CFGAG News and Views vol. 93 April 1, 2017

"Bean Acres Up, Corn Down....For Now"

The USDA Reports issued yesterday once again caused a stir in the market, as Prospective Planting of soybeans came in 1.3 million acres above the average guess, at 89.5, and corn acres came in almost a million acres less than expected at 90 million. All wheat acres were almost exactly on the average guess at 46.1. Quarterly Grain Stocks Report was fairly neutral, as all three grains came in just slightly above the average guess but well within the range. We want to point out a few factors to watch going forward, and then some ideas on what to plan for:


1) Total planted area is down from last year, we could see more row crop acres if weather is favorable and prevented planting is low.

2) Funds went into the report long beans, and short corn and wheat. After the close, yesterday, the CFTC report showed the funds now long only 38,000 beans, but carry a very large short position of 155,500 corn and 136,000 wheat.

3) Planting weather in the US and pollination weather in a few weeks in Brazil for the Safrina crop now become major price discovery issues

4) Will the start of a new month and quarter bring in new money into the commodities markets?

5) Will the Brazillian currency value weaken? If so, will we see heavier selling pressure?


If you have been a regular reader, you know we have been sold out of old and new beans since last Nov/Dec. We said then that if the market took out the highs in the $10.44 area, or if the market got down to the $9.20-$9.40 area we would buy call options to defend our sales, and yesterday we almost got down to that 9.40 level. There are a lot of choices now, and a lot of time to go before harvest, so premiums on calls are still carrying a lot of time value. Our general rule is to only buy the time value we need given the risks that are anticipated. I think for the near term, the large stocks, favorable South American weather, and the prospect of a record large acreage in the US will keep a lid on any rally attempt in beans for a while, so given the results of yesterdays reports, I will "keep my powder dry" on buying any options at this time, but will have the trigger finger ready in case any of the now bearish items change course. We do not see the factors that would threaten bean supply on the horizon yet, as the cash market for both beans and meal have become weak, and Chinese crush margins are weak as well, slowing down their buying pace.Spring wetness issues tend to be more worrysome for corn, so for now, we will hold off on calls but be watching closely for any changes that could spark a rally. With the funds still long, (albeit a much smaller long) and lots of beans to sell in South America, we feel any rally attempt will find willing sellers.


Corn is a very different story, at least for the short term, as now a snapshot of the big picture includes the following:


1) Funds have a large short position, not a record, but very large for this time of year

2) End user coverage into summer months is light according to our sources

3) Weather has been fairly wet, and the next 3-4 weeks will be very important to getting the crop planted in a timely manner

4) Many areas still have cash prices well below the cost of production, discouraging more corn acres


We feel that the corn market, given all the unknowns and possibilities has a good chance to at least revisit the recent highs of around $3.86 May and $4.05 December futures. Any combination of fund short covering, new money coming in buying what is cheap, or end user pricing COULD give us a quick, sharp rally that we feel needs to be taken advantage of. If you have bought "courage calls" make sure you have your orders in to sell when those levels are reached. We do not have to be reminded of what happened last year when the rally lasted about 1 week, and the opportunity was gone. If you have those calls, get it done. If not, we will be very anxious to get put protection in place to make sure we have a $4.00 floor price in place. Last year was a good example of how puts can be rolled up in case a rally is extended, as $4.00 puts were rolled up to $4.40 for only 10 cents, and that 30 cent gain was all profit. We don't know if that will happen again, but we always want to be prepared to take action if the market gives us that kind of opportunity. To summarize our postion now, we feel the next 4-6 weeks could provide our best opportunity to get a profitable price locked in, barring a severe drought this summer. Our risk management approach will focus more on present than what if a few months from now, and if we can get the right combination of buyers, coming in, we feel sellers will sit on the sidelines for a while.


We have noticed commercials are posting "FREE DP" offers now. In short, they love to get bushels they don't have to pay for. You haul it, they use it, but you have ALL the price and basis risk, and if they don't have to bid for it, basis will not improve. We could go on a soapbox sermon for hours, but will spare you that. We only ask that if you are considering these offers CALL US FIRST. We would love to give you some better ideas on how to get what you want done in different manner.


For wheat, we would also hold off any sales to see what the effects of cold temperatures here over winter and in the FSU and Ukraine lately will have on conditions. Most all of the bearish news should be factored in, and the funds have a very large short position. We would go back to our previous thoughts expressed last February that 4.80-5.00 is a good price for July Chicago wheat. We were able to get to 4.88 when the funds covered a big portion of their short position then, so watch for similar action coming up. We don't know if that would happen again, but looking at the chart, it could be possible if the right combination of events comes together. Wheat is very technically traded, but would probably follow any corn rally if it gets going


In conclusion, we have often said that every day is another opportunity, and we are working every day to be ready to capitalize on it. The funds gave us a chance to get a good insurance price guarentee for soybeans in February, and corn not bad, at least a little better than last year. Our job is to try and sell at levels above that insurance price, and reduce our deductible to maximize net farm income. We are encouraged now that the table is set for corn to give us another chance at $4.00 pus prices for new crop, depending on what happens over the next 4-6 weeks. We know that summer weather COULD give us a bigger opportunity, but that is only a possibility and unknown. What we do know, (or should know) what our breakeven price is, and also a profit goal per acre, and have orders ready to make sure that becomes reality and not "what I shoulda done". While we definitely see some potential for corn and wheat to rally, we also recognize that 90 million predicted planted corn acres could become 92 or more. Good weather to plant in could raise both corn and bean acres. These are all unknowns, and part of risk management, to minimize the negative effects of unknowns becoming reality. Since 2012, we have built grain stocks dramatically around the world, high prices will do that, and we are overdue for a weather problem that cuts into that abundent supply. We also know that producers are just that, excellent producers, and to doubt their (our) ability to deal with production challenges is dangerous! Call us for some ideas to be ready for an exciting April/May!


Dates to Remember this month

  • Crop Progress and Conditions every Monday at 3:00 central time
  • Export Inspections every Monday at 10:00 central
  • April 11th Monthly Supply/Demand and Crop Production
  • April 21st     May grain options expire
  • April 21st  Cattle on Feed
  • Export Sales and Shipments every Thursday at 7:30 am


Mike Daube      888-391-6330

Allen Gard       800-205-1700