Matt Bennett’s Weekly Comments

Good Morning!

I hope all is well for you and yours. Around our farm, we’re too wet to do anything. Yeah, it’s a little hard to believe after we went two months without any meaningful rain, but this week we received well over three inches with more rain on Friday adding to our totals. While several in our area are trying to finish harvest, everyone else has been trying to work ground. In all honesty, the moisture is well-received by most, although some who aren’t quite finished with harvest would sure like to see smaller totals. At home, we’ve been weaning calves and getting our winter lot ready for our cattle. Unfortunately, we were ready to spread a bunch of rock and get a base where it’s been needed the last couple of winters, but this rain put a stop to that. One thing is for sure…whether doing dirt work or getting lots ready, both of which we were trying to do, this late fall timeframe was perfect for it before it rained. Keep me posted on what’s going on for you…how your yields are and your progress on harvest. mbennett@agmarket.net

The corn and beans markets had another solid week, capped off by some late theatrics on Friday as November options were going off the board. While beans had been mostly lower to unchanged on the day, in the last 10 minutes we saw a nice rally as November beans climbed over $10.80 to settle the week. Dec corn also closed just off its highs, heading into the weekend on a good note after another week with solid gains. Considering rainfall in South America has picked up and forecasts are for US plains states to catch some rain, it appears the weather has improved. Given incredible demand of late, the funds seem intent on continuing to push prices higher…but caution is warranted due to how overbought these markets are. Outside markets were likely a mixed influence on the week. The US Dollar closed .199 lower on Friday, with December settling at 92.765…this was .914 lower on the week. The DOW couldn’t get any traction, closing 79 points lower on Friday at 28,189…down 219 points on the week. December crude oil was also off on the week, losing $1.03 on the week and settling on Friday down 79 cents at $39.85.

CORN – The corn market had yet another good week. December corn settled on Friday up three cents at $4.19 ¼. This was three-quarters of a penny off the high and 5 ¼ cents off the low of the day. On the week, Dec corn rallied 17 ¼ cents…and 54 in the last four weeks! This corn market has been on fire. This past week was more of a methodical march higher than any sort of huge rally…but the net result was certainly something to see. It’s crazy to see how the spreads have evaporated…and there’s simply no carry in the market. Dec is $4.19 ¼ while July is $4.20 ¼. The market wants the corn now. It’s crazy to hear people talk about it, but there aren’t any corn piles or lines to dump being reported, which tells us the corn wasn’t as good as everyone was expecting and many of the bushels were either well spread out or went into the bins at home. Now…me and my team have been bullish corn for a while now. A person should be somewhat cautious as we get up at some of these price levels though. A dollar rally in the corn market while basis has been improving is far from normal…especially when forecasting a 178 yield! Demand is good and supply is unlikely to grow…that tells me corn should see support…but at the same time, we need to respect the rally…and possibly reward it where we can lock in solid income.

DEMAND – Demand was solid with exports quite impressive while corn usage for ethanol was off a bit. Export sales for this marketing year were 1.83 million tons, which was three times what we saw just a week ago. No net sales for next year’s corn were posted for next marketing year, so overall sales were up around 1.2 million tons. Corn usage for ethanol was down over two million bushels, according to the Department of Energy’s EIA report. We saw just under 91 million bushels of corn burned through for ethanol. Posted basis seems to be narrowing of late…not normal during a rally. My local basis was status-quo, posting a bid 17 under the Dec. In Decatur, basis narrowed a penny, posting a nickel under the Dec. On the river in St. Louis, basis was 30 over, which is 16 cents better than a week ago!

CASH CORN – With cash corn, we continue to build value. Given a strong rally, it’s abnormal to see basis improve, but that’s exactly what we’ve seen happen. The combination has made for some solid prices on corn coming out of the field. It’s made producer question whether or not to even put corn in the bin. I can certainly understand the dilemma…and would agree it may make more sense to sell the corn and get the money…and re-own if a person is still friendly the market. So, with that being said, as I had mentioned was my intention, I sold all of my elevator corn off the combine and retained ownership on paper. For physical ownership, I only have the 35% of what I raised that’s stored at home. One thing that I’ve missed out on some of those bushels sold across the scale is the basis improvement. Now, it’s tough to tell if basis continues to improve, but generally speaking, we see basis get better once we get close to harvest finishing as the market is trying to buy the remaining bushels. Given the industry is short on bushels, this year could really show some strength. Profit or no profit, it’s hard to outguess the market. What we must do is market when we know we can lock in solid net income. Yes it’s been quite profitable to be long corn of late, but don’t take anything for granted moving forward. There’s no guarantees the market will do anything. As always, I recommend keeping tabs on your profit margins with one of the tools I’ve put together. You can use the profitability calculator on the AgMarket app. https://www.agmarket.app/app/

2021 CORN – December 2021 corn was again very quiet, which is interesting in that we’ve seen this for the past two weeks while front-months have surged. CZ21 closed at $3.94, losing a penny and three-quarters on the week. I still haven’t made a sale on ’21 corn. I like action in the corn complex altogether, and given stout demand, I struggle to think down-side on new-crop corn is intense in any way. Heck, we saw over $4 corn this past week, which prompted a few of you to hedge some corn. I still feel confident we can get to my first selling point at $4.04. For me and my farm, I’ll be selling 15% if/when we get to this price level. I continue to point towards the profitability given the situation with inputs. My main focal point is the ratio from how much corn you can sell to pay for all your fertilizer needs. We again loaded up on fertilizer this fall given what prices have been running. I can still sell about 35-37 bushels to pay for my N, P & K. Again…last year at this time, we were talking over 40 for the same type of program. It appears another good year from a net profitability standpoint could be in order. Quantifying some worst-case scenarios might be a good idea given the rough years we’ve had of late. As always, run the numbers on your spreadsheet or app…and when you can lock in solid profit margins, get to executing a plan.

What To Watch For –

On 2019 corn, my farm is 100% sold with an average @ $4.12 basis Sep20. ***must consider local basis.

For 2020 CZ, up to 65% sold averaging $4.02

 

Strategies I’ve employed or considered.

Straight hedge of Dec20 at $4.07, then $4.05, then $4.04 then $3.65, then $4.15

*Buy $3.45 June put & sell $3.90 Dec call for even money to protect cash bushels-rolled to $3.10 —put at a 20 cent profit**  Sold $3.10 for a nickel, loss of three cents – net gain 17 cents

*Bought Sep $3.20 call, sold Dec $2.80 put and $4 call for 7 cents total – sold for 6 cents

*Sold Dec $3.30 put & call for 33 cents then bought $3.05 put for 2 cents. Exited with 4-cent loss

*Bought Nov $3.45 call & sold Dec $3.25 put for 5 cents to re-own. Sold for 31 cents

*Sold Dec20 corn and bought July21 corn for 19 cents-liquidated this week @ 23 cents

Bought July $3.80 call & sold July $4.50 call for 16 cents as re-ownership of sold bushels

Bought May $3.80/4.40 call spread & sold March SD $4.10 call for 8 cents

Bought July $4.20/5.20 call spread & sold $3.70 put for 12 cents

**Locked in basis for 2020 corn at 20 under for bushels getting sold going across scale

**lifted these positions**

 

 

BEANS – The bean market wasn’t all that exciting for most of the week even with a nice rally going. Friday saw some action late in the day as Nov beans settled up a dime at $10.83 ¾…up 33 ¾ on the week. For Friday’s trade, we were 4 ¾ cents off the high and 18 off the low. Yes, this bean market looked to give back some of the weekly gains on the overnight session and early during day trading. While South America has received some rain and appears to have an advantageous forecast, the trade is still focused heavily on demand. With plenty of questions on Argentina’s ability to keep the world supplied with bean meal to thoughts on how late some of Brazil’s first-crop was planted, US bean exports appear to be firmly in place. Seeing good daily announcements this week supports that argument as well as talk the Chinese have expanded their hog herd much quicker than was earlier anticipated. As I’ve said for a long time…these are good prices we’re experiencing. Ignoring a $2+ rally in beans doesn’t seem to be a wise idea, so I’ve been proactive on locking in a worst-case scenario while keeping some bean ownership. With how bean prices have rallied, there should be plenty of profitability to lock in for producers who want to latch onto some of this.

DEMAND – Soybean export sales were once again large as was expected…but fell off a bit from the previous week. With net sales of 2.25 million tons for old crop and none for new, we were off about 350k tons but still a robust amount. Daily sales this past week continued to impress, which seems to be verifying big USDA export demand forecasts…heck, what if they have to raise them? Basis for beans was moving to versus the Jan and did some narrowing in the process. Local bids for me were posted at 18 under the Jan…about 4 cents better than the bid a week ago of 25 under the Nov. Decatur’s basis for cash beans was 15 over the Jan…an improvement of 5-6 cents. On the river, basis was posted at 30 over the Nov, as they hadn’t made the switch to vs the Jan just yet.

CASH BEANS – Cash beans had another great week. With a rally in the bean market, you’d expect basis would widen. However, we’re getting late in bean harvest and given strong demand, end-users are trying to lock up the later bushels. While beans had cooled off some coming into this past week, we saw some action again as November beans took off. My gut feeling is Friday had much to do with November options expiring and given the extreme overbought condition, some caution is warranted. I can’t get bullish beans up here as a producer although as an analyst, I could make a case for another dollar higher. My belief remains that the best thing to do is to latch onto as much of this rally as you can while keeping the upside open on at least some of your beans. Some of the folks I work with have re-owned all their beans while some didn’t do any. Most were around that 50% level at the least and I think that makes sense. The main thing about re-owning beans is to be smart about not getting too cute here. There’s no sense in sticking our necks out in a speculative fashion after such a blessing of a rally.

2021 BEANS – November 2021 beans settled the week at $9.82 ¾. This was a rally of 12 ½ cents on the week. I still struggled this past week on when to start selling ’21 beans and didn’t get my offer in at $9.75…however, as indicated last week, I decided my first 15% would get a floor placed under it. So, I’ve finally gotten started….the way I’m choosing to do this is with an options spread where I’m buying the put at-the-money and selling a put a dollar below the market while selling a call over a dollar above my put price. I’d like to be able to participate in a rally once again if it occurs like it has on old-crop. However, IF it doesn’t, I don’t want to let excellent profit get away from me. While we could place a hedge in place, it’s tough to do so with November futures as they can of course be quite volatile. I like an HTA for a situation like this as well…but for my farm, the preferred method is a floor under me with a chance to participate in the upside. I see new-crop beans a dollar under old-crop and realize this bean conversation can change a bit with a monster South American crop. While I am not bearish beans, I’m also well aware of what the yields we’ve been seeing look like versus $9.80 or better basis the board.

As always, be sure to figure break-evens when deciding whether you want to make sales.  For figuring your break-evens, I recommend using either the Profitability Calculator on the AgMarket.Net Profitability App https://www.agmarket.app/app/ to help you get a handle on your budgets and to set your marketing plan for 2019 or 2020.  We’d be glad to help, so be sure to reach out.

 

What To Watch For –

For 2020, I’m 100% sold @ $9.66 average basis SX20 with re-ownership in place.

Strategies I’ve employed or considered.

Straight hedge/sell SX20 of 15% at $9.60 & 10% at $9.68 & 45% at $9 & 30% at $10.65

*Bought $8.70 Oct put & sold $9.20 call for .05 for report. Liquidated at a 19-cent loss

Bought March $10.20/11.20 call spread & sold March SD $10 call for 11 cents

Bought March $10.40/12.00 call spread & sold March SD $10 call for 21 cents

Bought Nov21 $9.80/8.80 put spread & sold $11 call for 14 cents

**Lifted these positions**

 

**For the strategies I talk about on here, please remember these are the tools I use for my farm.  These are not recommendations but merely a way for the reader to see how I approach marketing for my operation.  There are tons of good tools out there. For more information on markets, strategies and ways to set up a solid marketing plan, visit my website at https://www.agmarket.net

I hope you have a great week.  Please let me know if I can help you in any way.

 

aMatt

217-273-1133 – Work

@chief321 – Twitter

mbennett@AgMarket.Net – E-mail

 

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