crop in the September contract when the inverse was substantial, the market actually traded at a carry briefly Friday, and closed at a penny inverse. We want to roll those hedges to December at some point, capturing the gain in the spread. Recent history says even money to 10 cents carry is possible, so watch closely or call for some ideas on where to put orders in. If you have old crop left, watch the July lows made last Friday in both corn and beans, and check basis often as sometimes good bids will appear during planting season. Supplies in the eastern belt are more plentiful than in the west, but ethanol plants are still the best bet so far east of the Mississippi, with rail bids suffering. For new crop, we are not recommending any sales here, as history tells us the chance of getting back to the inurance price is very good. We are not sure that will happen again, but with the size of the sell off, and the funds now short in corn and wheat, it would not take much to get some sort of a bounce. Make sure you know where your profit goal price is, and let us know so we can watch it for you while you're busy with planting and let you know if we get close. Sometimes opportunities come and go very quickly! New crop beans seem to be well supported around 12.50, and with the balance sheet very tight, we would also be patient for a while to see if we can't get back to the 13.50 area. If this price is attractive to you, let us know to either put in some orders or at least call you.
May 12th will be the next USDA Supply/Demand Report, with updates on South American crops and demand projections. US production will likely not be changed, but the carry out numbers for both the US and the world will be closely watched. No one knows how much grain will be produced in the Ukraine this year, and the "safe corridor" to move grain out of the Ukraine will expire May 18. Both of these dates have the potential to be major market movers, so stay in touch for the latest developments!
In conclusion, there are still lots of moving parts to price discovery, with weather now in the lead, but the above mentioned world issues still major factors to be delt with. There is talk of a spring offensive in the war in Ukraine, and events there along with the May 18 deadline can change a lot of attitudes. We have watched the last few weeks deliver some bad news in terms of money flowing out of the grain markets, and we will likely need some real threat to overall supply to get it flowing in. In the meantime, we feel it is important to look at profitability, and manage risk accordingly. The uber bears are looking at $4.50 corn or less, and sub $10 beans. We are not in that camp yet, but recognize the potential. We would rather be ready to protect prices if and when we rally back. Call for ideas if in fact the lows are in or close, as we can look at the charts for potential retracement levels to target. We pray for all a safe and productive planting season, and at the end of the month, don't forget to thank a Veteran for their service, and remember those who paid the ultimate price for our freedom!
Every Monday: Export Inspections 
Every Thursday: Export Sales
May 11:  Crop Production, Monthly Supply/Demand Reports
May 19: Cattle on Feed
May 26: June options expire
Mike Daube: 574-586-3784 or 574-910-3818 cell
Allen Gard: 573-221-9234
Peter Schram: 317-910-1473