CFGAG News and  Views Vol. 84

July 1, 2016: " Bad News For Corn Bulls"

Once again, USDA threw the corn market a major curveball with planted acres UP instead of the expected reduction, and also "finding" 200 million more bushels in the Quarterly Grain Stocks Report. Beans acres were near "expectations", but certainly much less than what most in the trade thought would be the case. Price reaction was swift to take corn down substantially, while rallying the beans sharply. Interestingly, bean stocks were up 40 million bushels verses expectations, possibly indicating last years crop was understated, but the lower acre number seemed to be what traders were focused on. We remain cautious on those numbers going forward, as adjustments are very possible, making each successive Supply/Demand report very important. We will hear about these as crop certification gets wrapped up and crop insurance numbers come in. Going forward from here, we need to focus now on what we can do to maximize our potential, so we start with the following list for the month of July:


1) What is your yield potential as we move through pollination?

2) How much is sold, and how much can you store? 

3) What is local basis doing for fall verses deferred delivery?

4) What will elevator storage cost if you need it?

5) What are the spreads doing? (Dec-Mar., Mar.-May)

6) What are your cash flow needs this fall and into winter?


Being pro active has served us well, and looking above, we would start with #6, letting our cash flow needs drive our marketing plan. Having enough grain sold at profitable levels in advance of cash needs avoids the nightmare situation of a bad futures price as well as a bad basis. We can re-own sold grain and capture futures gain, but there isn't much we can do with a bad basis. If you need cash flow this fall, and the your area has a good crop coming on, it may be a good idea to lock in basis, or just sell the grain and re-own it with a limited risk strategy. If you don't need the cash, and can store grain into the summer, we will watch the spreads to see how much carry we can get out of the market. In other words, will the market pay us to store grain for them, or is it more profitable to sell now and re-own? We can help you with those calculations and offer ideas to help offset what looks like now a rough ride in the corn market.


Going forward, we also recognize there is a lot of weather to deal with before the crop is "made", and there can be a lot of changes made in terms of acres, crop conditions, and pollination conditions before we have this crop in the bin. We cannot ignore the fact that the funds have a big long position in both corn and beans, crop conditions overall are very good for this time of year, weather is at this point non-threatening, and we are finishing up harvesting a record wheat crop. All this is "known" to the market, and should be somewhat factored in, but with a three day weekend ahead of us, anything could happen Tuesday morning when traders get back to work. We will be looking at the short term for results of the weekend forecast as well as two weeks out for any hint of threatening weather, or will most of the corn belt get needed rain or not. Corn is center stage now, but soil moisture going into August will be very important for the beans, so while we trade reports for a few hours or a few days, a new weather map comes out every six hours, and reaction to changes can be swift and dramatic. Make sure you stay tuned and have orders in "just in case"!


With the large wheat crop, and very large stocks to begin with, it would seem that the wheat market has no hope at all. We would argue that commercial elevators have a big incentive to own it now as cheap as possible, and make 75 cents a bushel storing it for a year. This may impact some of the storage decisions this fall, as corn simply does not have the carry in the market right now to approach those levels. If you are in an area with a lot of wheat in storage, make sure you have a place for the grain. Locally here basis is pretty strong for new crop wheat as quality is good, and there is a lot of poor quality from last year that needs some blending help. We would encourage looking at local basis and possibly selling now at good basis and re-owning,as once the grain is "stored away", it will take some decent price movement to get it out. The bottom line is, there will be opportunity even though it looks grim right now and this goes for every crop. Futures markets spend little if any time looking back, its what is ahead that drives the money flow.



In conclusion, while the USDA Reports were not kind, we do not want to waste a lot of time dwelling on them. Numbers can and will change, the challenge is to be ready and willing to take advantage of opportunities when they come along. We will start that process by celebrating the Nation's Birthday and giving thanks for the opportunity that freedom brings. To remain independent, we have to be responsible for the decisions we make and the actions we take. It is a precious gift to be stewards of the land and to be able to not only take care of it, but make a living doing so. It is up to us and generations that follow to feed and clothe the world, a big job when it seems so few actually know where food comes from, but we can and will do it. Bad news in the market is temporary, but our blessings are endless!


Dates to Remember this month

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

Export Inspections every Monday at 10:00 central

July 12th Supply/Demand and Crop Production

July 22nd August  options expire

July 22nd Cattle on Feed

Export Sales and Shipments every Thursday at 7:30 am

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