CFGAG News and Views August 1, 2019
"Is It Over?"
Every day we get calls asking this question......is the party over? Can we come back? How far is low enough? The standard answer is we don't know, but there is something for everyone, both bulls and bears, because there is still so much uncertainty and unanswered questions. On August 12th we will get another USDA Supply/Demand Report that is supposed to include a "resurvey" of 14 states on the subject of planted acres. In the meantime we are getting dribbles of information from RMA on claims paid on prevented plant acres, and second hand information from contacts in the seed industry and crop insurance field as well as local county FSA offices. The following is a list of what we have heard so far:
1) Seed industry contacts indicate returns of seed corn are very high, indicating far more prevent plant acres than 3 or 4 million acres
2) FSA contacts report much the same, especially in the Eastern Corn Belt, with claims exceeding expectations
3) Crop Insurance agents also indicate very high claims, but no real accounting is yet available
4) Our travels here in Indiana and Ohio indicate less corn, and more bean acres, all very far behind normal. Appearance is most planting done in June, and possibly prevent plant corn acres may have been planted to beans late
5) Producers are very concerned about lateness of both crops and overall yield potential
If all this sounds bullish, it is at least friendly or so one would think, and we don't pretend to not feel that way somewhat. However, our purpose here is not to be bullish or bearish, just look at what we know, consider both sides of what we don't know, and manage the risk of the unknowns. We have to look at the big picture, and there are certainly negative factors that sometime get lost in the emotion of a very difficult spring. Dealing with a planting season like no one has ever seen generates some extremes. Remember June 1? We had over 30 million acres of corn to plant! It was so cold and wet that it seemed like we could never get a crop started let alone to maturity with any kind o f decent yield.
Today, as we look out our back window, there is hope, and actually some fairly decent prospects IF we get some rain, no early frost and a nice warm September to finish it out. We also need to go well into October or even November for a lot of June planted crops to fully realize potential. It is possible.............but certainly a challenge and leaving the market on edge until more is known. Lets also now look at what has driven the down move over the past few weeks:
1) Crop conditions have been stable, still historically low, but usually decline this time of year
2) Funds are still long corn, not as long as a month ago, but still long
3) Carry out on corn is still over 2.3 billion on September 1, beans and wheat very high as well.
4) Demand is slow, exports disappointing, and unshipped bean sales quite large
5) No real progress on trade talks with China
6) The US $ is quite strong, making our grain less competitive with the large crops in South America
With the real threat of not growing ANY crops in many areas this year, we have witnessed near panic buying by end users that had little or no coverage on, banking on a big carryout and the historical knowledge that "farmers will get it in, they always do". When the reality set in, buyers and funds (who had an all time record short position in May) raced in to own corn. Reluctant to sell producers have lately cashed in, with some $5 corn in the Eastern Corn belt, but while still strong, basis on old crop there are signs now that enough corn and beans are moving. Many are still waiting on the August 12 report to see what USDA will do, but we highlight number 3 above. There is enough corn around to meet demand if the price is right. What is the right price? How much can we hold back and for how long? No good easy answer, but we suspect that August 12 better be friendly............or we need to add to supply threat on this years crop. We could easily just chop back and forth waiting for some definitive news and direction. Now that we have covered the thoughts, lets look at some ideas to deal with what is to come
1) Selling cash (old and new as comfort allows) is still advised on good basis, re own with futures or options if still bullish
2) New crop basis is historically strong, if your crop looks good, set basis on at least what you cannot or do not want to store
3) We prefer long re ownership positions in 2020 months, using futures or spreads as desired. Hedgers should sell December corn and November beans, wait for more carry to develop later
4) Reduce risk by owning puts or making sales on rallies. November beans over 9.20 and December corn over 4.40 needs to be considered now
5) Be prepared with orders in or option protection on as we approach report days. Any major weather change could also trigger a sharp rally
The last two USDA reports were not friendly, doesn't mean this one will be or not, but it is obvious now that we will need something to feed the bulls and get them back. Sometimes a new month brings in new money, so we will be watching the close today to see if that materializes or not. While we are still friendly long term on corn based on what we have seen and heard, that doesn't mean prices have to go up. Someone needs to buy it and want more at higher prices the next day. Hopefully we get some news that generates a good rally. If not, we still want to look ahead to when it could really get interesting, next year when everyone assumes that we will plant lots of corn acres. While that may be, we still have to look at what our competitors in the Northern Hemisphere produce this year, and also what will happen in Brazil and Argentina this fall as they plant. Any real supply threats will have to be factored in, as well as good conditions to harvest here and plant there will also be part of the price discovery process. While we sometimes get our focus locked in on our own back yard, it is a big production field out there, and what those folks are willing to sell for impacts us directly. As we go through this month, try to realistically asses your production potential and use what ever tool you like to see what a profitable price is. If we get there, lets get some risk reducing plans in place. We have no control over the market or what our competitors do, but we do have control over managing our price risk. We may not know to any degree of certainty what our crop size is until January, but we can put in price floors to make sure we are profitable if we hit that price you are looking for.
In conclusion, the recent sell off has many discouraged, disbelievers in any kind of government report. We do not pass judgment on them, only point out that this year made any kind of normal system of gathering and disseminating timely information impossible. A resurvey of 14 states has NEVER happened before. USDA knows there is a problem, they just don't have the tools to get reliable accurate information available in a "timely" manner. We will just have to wait and speculate on what might come out. We may be writing about a huge rally a month from now, and everyone they will be wishing they had "bought the break". Or, we may look back on September 1 and wondering why we didn't see the sell off coming. Its why we keep coming back, the market is fascinating in the actions and reactions to a host of stimulus items. The bottom line is still, sell at profitable prices or at least put floors in. We believe there will be many more opportunities in the coming months for both bulls and bears, the only question is, "will you have your orders in?" Instead of worrying about what was, lets look at what could be coming!
Adversity brings opportunity to those with a plan and preparation in place!
Dates to Remember:
Every Monday: Export Inspections, Crop Progress
Every Thursday: Export Sales and shipments
August 12th : Monthly Supply/Demand Report, Crop Production
August 23rd: Cattle on Feed,
August 23rd: September Options expire
Mike Daube: 888-391-6330 or 574-586-3784
Allen Gard: 573-7694193
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