CFGAG News and Views vol. 99, October 1, 2017

"Maximize Revenue, Minimize Costs"

While the title sounds easy and simple, we are now doing just that by trying to find the best way to market grain in the least costly, (and risky) way possible. With the Quarterly Grain Stocks Report behind us on September 30, (slightly friendly corn and beans, negative wheat) and early yield reports on the high side of expectations, the market is preparing for another big crop and large carry out for next year. Just how big will likely be answered on October 12 with the all important Supply/Demand and Crop Production Report, as well as the updated FSA data on final acreage. With the funds now holding a fairly large short position in corn and a small long in soybeans, it will likely take some major movement on yield and acres to move the market. From the field we are hearing some surprisingly good yields on early planted corn and beans, but later planted may fall short as stress from adverse spring weather and a dry finish to the growing season may have cut into the potential we had earlier. Even if we do cut the yield slightly, there is still plenty of supply of all grains to keep the market comfortable at least for the next few months. Our next opportunity for a good rally may rest with South American weather and crop conditions, as they have not had an ideal start, and are faced with the same low prices felt here. The good news is world demand is very strong, and at these prices is likely to stay that way. Our challenge now is to set realistic sales goals, keep storage costs to a minimum, and if sales are made, construct a plan to re own those bushels with as little risk as possible.

Most producers we talk to are more willing to move soybeans off the combine and store as much corn as possible. This may put a harvest low in beans relatively soon. If you are in that group that wants to move beans, basis in your area is the first concern. Selling cash and re owning is always advised if basis is good. If not, the first question is when will it get better, and is the cost of storage, either on farm or elsewhere worth the cost? If sales are made, or if you have unsold or unprotected bushels, consider March puts. Buying a March put protects the downside from the strike price selected, and if cash beans are sold, offer a good area to buy futures. This limits the risk of re ownership to the cost of the put, and offers a wide window of opportunity should South American weather go sour. Long range forecasting is suggesting that Argentina and Southern Brazil may indeed see a hot dry summer, the opposite of what is going on now, with Brazil too dry and Argentina too wet. If the weather spark gets the funds to buy, a good selling opportunity may ensue. This is what we mean by realistic goals. Looking at a November bean chart, 9.80-9.85 would be a good first target, with March about 20 cents higher. By using puts and futures, you may be able to trade a range if it develops multiple times over the next 5 months, trying to add value to the sales price while keeping risk limited. Owning calls is also an option, but making a decision on when to sell is difficult at best, and if calls are purchased, set a goal and stick to it on any profit earned.

For corn, we have been is such a narrow range for so long, it would seem that there is no hope for calls, yet we still would own $3.60 December calls for about a nickel to see what October 12 brings, and if a rally to 3.80 happens, would be able to sell cash, add profit from the calls, and not be far off from $4 corn, or at least be able to sell cash, and exercise the calls into futures if South American weather is seriously threatening. Cash flow is another concern, and making cash sales when you want to rather than when you have to is much preferred. Using the futures and options gives you the flexibility to maintain ownership as well as cash flow when you need it. Make sure you call and go over a plan in advance so as many variables can be examined before execution. We have found many "good deals" at the elevator not exactly on paper what was advertised or understood verbally. Our bottom line is simple: staying in control of your grain, either on paper or in your own bin is much preferred to transferring ownership and hoping for good things to happen later. Standing in line for a bankrupt elevator, or falling victim to under described charges for basis contracts, rolls of those contracts and others are not thrills we like to have, and have experienced them ourselves. Call for specific horror stories, and how to hopefully avoid them.

Going into the heart of harvest, watch for any of the following possibilities that could move the market:

1) October 12 USDA Reports at 11:00 central time, and FSA data after the close
2) South American weather and crop progress

3) Fund short covering or selling

4) Chart support and resistance, November beans around 9.20 and 9.80, December corn 3.44 and 3.62

5) US harvest weather and updated yield reports as we get into later planted crops later this month.


Right now, with harvest weather favorable, and no real threats from frost or heavy rain, the market is comfortable that grain will move. We also know that attitudes can change quickly, as all of us have observed over many years of farming. Its only much later that we look back and say "oh yeah, the market did a about face on Friday and never looked back." Planning with flexibility to adjust while staying realistic with an eye firmly focused on profitability is where we want to be.

In conclusion, we recognize that so far at least, yields on both corn and beans are coming in mostly better than expected, although below last year in most cases. It would be very difficult to match last years production, and we don't think that will happen. What is reality is South American crops last year were also record large, and the surplus will not go away overnight. Yet demand remains strong, and end users can be profitable for some time to come, so we don't look for demand to be challenged any time soon. Livestock herd are not getting smaller, and China is expanding ethanol production to use up some old (very old) corn in reserve. We will use it up at some point, the challenge is being prepared to take advantage of a market that gets nervous about supply and starts to rally. We hope to be there, ready, and with realistic expectations to come to fruition. Making that plan now, or the next rainy day could make a big difference! Keep it safe out there, and have a great harvest!

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
  • October 12th:  Supply/Demand and Crop Production
  • October 20th:   Cattle on Feed
  • October  27th:    November Options Expire

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



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