Good Morning!
I hope your weekend has been a good one so far. Maybe you were able to do some trick-or- treating with the kids or grandkids? We had a Halloween party to take the kids to on Friday night and trick-or-treating on Saturday evening. We had some fun for sure…now, however, my wonderful state of Illinois is attempting to shut down in-person dining again. In all honesty, I’ve heard a ton of restaurants locally that simply aren’t going to comply as they would go under with another round of being closed. It’s a mess for sure…and I don’t envy small business owners one bit. I’m hopeful we’ll see the effects from this ‘wave’ of the virus significantly improved from the spring…and I’d sure think we would as much as we know about it now. Is anyone other than me ready for this election to be over with? The problem is we likely won’t know for a bit who the winner is. I’d think the markets in most sectors would feel better on the other side of this, but I honestly don’t know how we’ll react. It’s a precarious time indeed. One thing is for certain in my home…we’re glad we live where we do for now. I worry a bit about my friends and family who live for instance in Chicago. I sure hope we don’t get massive riots, but I think we all know it’s probably likely. All we can do is hope for the best. It’s still too wet to work ground for us…but we have a good stretch of weather heading our way. I hope you get harvest wrapped up and/or the projects you intended for this fall. Keep me posted. mbennett@agmarket.net
The corn and beans markets had a crummy week. With big losses for most commodities, it appeared many traders all the way around were taking risk off the table. Given the money most made in the last few weeks owning commodities, I can see taking profit. When we think about the risk associated with the virus flaring up again, coupled with election angst, there’s no doubt many felt it smart to step aside for now. With volatility increasing by the day, option value has soared…that and some brokerage houses raising margins to stay in positions, a ton of open interest has evaporated. Risk off is the best way to describe this past week. Outside markets were certainly a negative influence on the week. The US Dollar closed .065 higher on Friday, with December settling at 94.042…1.277 higher on the week. The DOW took it on the chin, closing 163 points lower on Friday at 26,394…down 1,795 points on the week. December crude oil was also off on the week, losing $4.06, settling on Friday down 38 cents at $35.79.
CORN – The corn market had a rough week. December corn settled on Friday unchanged at $3.98 ½. This was a penny and a half off the high and 4 ¼ cents off the low of the day. On the week, Dec corn lost 20 ¾ cents. One thing that isn’t too rosy is the fact we made a new high on the week then closed sharply lower. Technically, this is a weekly reversal and indicates a decent likelihood the high is in for now. Given phenomenal demand and others in the world needing corn, I have to think this market isn’t done by any means. However, there’s now doubt we have some tough unsettled waters to sail through over the next couple of weeks. The bottom line is this…the US has the cheapest corn in the world by a fair margin…and the only corn available for purchase to any degree. US corn exports this marketing year could be phenomenal. With huge cattle numbers on feed as well as robust livestock all the way around in both the US and world, I expect usage to be rather stout. I’m not bearish by any means…but as always, want to respect the rally. I like managing risk in these situations…and by that I mean after a nice rally when we have solid profit risk to manage.
DEMAND – Demand was solid with huge exports while corn usage for ethanol was higher as well. Export sales for this marketing year were 2.243 million tons, which was 400k bigger than last week’s impressive number. No net sales for next year’s corn were posted for next marketing year, so overall sales were up that same amount. Sales were also announced this past week…impressive amounts, so we’ll get another impressive total this next week. Corn usage for ethanol was up around 2 ½ million bushels, according to the Department of Energy’s EIA report. We saw 93 ½ million bushels of corn burned through for ethanol. Posted basis levels were steady other than at bigger terminals…especially the river. My local basis was a dime better, posting a bid 7 under the Dec. In Decatur, basis narrowed a dime, posting 15 over the Dec. On the river in St. Louis, basis was a dime over, which is 20 cents wider than a week ago! Basis was all over the place this last week with some river terminals essentially full as barge traffic has been robust, trying to get all this product to the gulf. Basis could be a moving target for the next week or two.
CASH CORN – With cash corn, things certainly cooled off this past week. While we’d been rallying and seeing basis improve, thus seeing bids really balloon, we lost some of both in areas this past week. Locally, I saw basis improve…but it was interesting in that in Decatur, basis improved 15 cents early in the week only to give back a nickel on Friday. With the wild fluctuations at the river, the market is trying to get the bushels where they need to go. Whereas the river can’t handle them, it appears the producer is finally being encouraged to put the corn in the bin after a few weeks of screaming basis begging for the bushels. Our team at AgMarket has felt all along we should store corn at home as we saw good value there…so this is playing out ok, just not exactly in the order we assumed. It’s been a wild year indeed. IF you have corn left to harvest, look farther and wider than usual as some elevator systems didn’t come close to getting full…they may push hard for your corn…while others don’t want it right now as they can’t take much if any more. I like keeping ownership on a limited-risk basis as I feel corn will hold together over the long haul due to huge demand and limited supplies. 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 from the AgMarket app. https://www.agmarket.app/app/
2021 CORN – December 2021 corn had a rough week as well but closed the week with some strength. On Friday, CZ21 closed at $3.87 ¼, dropping 6 3.4 cents on the week. I still haven’t made a sale on ’21 corn. As with old-crop, I see good value there. I have to think we’ll see a good old-fashioned acreage battle for the first time in awhile. I remain 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 will continue to point towards the profitability given the situation with inputs. With the drop in price, I can now sell about 38 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. I highly recommend getting fertilizer on this fall if at all possible…IF we see a strong rally this winter, it’s likely we’ll see fertilizer prices heading north. As always, run the numbers on your spreadsheet or app…and when you can lock in solid profit margins, get to executing a plan. There are good opportunities again for 2021, so be ready to lock some of it in when the opportunity arises.
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 also struggled this past week. Heading into the weekend, we saw some buying come in as Nov beans settled up 4 ¾ on Friday at $10.56 ½…down 27 ¼ cents on the week. For Friday’s trade, we were 5 ¾ cents off the high and 9 ½ off the low. This bean market at one point was down about 40 cents on the week after scoring new highs earlier. As with corn, traders see this weekly reversal and the assumption of a high being in place isn’t that far-fetched. To be honest, I struggle here as I’m not sure I can get too bullish at $10.50+ beans. However, I see sales continue to stack up as US beans are again about the only game in town. Even Brazil has purchased some US beans to try to get to their harvest timeframe, which has certainly been pushed back due to late plantings. With dryness affecting their planting window, plenty of speculation about production abounds, even as they plant yet another record amount of acreage. My gut tells me the producer should get plenty of their bean situation locked in and if they want to participate in a rally, do so with limited-risk positions. While we have a much tighter situation in beans than we’ve seen in years, beans can be awfully volatile. Let us know if we can help you with a plan to manage this risk.
DEMAND – Soybean export sales were once again large…but again fell off a bit from the previous week. With net sales of 1.62 million tons for old crop and 9k for new, we were off about 600k tons but still selling a ton of beans. We saw a few daily sales again…no doubt bean export demand outlook is solid for now. Basis for beans was improving in some areas…but again, not at the river. Local bids for me were posted at 11 under the Jan…about 7 cents better than the bid a week ago. Decatur’s basis for cash beans was 15 over the Jan…status-quo on the week. On the river, basis was posted at 18 over the Nov…12 cents wider than a week ago…and they still hadn’t made the switch to vs the Jan.
CASH BEANS – Cash beans had a tough week. With the drop in futures, you’d hope for a basis move to help soften the blow, but that wasn’t the case in most places. It’s not surprising for me to see a local push as beans are all but finished. Most elevators push for bushels as harvest wraps up, especially in those years when they don’t get full. I’ll be quite interested to see USDA’s number for bean yield in November…while many had great yields, others weren’t so thrilled. With late dryness for most of us, it seemed to hit some of these beans harder than others. My gut tells me this bean carry will tighten further due to a small drop in production as well as ever-improving demand. It’s for that reason I don’t mind keeping ownership of some beans…but for me personally, I prefer to do it on paper as turning these beans to cash at higher prices than we’d seen in a couple of years seemed to make plenty of sense.
2021 BEANS – November 2021 beans settled the week at $9.71. This was a loss of 11 ¾ cents on the week. As I talked about a week ago, I got started on protecting some beans. While I like selling beans in this area, I don’t like taking the hit on a wide basis a year out. While I understand why is happens, as a producer, it makes sense to find a better way. The put spread I put on gives me the chance to participate in a rally while having a solid floor underneath. As I indicated with corn, I expect an acreage battle to unfold. Given how strong bean income has been, it’s tough for me to think bean acreage won’t increase. We all know it doesn’t take near the investment to plant these beans, and with early-planted bean yields continuing to impress, my farm is going to keep planting a ton of beans. We’ve been in a 50-50 mix, but I have to admit I’ve considered taking one of my farms back to beans. The numbers don’t lie…so if you’re considering that as well, make sure IF you make the decision to plant more beans…that you also manage some of the price risk. It only makes good business sense.
As always, be sure to figure break-evens when deciding whether you want to make sales. For figuring your break-evens, I recommend using 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 us know if we can help you in any way.
Matt
217-273-1133 – Work
@chief321 – Twitter
mbennett@AgMarket.Net – E-mail
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