CORN. February 3, 2017

Transcription

1 CORN UPPER END March corn participated in the soybean weakness to start the week but new money and new buying on the first day of February pushed values back towards January s highs. CFTC data showed managed money liquidating length that was accumulated in the month of January, but Wednesday s price action suggests that outside money isn t playing the bearish card in corn right now. Fundamentally not much has changed as we begin the crop insurance base price discovery period, which takes place during February. Ethanol continues to set new production records despite weakening margins, with the March Corn Futures latter causing basis erosion across the landscape. On the week March corn added 2 6 cents to settle at $ February 3, 2017 ETHANOL Weekly ethanol production re-wrote the record books again, setting a new production record at 1,061k barrels day. The USDA s December Grain Crushing s Report was also released this week and indicated that December corn for ethanol demand was 5.7% higher than December mbu were used in the month of December, up from mbu in November. Ethanol run rates have been impressive despite recent erosion in the margin structure. Current production numbers suggest that the USDA could bump ethanol demand mbu in next week s S&D update. Ethanol stocks continue to grow however, up 17% in the last 4 weeks. Margins will need to be watched going forward as plentiful stocks are starting to cause issues. EXPORTS Corn export sales were solid this week with 45.0 mbu reported, above expectations and slightly above last week s 44.4 mbu. The tally brings cumulative sales to 1,583 mbu for 16/17, 66% ahead of last year s pace! Sales continue to impress, which could prompt the USDA to nudge their 2,225 mbu export demand number higher in next week s S&D report. Corn shipments this past week came in at 41.8 mbu, slightly above trade ideas coming in. The total was an eight week high and brings cumulative shipments to 822 mbu, up 75% from last year s pace. While well above a year ago, this year s pace from here forward will need to run at a record high in order to hit the USDA s 2,225 mbu export estimate.

2 FUNDS CFTC data showed the funds as net long the corn market last week. In this week s data, the funds were heavy sellers, contributing to the negative price action to start this week. For trading activity through Tuesday, the funds liquidated nearly 20k longs to trim their length to 4k net long. However, Wednesday saw new buying surface with the 1st day of a new month, which should put the net position as a heavier long currently. Overall, it feels like the spec fund wants to defend corn, or at the very least, move to the sideline and away from a heavy, net short position. CATTLE INVENTORY The bi-annual Cattle Inventory Report was released this past Tuesday by the USDA. This report provides data on all cattle and calves in the US. All cattle and calf inventory was million head, up 1.8% from a year ago. US cattle inventory is the highest it has been since The beef cow herd is up 3.5% from the previous year, indicating that supplies will continue to grow. Heifer retention was also higher with beef cow replacement up 1.2% from Overall the report shows a cattle herd that continues to expand, though the rate is starting to slow; cattle supplies will likely peak towards the end of this decade. NEW CROP CORN December corn added 3 4 cents this week to settle at $ The first 3 days of February leave the base price average for spring crop insurance at $3.94. Price action on Wednesday was encouraging as corn added 9 0 cents during the session, the largest up day since early December. The $4.00 print isn t far from reality as Thursdays highs topped out at $ Fundamentally nothing feels different in corn today. Acres are the big question mark over the next 90 days as supply reduction will need to occur somewhere to push corn to another level. Wildcards surrounding trade and ethanol policy have corn bulls nervous, Dec Corn Futures awaiting further developments from the new administration. After pulling the US from the Trans Pacific Partnership and NAFTA deals and suggesting a 20% import tax on Mexican goods, President Trump has many involved in agricultural trade on the edge of their seats. For now, the corn market doesn t appear concerned as business continues to flow like normal and prices hang near the top of their 6 month range. The ProEdge team took advantage of the strength this week, successfully putting $4.00 floors under new crop corn. Reach out to your ProEdge rep for a discussion on our Min/Max contract. Put a $4.00 floor and $4.40 ceiling on your corn for the same cost as a Hedge-to-Arrive! BASIS Corn basis slipped again this week on a combination of factors: a backlog of corn was allowed to move following challenging weather in the final 10 days of January, corn trading near the upper end of its range, and weaker ethanol margins. Processing destinations seem to have all the corn they want for the time being, which has led to weaker values by as much as 10 cents in the past 3 weeks. Corn that needs to move in the Feb-March time period may find it hard to pinpoint an attractive basis value.

3 RECOMMENDATIONS Old crop values have retreated despite the recent board strength as basis goes on the defensive. Producers looking to move corn before planting will need the board to do some work as basis values don t look to give us many opportunities for the next month. December futures near $4.00 are quite attractive for early sales we like the idea of at least putting a floor under corn here especially if you haven t started your new crop sales yet. What s wrong with protecting 10% of your crop at $4.00 or better? Reach out to your ProEdge rep for a discussion on how this can work for you! SOYBEANS TOUGH FINISH March soybeans had a volatile week, losing 26 4 cents right out of the gate on Monday before 12 2 cent gains on Wednesday and a 10 2 cent loss to end the week. Friday s session produced an outside day lower, which is not a friendly sign in charting terms. The short term trend remains lower in soybeans following the run up during the month of January on Argentine weather concerns. Anxiety remains around developing trade discussions and how China fits into the mix. So far, nothing has materialized besides a lot of speculative chatter. On the fundamental side, we should March Soybean Futures expect exports to start slowing in more dramatic fashion as Brazilian soybeans make their way to the ports. On the week, March soybeans lost 22 2 cents to settle at $ SOUTH AMERICA The situation in Argentina has stabilized some over the past week as drier weather there allowed saturated conditions to subside. Acres that were flooded won t be replanted as it is too late, but the warmer and drier conditions did benefit acres that were already seeded and plants growing. The Buenos Aires Grains Exchange issued their first estimate of the season this past week, pegging Argentine production at 53.5 MMTs. Some of the more pessimistic production estimates in the midst of all the raining initially put Argentine production estimates near 50 MMTs, so the number from the Exchange is worth noting. Further north in Brazil, wet conditions there have slowed soybean harvest and the subsequent planting of 2nd crop corn. Overall, soybean harvest activity is ahead of average, just slower than what many expected given the early planting dates last fall. This situation will be watched closely in the coming weeks as the 2nd crop corn ideally needs to be seeded by February 20th. After that and the corn crop runs the risk of pollinating in very high temperatures later in the season. EXPORTS Soybean export sales were within trade ideas, coming in at 22.9 mbu. The total brings cumulative sales to 1,854 mbu, up nearly 25% from last year s total at this time. Although sales are well above last year s pace, the trade is more hesitant about seeing the 2,050 mbu export demand number grow in next week s S&D report.

4 Soybean shipments came in at a 5 week high with 59.9 mbu reported. The total was a nice surprise, but totally out of line for this time of year. Typically the US will see some large business show up right before South American supplies fill the channels. The total this week brings cumulative shipments to 1,425 mbu, up 18% vs a year ago. Weekly shipments will need to average right under 19 mbu from here forward in order to hit the USDA s 2,050 mbu export target. CFTC DATA Commitment of Trader s data showed managed money trimming their length by 25k contracts. This was for trading through this past Tuesday, which would have incorporated Monday s brutal session. Net length of 159k contracts is what is shown, a healthy level given the time of year and fundamental outlook of new crop acreage expansion. What would make the funds want to dump a bunch of their soybean length in the next days? It s a good question, and right now I struggle to come up with a reason why that isn t already known by the market. Under this reality, it feels like soybeans will be tough to break until we get confirmation of much larger acres. NEW CROP SOYBEANS November soybeans displayed the same volatility as March this week, ultimately losing 15 4 cents and settling at $ Fundamentals continue to suggest that new crop soybeans are overpriced, especially if conversations around expanded soybean acreage prove to be true. Old crop export business should start seeing cancellations creep in over the next several weeks, which may be enough for market participants to start easing back on the soybeans. Great opportunities to forward contract remain as early sales this year are over $1.00/bu higher than where many started a year ago. Nov Soybean Futures Conversations internally this past week centered around just that. Many producers who sold early last year likely had a bad taste in their mouth after the March June rally surfaced, adding nearly $3.00 during that stretch. Of course, switching our selling strategies each year to make up for the wrong decisions the previous year is a recipe for grain marketing disaster. If you haven t started your new crop sales yet and are a typical forward seller, consider making some sales soon. CVA s Triplex contract is a good one to start with. A $9.00/$10.60 Triplex would work at current prices, which gives you a chance to secure a $10.60 futures price on next year s soybeans. Call your ProEdge rep for details on how to get started! BASIS Soybean basis was steady this week, though the overall theme continues to be weak values everywhere. Rail facilities and processors both are showing much wider levels than normal, a reflection of plentiful supplies in the pipeline following a streak of active farmer selling from late November to present. Some lower prices and time are needed to perk values back up. RECOMMENDATIONS Last week s finish didn t leave us with a warm and fuzzy feeling on Friday. If you have been putting off old and new crop sales on soybeans, it might be time to reduce some risk and make some catch up sales. Old crop sellers can take advantage of some futures carry and hedge in the May or July futures doing so will allow you to remove price risk and wait for basis to come around some. New crop sellers

5 should consider a combination of straight cash sales and CVA s Triplex contract. Have a chance to sell $10.60 futures at current prices with this strategy!

6 WEATHER WARM AND DRY Weekend weather will maintain a mild theme with highs forecasted to be in the low 50 s on Saturday and low 40 s on Sunday. Precip totals look to be non-existent for the first half of next week while temperatures remain well above normal for this time of year. That trend looks to stick around as the 6-10 day temperature maps suggest. Expect grain movement to be heavy for the first half of the month under these considerations. Grain basis has felt the recent stretch of weather, as poor conditions in late February lead to a bottleneck entering February. A defensive tone was easy to see over the past 10 days as a result. Sat Tues Precip Forecast Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore, you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.