CFGAG News and Views September 1, 2020
"Big Crops Get Bigger? Not 2020"
When I sit down to write my memoirs about marketing over 40+ years of farming, 2020 will definitely stand out as one of the most difficult we have dealt with as many of our "tried and true" marketing plans had to be abandoned and re tooled as the year went on. We will not dwell on that today, but will go over the year in detail in our December issue as many lessons were learned and good experience gained in dealing with high levels of emotion and uncertainty. As this is a futures market, we need to now focus on our plans going into harvest and prepare an outline of actions that may give us a chance to add to the value of our crops. We start with a list of factors that will guide our decisions:
1) There is carry in the corn market, little in beans. We expect more bean sales off the combine and more corn headed for storage
2) Our new crop export book is much higher than the past few years, China has bought a lot of corn and beans for new crop shipment, taking pressure off storage requirements
3) Commercial grain elevators will want to be full of corn to capture carry as harvest winds down, look for good basis bids if storage is not full in your area.
4) Yields will be highly variable, and difficult to get accurate from a national perspective. September crop report will be very important!
5) So far, trade with China has been good, lots of sales, but we need to see good shipments of these sales, we will be watching export inspections every Monday
6) Local basis will likely be HIGHLY variable due to local yield variations. Evaluate all of you options!
Because the market was so negative for so long, it is hard to sort through the emotions of a year like this, as some areas are enjoying some of the best looking crops ever while some have had nothing but disappointment. The overused term is "don't look out your back window to make decisions," but to some extent you do. Recognize that local demand is still there, and logistics plays a big role in determining basis. If it costs 30 cents to truck grain to a facility that needs it, basis may spike up to cover needs. If you have a flexible plan to take advantage of these opportunities, you get paid handsomely and add value to your crop. Your can then use futures or options to maintain ownership if a great bid comes along. Until more is known about national yield, the futures market may be high enough with the recent rallies, More estimates will be forthcoming as we approach September 12th, and depending on how the price action goes, you may want to put some "floors" in or make some sales. The key here is "are you profitable" at these levels. If yes, do something, if no, then get some orders in where you are. Keep in mind we have ARC/PLC payments coming, and may have crop insurance claims on storm damage and drought issues. It is very important to look at all aspects of farm income, as if you have a significant loss combination of price and yield, you may need to own some calls to protect that revenue. How often have we seen lows put in in August, only to rally into harvest and watch potential payments slip away? Some claim market "scheme and device" when it is possible that we just run out of sellers, and end users need to buy. This year certainly has that possibility. The following 6 items are repeats from last month, but still relevant.
1 We need to estimate yields as soon as reasonable, and determine storage needs, cash flow needs, and possible government and insurance payments
2) Determine what needs to be moved at harvest, and either lock in basis if favorable, or do a deferred basis contract to eliminate storage charges
3) Right now the market is telling us to sell beans (little to no carry in the market) and to store corn. We may want to get more aggressive with this
4) Changes in storage charges have made larger than normal "carry" a possibility, Dec-July corn is now 25 cents. Is 35-40 now possible?
5) Basis is still relatively decent, if your area is good, consider locking some in
6) Getting a handle on all the above makes planning a lot easier!
On our farm, we finished pricing all our new crop beans, futures and basis last Friday, and are content to wait for a break to own some calls. If we get the anticipated selling into harvest or if yields come in better than expected, we could easily see a 50 cent break, especially with the funds long well over 100,000 contracts. If that happens, we will look to own some calls depending on what time value and expectations of South America look like to see if we want to risk 15 cents or not
On corn, we are down to bin sweeping on old crop, and have hedges on at $3.60 and lots of 3.30 and 3.40 calls bought to cover all hedges and all new crop production to sell against anytime we like the basis. We are prepared to store all corn with beans sold, so it will take something very good to move us, as we have sold enough of our calls to add 20 cents to our hedge price, and we like the idea of rolling out to July for 25-30 cents and netting $4.00+ corn. That would satisfy our profit goals and keep us healthy. On any good break we would add some more calls, either December or March to re own previous sales depending on price, time value, and expectations going into September 12th. Our yields have been hurt from dry weather, but may not be as bad as we think overall, so once we get some harvesting done, we can make a better call.
In conclusion, our adverse weather in parts of the corn belt have provided some price opportunity, as well as some new challenges. Our thoughts go out to those with flattened corn fields, as we all know how devastating that can be to see a whole years work and effort destroyed in a matter of minutes, and also to those who have had little rain since July, as it is hard to see a once great looking crop slowly go downhill when every rain just misses our farm. Farming is not easy, or every one would be trying it, thankfully the world is blessed with enough folks that accept the challenges and work through the bad times. There are a lot of good possibilities going forward, lets try to get together before harvest to plan it out and get some action plans in place!
Dates to Remember:
- Every Monday: Export Inspections, Crop Progress
- Every Thursday: Export Sales and shipments
- September 12th: Monthly Supply/Demand Report and Crop Production
- September25th: Cattle on Feed
- September 25th: October Options expire
- September 30th: Quarterly Grain Stocks
Mike Daube: 888-391-6330 or 574-586-3784
Allen Gard: 573-769-4193