"Harvest On The Home Stretch"

With harvest over the half way mark, we look back at the month of October briefly with our eyes looking to what November may offer in terms of opportunity. We began the month making excellent harvest progress, and expectations of another bearish report from the monthly S/D on October 11th. In a surprise move, the USDA actually lowered corn yields, causing some rally. Combine that with some excess rain and wind events, corn tried to crack the $3.80 resistance level in the December contract, but failed. Lately we seem confined to chop around in the $3.60-$3.78 range, with little news or developments to drive the market through these levels. Perhaps the November 8th report will, as market chatter seems to be further reduction of corn yields, and steady to higher bean yields. We will get numerous private estimates this week and next, but remember, the bottom line is what does our carry out do on all three grains. Here are the factors to watch and how they impact the bottom line of carry out, which is a measure of comfort in available supply at that time:



1) Changes in harvested acres and yields

2) Updated estimates of wheat production in Argentina, Brazil, and Australia

3) Early estimates of South American production for corn and beans

4) Changes in export projections for US crops


So far, both Brazil and Argentina are off to good starts in planting this years crops, and early indications are that more beans will be available for shipment earlier than normal, compounding our issues with China and the trade impasse. Many in the trade believe USDA will lower our soybean export projections, possibly taking our CARRYOUT to a billion bushels! If you wonder why futures and basis are both lousy, we are projection more than double the carry out of last year. This does not bode well for the next marketing year as of now. We will need some downward movement in production here, or some weather issues in South America to transform this negative outlook. The bottom line is, we need to prepare ourselves for the worst, and hope for some better news next Thursday. While we feel we do need to report what we see and why, we also do not want to get caught up in one sided arguments as people and firms vote with their wallets on both the bull and bear side everyday. Bulls will argue that much or all of this bearish news is old, it is already accounted for in today's pricing. Because we do NOT try to predict market price moves, and simply because we don't know for sure, we can only advise being protected against major price moves lower, and position ourselves to take advantage of unexpected price advances, all with the main idea of reducing or limiting risk. We have fielded many calls on what to sell and what to store if something needs to be moved. We repeat these ideas from last month because they remain relevant:


1) Start with local basis, and your expectations of improvement or widening if we get a post harvest rally

2) Look at the carry (spreads) in the market to determine which crop may pay you more to store

3) Determine when you want or need cash, consider basis contracts for those months that you want to deliver

4) If sales are made, and you feel a rally is possible, consider low risk re-ownership strategies but keep risk limited

5) Owning puts by producers is never a bad idea, especially going into the report on the 8th, they not only protect the downside, but can be used to back up futures longs if cash sales are made and re-ownership is desired


We are not optimistic at this point about the flat cash price for soybeans, in fact we would look to capture the carry in the market, for instance, there is about 52 cents "carry" in the bean market between November and July. You can roll November sales to July and make 52 cents, or to March and gain 26 cents. Look at number 3 above, when do you WANT to deliver cash beans? We like our marketing plan to be based on what WE want, not what we are forced into. If it is April, look at the cash bid and basis for April delivery. How much basis gain can you get by locking in basis now? This is something we feel is very important now, as with the size of the carryout, and IF the Brazil crop is good, we could be looking at some very ugly basis by next spring. Plug these numbers into your spread sheets, value of cash beans in April, plus hedge profits if any, plus $1.65 from USDA to offset tariff impacts, and where does that net you? These are actual numbers with which we can make better, non emotional decisions. Our basis concerns are valid even IF China comes back to the table, as any rally in futures COULD widen basis and leave cash price lacking compared to expectations.


On the corn, exports have far exceeded last year and projections so far, but the last 2 weeks have been disappointing. While we are slightly friendly corn price based on demand and also farmers ability to avoid selling as much as possible, we still recognize potential downside risk. Owning puts for March eliminates downside risk from the strike price selected, but also offers the ability to re own bushels that must be sold with limited risk. That is our key, limit the risk! Storing grain in the bin has risk, both price and quality concerns, so carefully weigh out these factors. If the decision is to sell something prior to finishing harvest, the numbers assigned to all the factors listed above should make the decision easier.


We are also slightly optimistic on wheat, as the expectation of more wheat acres may have hit a snag with the cool wet weather we have experienced here in the Midwest. Beans not harvested yet will not likely see any wheat planted on them, and winter kill concerns will soon begin with any severe cold and lack of snow. We do not predict weather or market price moves, but simply list this as a potential concern, similar to the planting season for corn and beans. Any realistic threat to supply, and especially with many unknowns, often bring out the spec money to test the waters from the long side. We would not be surprised to see this take place in wheat where many nations have experienced less than desirable establishment of new crop plantings.


We have also had calls on new crop sales, and simply put, are not ready. Our feeling is generally not to sell next year right after a record crop, it is better to sell next year after a poor one. Also, in checking input prices, our costs of fertilizer are significantly higher than last year, causing us to carefully look at our spread sheets to see what this does to profit potential. Right now, we feel there is more than enough time to get some sort of rally in the winter and early spring to begin pricing, HOWEVER, if your profit goals are met by today's prices, it is NOT wrong to get some coverage. We would only suggest some flexibility in your strategy to take advantage of any change in market perception that would lead to a significant rally.



In conclusion, it is now as we finish harvest and put grain and equipment away, that we need to aggressively adjust our marketing plan to accommodate what is now known. You know your bushels, cash flow needs, and where you want to be in terms of liquidity. If bank notes, rent and machinery payments are due, lets plan for those now with the best cash sales we can make in time to make them, and use limited risk re ownership plans to profit from if markets rally. I know we harp on this repeatedly, but any strategy you decide on SHOULD reduce your overall risk. You did a great job of producing this year, now we need to make that extra production reward you for you efforts. Call us for specifics and plan adjustments when you have time, celebrate your victories proudly, but also take a few minutes to join us by thanking our servicemen and women for all they do and have done for us this month, and also to thank the Good Lord as well for blessing us with the opportunities we enjoy as free Americans. It is quite humbling to realize all of what we have because others paid a price, and we thank them and you also for your business and friendship!  Happy Thanksgiving!



Dates to remember this month:


Export Inspections every Monday at 10 am

Export Sales and Shipments every Thursday at 7:30 am

Crop Conditions and progress every Monday at 3 pm

November 8th: Monthly Supply/Demand and Crop Production

November 21st: Cattle on Feed

November 23rd: December  Options Expire


Mike Daube  888-391-6330

Allen Gard     573-221-9234