"Planters Rolling, But Markets Rally?"


As we start the month of May, after a record cool month of April in many areas, planters are finally rolling in reportedly very good conditions, other than cool. We may see our first "80" on the thermometer today, here in Northern Indiana, and the change is quite welcome! What is also welcome is grain prices have rallied in spite of the forecasted progress, and yesterday we posted new highs in corn and wheat for the move, with corn finally taking our last December's high of $4.17 1/2. So what is causing the new found optimism? There are many factors that we have talked about the last few months coming together, not unlike a jigsaw puzzle, and perhaps painting a more optimistic future. We list some of them here:

1) Demand remains solid for corn, export sales and shipments continue to gain on the poor start earlier this year.

2) Funds hold big long positions in beans and meal, (record) and are moderately long in corn, short in wheat.

3) Argentina suffered a major drought earlier, now has heavy rain threatening harvest and slowing winter wheat seeding

4) The southern 1/3-1/2 of Brazil is too warm and dry for the safrina crop, of which represents about 70% of this years total

5) Parts of Russia and the Ukraine are drying out, possibly threatening wheat production

6) Trade issues are still a concern, but the US are sending the "heavy hitters" of trade negotiation to China this week, and there seems to be some optimism over a redo of NAFTA and TTP on the horizon.


These are some of the pieces that when fit together create some friendly outlooks. We also add in the planting intentions numbers and look at some potential yield scenarios, and the ending stocks numbers next year are tightening up. Bottom line is we need good crops this year, or some price rationing might be on the horizon. We need to say right now, while we see some friendly ideas, we are not wildly bullish. We are still working through a large carry out of all grains, and we all know the potential of the American Farmer to exceed expectations when it comes to production. That being said, the May Supply/Demand Report will be very important when looking at World Stocks to Use numbers to see just how much the adverse weather in South America along with increased demand in China will drop projected world stocks. Make sure you check in before May 10 to adjust positions and tweak your plan if needed.


While we have been looking at the "positive" pieces above, we also recognize that there are cautions as well. Trade negotiations could fall apart, tariffs could be implemented, and the optimism about North Korea could turn sour for many reasons. World turmoil and strong markets rarely coincide, and to ignore the downside risk could be dangerous. Argentina production may not be as bad as advertised, Brazil could come in higher, and China may just say no. This is why we want to continue to reward rallies, and make sure we are not the last out the gate if the herd stampedes the wrong way.


As far as our attitude toward marketing now, we are still cautiously optimistic corn and wheat, but want to continually reward rallies with incremental sales, especially old crop, and start adding put options to our basket covering more and more bushels with floors on new crop. Many times we are asked when is the right time to buy puts, and we understand that every one wants to buy the highest strike as cheap as possible, but that is not realistic in today's volatile markets. The simple answer is, when you feel its time to put a floor price in, DO IT! If the market continues to rally, we can always roll these puts up, and increase our bottom line price and revenue. This may get frustrating at times, but the other side is waiting too long and not being covered, like last year, and we were guilty of doing just that, waiting too long. With December corn over 4.15 and November beans over 10.40 we do not want to turn our nose up at either of them. If the premium is a little more than what you would like to pay, at least get some orders in at your price, any kind of big move on report day can get those filled when them might seem unreasonable now. "Just in Case " orders are fine and we have seen some really nice hedges put on using them. Lets talk before the 10th to see if some might work in your plan.


For old crop, we made a new high in July corn futures yesterday, and while optimistic on new crop, there is still plenty of last years corn around. Watch basis, as it is getting better in many areas now, and getting some of your inventory moved now may be a good idea. You can always re-own these sales, and we can structure that re-ownership to focus on new crop options, specifically short dated December options. While we can always re-own, we cannot recover a bad basis. Moving cash on good basis and re-owning removes basis risk and keeps the upside open. For beans, we would move everything on any rally, as we are still looking at a 500 million + carry out for this year, and if bullish on weather or anything else, use short dated new crop calls to re-own.


In conclusion, it is really good to see markets respond and give us some prices that result in some black ink on the cash flow for this year. We know all too well how busy it is now, as we are trying to get our crops in as well. We also want to make sure we lock in some of these prices, and protect profits! Everyone grows crops to SELL at some point, and making sure that price is one we can use to reward our work and risk taking ability is a lot more important than glancing at the screen a few times a day and thinking about it. One of the things we hear all too often is "I saw the market and was gonna call you yesterday, but I got busy and forgot". We have no guarantee that what we have now will be here tomorrow, or next week for that matter, lets make sure you get a decent reward for all the hours and investment! Keep it safe, productive, and POSITIVE, and take a few minutes to honor those who gave it all for our freedom to be the best in the world on the 28th.

Dates to Remember this month

  • Crop Progress and Conditions every Monday at 3:00 central time
  • Export Inspections every Monday at 10:00 central
  • Export Sales and Shipments every Thursday at 7:30 am
  • May 10th: Monthly Supply Demand and Crop Production
  • May 25th: Cattle on Feed
  • May 25th: June options expire


Mike Daube      888-391-6330

Allen Gard         573-221-9234