"Another Big Surprise!"
Yes, another bullish surprise, as the USDA gave neutral to friendly numbers on the Quarterly Grain Stocks, the real shocker was Planted Acres coming in well below the average guesses, and certainly much less than what we believe the market was trading. After a "well respected" major analyst estimated corn acres near 97 million, earlier this month, and lots of chatter that grain stocks could be much higher than expected, the market was primed for a big surprise, and it got it. Prices responded quickly, reaching limit up in corn and 70-80 higher in beans in the first few minutes, negating the sharply lower trading of the morning that was related to a more favorable weather forecast in the 6-10 day map. We closed the day session limit up in corn, with over 50,000 contracts bid for at limit up, indicating more strength is possible tonight. (This is being written at 6 pm on 6/30) How long and how far will this rally take us? The bulls cards are now on the table in plain view, so we will look at the following closely this week, remembering that with the Holiday coming, when we close Friday at 1:15, the next trading will not take place until Tuesday morning at 8:30, a LONG weekend!
1) WEATHER! Forecast flips have been early and often, witness this mornings sell off. Where would we have been this afternoon without the bullish surprise?
2) Farmer selling: basically shut off during the break in price, but now? Watch basis closely!
3) Funds are still quite long relatively speaking. Will they buy more or sell out on this rally. If we get more bullish news, and prices do not rally, take note!
4) The Safrinha crop in Brazil went through some frosty temps the last 2 nights, possibly lowering the already short crop further
5) Eastern corn belt crops are very good overall, and forecasts are favorable, but will the west improve or continue to slide in the ratings?
6) Wheat crops looked really good until excess rain in some areas raised some question: Will milling quality wheat be a premium, and how much feed grade will there be to replace corn?
The next monthly Supply/Demand Report will be on Monday, July 12th, and all the numbers released today along with updates from World production will be combined to give us new carry out numbers to consider. Right now we would have to assume that markets will be well supported going into those reports, but as we have seen the last year and a half, anything could happen to change attitudes and prices. We alluded to the fund position, already long, and with the start of a new month tomorrow, will we see new money thrown in to buy? Or will existing longs go for the profit window and cash in? This is going to be a very wild month to say the least, as we find out how aggressive end users become and how long the bulls can still feed at the trough.
As we look forward to July 12th, with these numbers today on the books, obviously weather and crop conditions will take center stage, but we repeat intentionally a portion of #3 above: "when bullish news does not cause a rally, beware, it may already have been priced in." While today's news were a big surprise, it will soon be fully discounted and "in the market", and a week or two out will be the focus. Keep in mind the following:
1) Will China add some purchases now, or have they covered what they need?
2) Brazil opened the door to imports of corn from the US, including gmo grain. Do they need it, or is a "lever" to inspire their producers to sell?
3) How much and how fast will producers around the world respond to the rally by selling?
4) Wheat can be used as a corn substitute, but how much and how soon?
5) How many acres can South America add to this falls planting season? The incentives are there!
On our farm, we swept the bins a week ago, before the collapse in basis, as the market transitioned from July bids to September, causing a 20 cent drop in flat cash price. We feel there is enough corn and beans around to make it to the new crop, or basis would be hotter, not failing. We have been holding off sales of new crop beans, but as conditions improved here with generous rains the past 10 days, will look to lock in some $14.00 tp $14.50 cash beans on this rally. We are still using long December corn as our trading vehicle to add to our September hedges that we intend to roll to December if and when it goes to a carry instead of an iverse. (We have gone from 30 cent inverse to 11 in a very short time and expect that trend to continue) So far, so good. As we become more comfortable with our production potential, we will add to HTA sales over $6, watching closely recent highs of $6.24 and the contract high of $6.38. If those are taken out, we will consider buying March futures or some short dated calls just in case we fall short of production goals, but will keep risk limited. We have a great year going in terms of profit potential, the last thing we want to do is take unneccesary risks and blow it. We will only trade if we have high confidence of ADDING value to our bottom line. We advise getting bushels priced (or protected ) that you can't or do not want to store this fall. Check basis and storage costs, drying and shrink charges before doing anything. We have found a big difference in these that can translate into many more dollars in YOUR pocket simply by doing a little shopping. Call us if you have any questions or to compare some of these charges or offers. We talk to many folks accross the midwest, and have some good ideas on how different areas stack up. A few minutes of shopping can make you some real money or add convienience to your delivery plans.
In conclusion, another big surprise, a great rally that may have more legs going forward, but remember an old saying from a friend of mine that used to trade in the pit at the CBOT. He said "when the market passes a tray of cookies, take a few off. Its good business!" We agree, if you have been holding off after the break in price, consider getting some orders in to sell or setting some floors with put options. We have a lot to protect now, and hopefully we can challenge the old highs, but if not, then we need to get something done. Profit potential is very high, and we have seen huge moves in both directions, sometimes daily. No one can tell you when the high is in or the low either, what matters is what your profitablility is at the end of the year. We are much happier now than a year ago, and are already looking forward to next year. At these prices for 2021 AND 2022, we can lock in some nice profits for next year right now, even with higher inputs and rents we feel over $200 per acre is definitely possible. Call us for specifics to see if that interests you, and make sure to enjoy the holiday where we celebrate our independence, liberty, and freedom in the greatest country in the world. I can say that confidently as even with all the protesting and unrest, if the United States of America is so bad in so many ways, why are all these people trying to get in?? Happy 4th and God Bless All and God Bless this great nation
Dates to Remember:
- Every Monday: Export Inspections, Crop Progress
- Every Thursday: Export Sales and shipments
- July 12th: Monthly Supply/Demand Report and Crop Production
- July 23rd: Cattle on Feed
- July 23rd: July options expire