CFGAG News and Views April 1, 2020
"When Will It End?"
Everyone wants to know how long this virus will keep all of us from going about "normally", and when will all the negatives be priced in the corn market? It would seem like just like a growing number of new cases of corona virus we find more negative news for the corn market. When the USDA Reports were released yesterday, the first number out was the Quarterly Stocks numbers, and the corn number was about 175 million bushels below what the average trade guess was. If you were watching in real time, May corn was actually up 3 cents in a couple seconds only to see the Prospective planting number come out at 97 million acres and prices collapsed. The rest of the day was spent clawing back some of the losses, and the day actually ended up about where we were when the report was issued. Once the dust settled, we were left with the following thoughts:
1) Our supplies of all grains are at comfortable levels this year. If the prospective planting numbers are correct, corn supplies will be very burdensome, beans will tighten up as well as wheat compared to a year ago
2) Crude oil prices must rally or ethanol production is seriously threatened, plants are already being idled and product is stacking up
3) We will need some real demand in the export market to offset the decline in ethanol use
4) We would expect some shifting of the planting intentions, we doubt producers will plant that much corn given price action
With the closing of some ethanol plants, and slowing down of others, basis has collapsed as well, dropping 25 cents in our local markets. What was once a very good historical basis is now one of more "normal" in this area for this time of year. Given the drop in futures, it gives us no incentive to sell at this time. It would seem that there is simply no good news out there, but we only have to go back to last year at this time to see how depressed the market was and how we bottomed the market in mid May before the rally started. Is a repeat of last year possible? At the risk of sounding bullish (which we are not), here are some reasons we could:
1) South American crop size projections have been lowered lately by private forcasters
2) Export demand for corn has increased markedly the last few weeks, China bought 30 million bushels last week alone
3) The oil "price war" between Russia and Saudi Arabia could end, crude oil could bounce sharply with any agreement on production cuts
4) Prices are very cheap overall...lots of bargains for those who import grains, energy and meat
It is always the darkest before daylight, the sooner the nation can get back to moving about freely without fear will be the biggest impact on demand for all goods. We just don't know when and where that is. There is no sense in being "wordy", we just don't know how long the shut downs will go on, or how fast the recovery will be. Therefore, this is what we are doing here on our farm:
1) For old crop corn, we are not doing anything, will wait for any of the above "friendly" items to give us a bounce .
2) We have sold most beans, but if any remain, look to sell on rallies above $9.00 May futures
3) We are holding new crop "courage calls" to sell against later. If the previous lows hold, we may add to them at lower strike prices
4) We will look to add put protection on any good rally attempt to put a floor in ABOVE where your crop insurance price coverage begins
5) We are planning now to shift at least 10% of intended corn acres to beans and will look to cover the switch with puts or sales on rallies above our insurance guarantee or a profit target that is acceptable
In conclusion, there are times when there is not much to say or do. This is one of them. Over reacting to a virus, disease or war has never proven prudent in our minds. We have to play the hand we are dealt and sometimes holding on with some patience is the best answer. There is no doubt the effects of this event will be felt for quite some time, but we know from history that this country and its people can rise up to any threat at any time. We have to act responsibly to protect those most vulnerable, and do our best to do our jobs as best we can without endangering others. Keeping food on the table or in the grocery stores will go a long way to help ease some minds, and if everyone does do their best, the worst will be over soon, and we can get back to "normal". Selling now to us is not the answer, because of all the things we don't know like planting weather, foreign buying potential, and other things not talked about in this negative atmosphere. The federal government has gone all in to protect businesses and people under financial stress, and loans can be extended under generous terms. We need to be aware of these things that can help our operations if we need them, hunker down and take advantage of them. If we stay together, this too shall pass!
Dates to Remember:
- Every Monday: Export Inspections, Crop Progress
- Every Thursday: Export Sales and shipments
- April 9th: Monthly Supply/Demand Report
- April 24th: Cattle on Feed
- April 24th; May Options expire
Mike Daube: 888-391-6330 or 574-586-3784
Allen Gard: 573-7694193
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