Clear Focus Hedging News and Views 

July 1, 2024 

“Ugh. Another Bearish Report” 

There were no friendly numbers in the two USDA reports issued last Friday. Corn stocks came in 120 million bushels higher than the average guess, and corn acres came in a little more than 1 million acres higher than the March intentions report. For soybeans, lightly negative stocks, not surprising given overall demand numbers, and a friendly acreage number slightly less than the average guess. On planted acres, the corn and bean numbers will be debated given the wet finish to planting and subject to further review. We will note that almost half of the increase in corn acres came from Kansas, not exactly our highest yielding state in terms of bushels per acre. What we are surprised by is the corn stocks number, as given what we know in terms of exports and ethanol crush, the implied feed use number will have to fall by 7.5% in the third quarter. Not exactly consistent with recent history, and with animal numbers and slaughter weights where they are, we are wondering what they are eating? Possible increase in last year's crop coming? Incorrect survey data returned to USDA? We have no idea and will wait for the July 12th Supply/Demand Report for further clarification. As we wait for these reports, we will be watching the following for price direction: 

1. Weather forecasts for pollination 

2. Basis: strengthening, weakening, or steady- cash value given these new numbers 

3. US $: stronger or weaker? 

4. Export demand: are we competitive? Do end users step up and buy this break? 

5. Farmer selling: both here and in South America 

There are still issues in Europe and the Black Sea Regions with Russia and the Ukraine looking at some fairly hot and dry forecasts and watching the daily export sales reports of 100,000 metric tons or more may provide some clues to end user feeling of total supplies available at a given price. How much and how anxious are producers both here and abroad to sell at these prices? July basis contracts had to be priced or rolled to September last week, so how much is left to go? At present, the weather is non-threatening for the most part, although more rain is forecast for the flooded area in the northwest region early next week and damage reports and crop conditions will be watched closely. We will note that once flooded acres are zeroed out, those acres are not supposed to be included in condition reports but will be subtracted from harvested acres totals. 

Looking forward to the July 12th reports, we will be watching the following: 

1. Export sales and shipments 

2. Will USDA stick with yield and harvested acres numbers? (181 corn and 52 beans) 

3. Carry out numbers for all three grains 

4. South American numbers: harvest is winding down; can we get the privates and government numbers closer together? 

The funds have amassed a very big, short position per the last CFTC report, and given the selling after last Tuesday, may well be closing in on a record short position in corn. It is hard to recommend selling at these levels, as a rally could still come via changes in weather or demand, or simple profit taking in short positions. Selling on a good basis and re-owning with limited risk is about the best we can recommend at this time. As this article is written on June 30th and posted July 1, we will be watching price action closely Sunday night and Monday for clues. Stay tuned! 

Old Crop Corn: 

We have very little left, but would use any good basis bid to unload the rest, and use futures or options to re-own, keeping risk limited by using options or futures with stops 

Old Crop Soybeans: 

We have seen some improvements in the export market recently, and the local basis has improved in our area. If you have beans, look for “hot bids” to unload the rest and if you are friendly, or sense a weather market coming, limit risk with the same idea as corn. 

New Crop Corn: 

With the break in price, we are closing in on insurance guarantees, in some cases depending on coverage. We cannot recommend sales in this area unless it’s bushels you cannot or don’t wish to store as there is good carry in the market. If you need to sell something, call us for a plan of re-ownership that allows you to capture carry and hopefully better basis if we use HTA contracts.  

New Crop Soybeans: 

We are now fully sold via HTA contracts and futures contracts above $12.00, and like corn, are reluctant to sell at these levels. A 52 bushel per acre yield is possible, but far from over the scales. We are content to be a little patient on new crop sales at this time as long as $11 lows hold. 

Following up on our sale of the $14 bean calls that were sold for 44 cents on October 31, our order to buy them back at 4 cents was filled on June 21, netting us 42 ½ cents to add to our sales price. We want to illustrate this trade as an example of using tools to help generate a profit in tough price years. Why sell those calls? Why take the chance on a margin call? My answer is simple. If I get a margin call on those trades, I will be selling this year’s grain at a great price, period. I will also likely have decent prices for next year as well. In short, a small loss in this year’s hedge account means a much better overall profit margin! We feel that fear of margin calls and fear of missing out on higher prices are the two most important threats to a good marketing plan. We need to confront these fears head on if we are going to improve our overall marketing success. As we have noted many times, a good lender is vital to understanding this relationship and the risks, or reduction in risks associated with these trades. In simple terms, we need to look at the total effect of what these trades mean in the big picture, not one aspect of it. We plan on having a zoom meeting soon to explain this idea in detail. Stay tuned!