CFGAG News and Views vol. 62 September 1, 2014

"Does Anyone NOT Know its a Big Crop Out There?"

It would seem that its the worst kept secret ever, that this years crop will likely set all time records for production of both corn and beans. Producers from all over the Midwest, Delta, and most of the civilized world report excellent if not records for their area. So why have prices not moved lower? We have essentially traded a 25-30 cent range in December corn futures since the last government report on August 12. Wheat seems to have found a bottom in the $5.45 area basis the December. Beans chop around with a lower bias, but still seem "overpriced" when looking at the projected balance sheet tables. So why don't we "crash and burn"?

When USDA announced yields and carryout's on August 12, they surprised the trade by keeping corn yields under 170 bpa, and carryout under 2 billion. While today, not many believe those numbers will end up being the final, they are still THE numbers until the next report. Also, the FSA released partial prevented plant acre numbers which threw the final corn acreage in doubt. History tells us not to get too shook up about FSA numbers, they generally track back towards the USDA, but doubt still remains. Combine that with some areas of the corn belt that were very dry until just the last week or two, geo-political unrest in the Ukraine, and we were able to keep prices range bound and choppy for most of the month.

So where do we go from here? Our bias, given the last few weeks of weather, a forecast that does not show any threat of an early frost yet, is lower, with beans having the most downside potential, then corn, and finally wheat, which may have already found a bottom for now. Why do we feel there is more downside at this point? Consider the following:

1) Generous August rainfall has found most of the US production area

2) Early harvest results in the Delta and southern Missouri have been amazing, well above record levels for those areas

3) Russian and FSU crops are big as well, and Europe is dealing with lots of "feed wheat", reducing their need for corn imports

4) China is trying to unload massive supplies of corn in state owned storage, and will not likely be importing much, if any corn soon

5) We still have to resolve last years crop production numbers, how much will USDA adjust the 2013 crop higher?

6) Farmer selling of 2014 crops and South American producers selling of 2015 crops are well behind "normal". When does it shake loose? 

Ok, we have loaded your plate with bear meat, so is there any reason for optimism at all? Yes, there are always two sides that make up a market, there are always buyers and sellers at a given price. As mentioned above, there are foks that believe corn and bean supplies are lower than forecast, that corn acres will fall in subsequent reports, and overall yields will not reach the lofty expectations of the bears. Markets can rally at any time, for what would appear no reason. Weather still can impact final yields with too much rain, early frost, or major storms like hurricanes, etc. Keep in mind the following items, listed last month, in looking for potential lows. They are not fool proof, but many times give us a hint that we have gone low enough:

1) If we get "bearish" news, and the market does not fall apart

2) December 14 corn trading 50 cents below December 15 corn

3) Nearby spreads narrowing in both corn and beans

4) Basis levels narrowing instead of widening

So what should we do? We need to first recognize and estimate as closely as possible our yields. This number will affect crop insurance payments and marketing plans. Get a handle on production, plug it into the "Tracker" and check with your insurance agent on what price is likely to start kicking in coverage. $4.62 was our spring guarantee, and even with record yields, $3.50 may be a price that gets you a check, as is the case on our farm. This is important, as $30-$60 per acre may be all "profit" in this price environment. Don't let this one slip away. After that, focus on local basis. Again, look at what a 20 cent basis difference does for your bottom line, ($40 per acre on 200 bushel yields), and then focus on marketing opportunities. Do you have enough storage? What will commercial storage cost if you don't? If basis is "good" or at least as good as it may be for some time, it may be better to simply sell the grain and re own it with limited risk. You can either buy calls, or own puts and futures. Call options only require a premium purchase, but are limited in gain to how fast and how high the market rallies in relation to your strike price. By buying a put option, and then the futures, you limit your downside risk to the price of the put plus transaction costs. The futures position, if bought at the strike of your put, will gain penny for penny any up move, and is more flexible and easier to put protective stops in place. For instance, if the market suddenly pops up 20 cents on a weather or geo political event, you can take advantage of that by placing a sell stop under the market to protect some profit in case the "event" was not a big deal after all. Many times markets will chop like this when looking to confirm a low or start an "up trend", and call options do not react as quickly as futures. Take some time to visit with us before the combines roll to plan this out. Everyone is different in their risk tolerance, yields, storage, and cash flow needs. We need to plan on when you need to make sales, and how to make sure you are maximizing your profit opportunities!

As stated earlier, we still have the most concern for soybeans, in terms of downside potential. If our yield results continue at lofty levels, weather is cooperative, and there is no early frost, we could see another $1.00 or $1.50 lower. Double crop beans in this area look like they may even add to the problem. We are not used to prices being that low, but increased production both last year and prospective planting for the 2015 crop in South America may add to already record carryout's of soybeans in the world. We do not see soybean acres declining, rather growing, and with producers holding more, the supply situation continues to grow. We would make more sales with a low risk re-ownership plan similar to corn, or buying more puts with a target of $8.80-$9.00. Keep in mind your insurance coverage as well, a call to your agent as well as a good yield estimate will make planning easier. By using the "Tracker" you can play "what if" with many yield and price combinations ahead of harvest to make instant decision making when you get in the field. Its all about being prepared, and hopefully we can help you be more comfortable by having a strategy ahead of time to go to. Call this week to go over some ideas!

We also note that on September 30th, the USDA releases the Quarterly Grain Stocks Report. This is where we may finally find out some changes in last years production levels for corn and beans. Last year, the Government was shut down in October, and some feel that the numbers just didn't get added up properly. Beans supplies are most in question, with a large "negative" residual amount, implying that last years crop was understated.  We don't know what they will do, but we do know that that day carries major risk to prices. Make sure that for both the September 11 monthly S/D report and the 9/30 Quarterly Grain Stocks, you have laid off any unwanted risk. These could both be big market moving reports.

From  the technical side, we have the following numbers from our computer to consider:
           Dec Corn       Support                Resistance
                                 3.37                      3.77                                                                    
                                 3.25                      3.90
                                 3.05                      4.10

           Nov Beans        9.80                    10.68
                                  9.56                    11.18
                                  8.80                    11.57                               

In conclusion, it is a real blessing to be able to go out to the field and see what can happen when good farming practices and favorable weather can do! We all need to take a minute and enjoy it. Soon there will be hustle and bustle and more work than usual for a number of weeks. There will be stress and critical decisions to be made, and lots of bushels to deal with. We feel it is very important to be prepared for whatever the market decides to do. Lay off the risk you don't want, and have orders in that achieve your profit goals. The bottom line to this year is making the most out of every opportunity. We do not have $6.00 or better corn price now, but we have lots more to sell. Getting a good basis, capturing carry if you have storage, and a good re-ownership plan can easily combine to increase your margin by 50 cents to a $1 a bushel. We have seen it work on this farm, and it can work on yours. Remember, everyone has a different situation, different needs. We are here because we like the challenge of coming up with solutions to those needs. We hope you had a great Labor Day weekend, and took some time to congratulate yourself and your working family for doing the most important function any worker does. Feeding the World!


Dates to Remember this month

Crop Progress and Conditions every Monday at 3:00 central time

Export Inspections every Monday at 10:00 central

September 11th Supply/Demand and Crop Production

September 19th  Cattle on Feed

Export Sales and Shipments every Thursday at 7:30 am

September 30th  Quarterly Grain Stocks

Mike Daube      888-391-6330
Allen Gard       800-205-1700