CFGAG News and Views vol. 95   June 4, 2017

"A Whole Lot of What Ifs"

You will notice that we are a few days late getting the newsletter out, a direct result of delayed planting and trying to finish getting done. To say 2017 has been a challenge in the Eastern Corn Belt would be one of the biggest understatements of the year. On our farm here in Northern Indiana, we did not start until May 13th, and then only had 6 days to run before rain came in and kept us out until May 24th. We can finally call it done as of June 3rd, but there are still a few acres that the ducks and geese lay claim to, and will probably get to stay. This planting season has left us with a lot of unknowns that will keep us guessing all the way to harvest! Here is at least a partial list:

1) How many intended corn acres be will switched to beans?
2) How many corn acres planted were replanted, and how many thin stands were left?
3) What is the yield potential on those acres given loss of stand, fertilizer, and soil condition?
4) Will we get the heat units and timely rain to maximize yield potential, or will we turn up the heat and the water off like 1991?
5) Will we get the August rains and extended fall without frost like last year?
6) Given current price levels, is there the financial incentive to push more dollars of inputs into this crop?


A lot to consider, if not worry about for the next 4 months. What we do know as of last Friday is this:

1) Managed money, (funds) are short 200,000 contracts of corn, 114,000 wheat, and 90,000 beans
2) Corn planted from April 20 to May 3 has problems in multiple states due to excessive rain and cold temperatures
3) At least 1/3 of the Indiana corn crop is not up yet, as of June 1
4) Replant activity in Indiana, Illinois, and Ohio has been described as "historic" by the seed industry
5) Last Tuesday the first crop condition ratings nationally showed corn at 65% good to excellent

6) This past week has been good to improve what is there and get some more planting done

7) While we have been dealing with wet conditions here, the drought monitor is showing the Northern Plains and South East in expanding drought stress

So why is the market not responding with sharply higher prices? Many producers in the eastern belt are scratching their heads and wondering what the market is thinking. As is usually the case, the funds hold the key to price direction going forward. We have a more than ample supply of all grains, and wheat harvest cranking up, so end users can still go "hand to mouth" with little concern unless a more serious weather situation develops. If the funds do not budge, or sell more, rallies will be small and short lived, with local basis pops able to gather needed inventory. We have also noted the "free DP" offered, which simply gives the market grain to use and not bid up for. This just extends the time for end users to be patient and wait for the inevitable "give up" time coming in late August when the "free DP" starts to cost storage money.

What can change the picture? Number one would be a reason for the funds to cover short positions. If weather improves as well as crop condition ratings, we likely stay stuck in a narrow trading range waiting for more definitive answers to the list of unknowns above. As long as producers in the US and South America hold off, and the funds do not cover, we go no where. If however, we get declining conditions, or some indications that corn acres have been reduced considerably, or the drought monitors get worse and extreme heat shows up on the map, we could get a sharp short covering rally that gets us to a price level that is profitable. Remember last year? We went almost straight up and then straight down when funds went from a big short to a big long in about two weeks. We do not want to miss that opportunity if it happens, and depending on your crop conditions, owning puts instead of cash sales may be a good move. If you do have confidence in your production, we are still targeting $4.00 December corn futures as reasonable, but also believe if the short covering event unfolds, $4.20-$4.50 is still possible for cash sales, If you already own short dated December calls, you can sell cash if basis is good or futures against those calls. Make sure to call  for a good plan of execution of orders in either the cash or futures market, and don't forget the tool called "sell stops" that can put a floor in but not a sale unless the market falls back to the stop area.

We are still 100% sold on beans from last fall, but have chosen to own some cheap, short dated calls to protect our hedges for the next few weeks as a continuation of adverse weather could cause the funds to cover and give us a decent rally. We don't know this, but are willing to defend the hedge for a nickel after gaining over $1.00 in the futures market. We are not bullish beans by any means, but the list of unknowns above give us a reason not to be totally short this market. We are also long calls in corn waiting for a change to sell against them. History and charts tell us that a high made in February has always been taken out in the next 6 months, and that high was about $4.05. We hope to see that taken out in the next few weeks, but if not, will prepare an alternate plan to stay in this ballgame for the long haul. We will not get solid numbers to work with on totals for a while, but the first will be Monday afternoon, June 5 with Planting Progress and Crop Conditions out at 3 pm. Next will be Friday, June 9th with the monthly Supply/Demand Report, with an update on South American production, as well as an early take by USDA on our numbers. Will they start cutting acres and production? Again, unknown, and we won't guess, but that possibility is there, and if it happens could spark the rally we need to get some pricing done. The big day is June 30th, with the Quarterly Grain Stocks and Planted Acreage Reports, which historically can provide big price movement. Stay in touch and make sure you have your targets and orders ready if the opportunity presents itself!

We have not talked about South America much, suffice it to say that their crops are huge and there will be plenty to sell. They have been reluctant sellers unless their currency weakens verses the US dollar. Big sales (and big drops in bean prices) have happened when big drops in Brazilian currency have occurred. We should not underestimate the potential selling pressure still out there, and would advise getting more bean sales made or puts purchased on rallies if you have unprotected bushels. Long term we could very well see a test of the lows made in the fall of 2015 around $8.50 or less "IF" all the acres get planted and we get those August rains......and no early frost......etc, etc etc...........

In conclusion, the next few weeks will be very critical, as the market assesses the loss of acres and yield potential, the overall condition of the crop that is out there, and weather trends going forward. We know that we will need excellent growing conditions similar to last year to get a decent total crop, and it will take a while to know just how many acres get in. In the meantime, we need to amp up our marketing plan to be ready for any new development, any new numbers or reports. We are confident that most farmers will certainly try to maximize their production, we always do, but with decent insurance coverage, there just not be the financial incentive to push any further. Make sure you check with your insurance agent to make certain of your coverage, and then call us to see if we can compliment that coverage with a position in the market. There may be a time when you are not well served by a short position, but rather need calls to protect insurance revenue. All the "unknowns" will be checked off by the end of harvest, our job is to make sure we are aware of opportunity, and how best to take advantage of it, and we hope to be able to do that with you!

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

June 9th  Supply/Demand, Quarterly Grain Stocks, and Final  Crop Production for 2016

June 23rd   July options expire

June 23rd    Cattle on Feed

June 30th     Quarterly Grain Stocks and Planted Acreage

Mike Daube      888-391-6330
Allen Gard       800-205-1700