Sunday Night Comments
Early calls are a smidge lower on follow-though selling from Friday. There was a lot of debate over the weekend if a top was established or if the sell off Friday was a retracement from an over bought condition. Obviously the USDA report will provide direction and the Phase one US-PRC deal should create long term direction. If USDA makes the revisions we expect, the USDA report should not be bearish. A phase one deal with China is a reversal from protectionist (negative) trade policy to expansionist free(er) trade policy (positive). The question is when and how much Ag buying does China go after. Either way, unless there is a big reason to technically destroy the recent trend, we would expect funds (who have been short the entire way up and have losing positions) to finish the short covering process. As discussed below, we will want to take action on that.
Bill Biedermann
Weekly Comments From Matt Bennett
Here we are in 2020, ready to take on a new challenge. In January, we’re cashing checks and sending the money for land, equipment and inputs…if you’re like me. As I’ve talked about lately, it’s nice to see some relief on the input side, but those bills are still big, I am well aware. This past fall I had to get a couple of fields lined out with lime or I would have had some major relief on my fertilizer bill. If you put lime on, you know what I’m talking about. The other thing that is about to happen is meeting season is about to be full speed ahead. That means most of you will be heading to a farm show, seed-corn meeting or bank meeting where you’ll hear about the prospects for 2020. For me, that means driving, airports and hoping the weather treats me right…most importantly, it means not seeing my family every day. We know it’s part of the drill, but it can be taxing at times. The good thing is I’m going to be taking them along with me several places, so if you’re going to be at Top Producer or Commodity Classic, they’ll likely be in tow. The other good thing about meeting season is seeing all of you. I’m looking forward to talking shop with you guys and catching up. Make sure to reach out if you’re going to be somewhere I’m going to be and hopefully we can connect. mbennett@AgMarket.Net
Corn and beans had a winner going on this holiday-shortened trading week up until Friday’s trade. When we woke up to a drone attack on a ‘leader’ from Iran, the markets were in sell-off mode. While I’ll reserve my personal opinion on this situation, it’s interesting how the markets reacted. The energy markets surged, stocks tumbled and commodities fell as well. Why did our markets fall? The biggest reason is likely concern over demand moving forward as some export business could be lost if we are in some sort of war with Iran and/or Iraq. With global unrest taking a rest of late with the upcoming signing of Phase I, this sort of situation ramps it back up again. Hopefully we’ll see this as an ‘outside influence’ soon as global demand for commodities remains quite strong. With some minor dryness in parts of South America, record production is not necessarily a given. As far as the outside markets are concerned, we saw the Dollar initially rally but back off towards the close while crude oil surged and kept a solid portion of its gains. February crude closed up $1.86 at $63.04. This was $1.05 off the highs and $1.91 off the lows of the day. Feb crude rallied $1.32 on the week.
CORN – The corn market was staying on the path of rally-mode before the fireworks on Thursday night into Friday morning. On Friday, March corn closed down a nickel at $3.86 ½. This was 5 ½ cents off the high and a penny off the low of the day. On the week, the corn market lost 3 ½ cents, stopping the recent rally for the time being. With the situation in the middle-east, I highly doubt this will be what turns the tide on the corn market overall. If we would see a supportive report this week, I can’t imagine this unrest will be talked about much. Now…that’s assuming the situation doesn’t escalate, so we would be hopeful in that regard. As far as the report is concerned, it will be very interesting to see what the USDA does on Friday. My team at AgMarket.Net thinks we’ll see corn stocks tighten as production is quite unlikely to grow. While a huge drop in total production isn’t likely, an increase in overall usage is quite possible. Exports could certainly shrink due to lackluster US corn exports thus far, but at the same time, we could see an increase in corn usage for ethanol and most definitely feed usage. Huge livestock numbers in the US don’t generally correspond with feed usage shrinking, but the USDA has asked us thus far to consider that. Make no mistake…this January report is a big deal. With production and quarterly stocks, there is a ton of info to digest. Going into this report without some sort of risk-management plan is quite possibly the riskiest thing you could do.
DEMAND – Demand was mixed with exports off a bit while corn usage for ethanol was off a shade but rather large yet. Weekly export sales were 531k metric tons for this marketing year, off less than 100k from a week ago. For next marketing year, about 9k tons in sales were posted. Overall sales were off of a week ago but not by a great margin. Still, we need to see sales here at the start of the year pick up big-time. Corn usage for ethanol was off but was still quite solid at just under 107.5 million bushels, according to the Department of Energy’s EIA report. This was a decrease of a million and a half bushels. Basis continues to be strong, which could change in the short-run, depending on just how much grain moves to start the year. My area saw basis option the March, which is status-quo on the week. In Decatur, basis stayed at 18 over the March, which is also the same as a week ago. On the river in St. Louis, basis was quoted at 16 over the March, which again is status-quo on the week. Again, it will be interesting to see what happens as we go through January. My assumption is much will depend on price direction after the report.
CASH CORN – Cash corn backed off on the week for the first time in a few weeks. While basis in the last several weeks has been the stabilizing factor needed when futures were falling, we’ve seen basis plateau. This is to be expected as corn will be moving as much in January as it will the rest of the marketing year. While I’m not turning bearish, I think offers should be in with the report this week as it certainly carries the potential for serious volatility. I’d like to see producers sell in increments on rallies…or simply sell when they can turn a profit. I know that’s not always the fashionable thing to do…but at the same time, we’ve seen a nice rally over the last few weeks. Plenty of producers are asking what potential Chinese corn/ethanol business provides to our markets. No doubt we could see some rally potential, but my hope for anyone reading this is there is a plan in place to take advantage of any such rally. If you need help with a plan, be sure to reach out.
2020 CORN – December 2020 corn also lost a little ground this past week. Dec20 closed on Friday down 3 ¾ cents at $4.00 ¾. This was a loss on the week of 2 ¾ cents. We got up over $4.04 again this week and appeared to possibly be working higher, but Friday’s trade threw a wet blanket on the rally and Dec20 eventually succumbed to the weakness in the nearby contracts. My team has talked about our next target…and while it had been closer to $4.18 for some time, we are looking at $4.09 as a good spot to sell another 10-20%. IF we sold the higher amount, we’d be looking at half of our APH protected for 2020. As far as my farm is concerned…and most of them I’ve looked at, those price levels work. I continue to urge clients and those who call for advice to have their costs figured and plugged into a profitability spreadsheet using our AgMarket.Net App. The webinar Channel recently had me put together addressed specific strategies for 2020 that could be considered…I hope if you haven’t watched it yet that you’ll get the chance. They will be available for a couple more months. As always, don’t forget to use the profitability feature on the AgMarket.Net app to see how your profitability is shaping up. If you need help with a marketing plan for 2020, let us know and we’ll get you set up. https://www.agmarket.app/app/
What To Watch For –
On 2019 corn, my farm is 80% sold @ $4.30 basis March20. New ’19 target – wait for USDA report
For 2020 CZ, up to 30% sold at $4.05. Next target for me and my farm is $4.09.
BEANS – The bean market had a nice little week going but also fell due to the unrest felt due to the bombing overnight going into Friday. On the close, March beans settled 14 ¾ lower at $9.41 ½. This was 15 ½ cents off the high and 4 off the low. On the week, beans were status-quo as far as March was concerned, but again we had a good rally going before Friday’s collapse. Last week I mentioned I was shifting more neutral after being bullish the last couple of months, but in all honesty, I had no idea this situation would unfold which spooked the market. My thought is we need some supportive news out of the report, whether it be a reduction in US yield or possibly spill-over support from a bullish corn report. On the demand side of things, my team and I are a bit worried the USDA could cut export demand, so we don’t see a big shift in carry-out like we potentially see for corn. If I had a ton of beans exposed, I believe having some risk-management in place, if nothing else, protection for the week, would be a wise move.
DEMAND – Soybean export sales were well below a week ago levels. With net sales of 330k tons for old crop, sales were 400k less than what we had posted a week ago. For new crop, just 2k in sales were recorded so overall levels were over 400k tons less than a week ago levels. As with corn exports, we need to see bean exports ramp up. Hopefully we’ll see China in purchasing more beans before South American beans come online here in six weeks. As far as basis is concerned, the move to bidding off the March resulted in similar basis levels as a week ago. Local bids for me are 17 cents under the March, which is similar to what we saw a week ago when bids were versus the Jan. Decatur’s basis for cash beans also were similar with the change, moving to 8 over the March. On the river, basis was quoted at 17 over the March, essentially the same as 28 over the Jan from the week prior. Bean basis is solid…as with corn, we could see some changes as bushels move though…stay tuned.
CASH BEANS – Cash bean bids were mostly steady this past week as March futures closed the same as a week ago. With basis not changing much if any, bids for cash beans were essentially the same price we saw a week ago. Heading into a huge report like this, as a producer, I have to think about what the risk is if I don’t protect some value. Given flat cash bean prices have rallied over a dollar in many places, down-side risk is significant. I’m not necessarily bearish, but the USDA has given some interesting reports the last few months, so nothing would surprise me. My personal feeling is this report will be neutral at best, but again…who knows. The best strategy is to manage risk in some way. Cheap short-dated puts make sense as well as selling beans and buying cheap short-dated calls. Either way, I’d hate to leave all my value exposed. Call us if you want some help.
2020 BEANS – November 2020 beans posted a small gain on the week after looking solid up until Friday. To close the week, Nov ‘20 beans settled at $9.71 ½, down 9 ¼ cents on the day. Nov20 beans rallied a penny and three-quarters this past week and 47 cents over the last five weeks. I am currently sitting at 25% sold for 2020 beans and would be ok sitting there for the time being. Our target is $9.83 to get another 10% on…we were within a penny and three-quarters on Friday. I know many who are much more sold than we are…I have no issue with that if the producer has locked in profitability. That is certainly the name of the game…and none of us will ever go broke turning a profit. Call us if you want help with your 2020 marketing plan.
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 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 2019, I am 70% sold/hedged (basis APH) at a board-based average price of $9.64SH for 2019. I’ll consider selling more old beans with a rally to $9.55 Mar.
For 2020, I’m 25% sold at $9.63 average basis SX20. I’d be willing to sell more on a rally to $9.83.
**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.
Matt
217-273-1133 – Work
@chief321 – Twitter
mbennett@AgMarket.Net – E-mail
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