Clear Focus Hedging News and Views
October 1, 2021

 

"USDA Does It Again"

 

Another surprising report yesterday, but this time not bullish. After the monthly supply/demand report earlier this month, the Quarterly Stocks report was released with a large increase in bean stocks as the government "found" that 2020 crop was over 80 million bushels higher. We can't remember this type of adjuistment in the beans, and very strong basis all year would not back this number up, but that was what we got and now will have to monitor yield results here as well as South American planting for some sort of rally potential. Anytime we get "numbers" we have to remember a lot can change over the course of a few weeks or months, and demand verses willing sellers will ultimately determing prices going forward. Our yield reports have been generally good, but variable, with some extremes on both ends of the production scales, so between now and October 12th, the next Monthly Supply/Demand and Crop Production reports we will closely watch to see if USDA might raise or lower the size of this year's crop and adjust carry outs accordingly. By today's numbers we will start out with over 80 million more beans, and nearly 100 million bushels of corn, which came at the expense of higher feed use of wheat this summer. Some factors to consider in the next 2 weeks:

 

1) Reports of "tar spot" and other diseases have reduced corn yields and stalk viability in some areas. How much and how bad?

2) Overall basis levels for corn are quite strong, and beans not bad either- watch both closely to see if a lack of selling drives them stronger

3) Weather is non threatening and harvest progress should be excellent for at least another week

4) Monitor elevator offers for "free DP" or reduced costs for drying and storage

5) Wheat seeding should go well, are we likely to see more wheat acres?

6) Good cash flow positions make farmers more likely to be "tight holders" but for how long?

7) Export news has been lacking with China behind on average purchases up til now. Watch the daily sales reports to see if this changes

 

Our feeling has been, and still is, that with producers generally in good cash flow position, that sales this fall may be more limited than usual. With the inverted markets this summer, most elevators are empty and plenty of storage is available, and as harvest progresses, we may see more incentives given to get more grain to move. We may have to lower our targets a bit, especially in beans, but for now will let the dust settle of this report and see what develops next week. If our hunch is correct, and farmer selling remains limited, we should see some positive news next week as we hit the half way mark. Making new lows however, is not a good sign, so stay in touch often as we see what effect this bearish news today will stay around. There are rains in the forecast for Brazil, which will be much needed, and any change in those forecasts could also be a factor.

 

We need not be wordy, everyone is busy and trying to bring in the crops, so we will keep this short. While we struggle with some of the numbers today, they are what we will trade until proven otherwise. There is still downside risk if the above bearish items come to pass, if yields are better and demand is not active, we could easily sell off. We remind ourselves that when selling cash, our number one consideration is basis, both now and what we expect it to do in the next few months. If you have a strong basis, it may be good to move the cash and own the paper. We are weighing these choices ourselves in deciding to sell our "extra bushels" or find a bin for them. Call for some ideas on whats going on in your area so we can compare notes on what the demand situation is as a whole.

In conclusion, as the rush to get the crops in hits full speed, it is also important to look for those opportunities to pick up 10-20 cents. Carry in corn from Dec to March is 8 cents, beans from Nov to Jan is 10. What is basis likely to do over the next few weeks?

Watch these spreads and look for those chances to add value. It is not over until its over according to Yogi, and we will always be looking for ways to get a little more for our efforts. With the projected increase in input costs for next year, we are already weighing the impact on planting intentions for next March. We are concerned that the availability of fertilizer and chemicals may be a real problem, and will get the markets attention if big changes in producer attitudes lead to a bigger shift in acres than normal.

There is so much to consider, with South American weather becoming more important and the above listed concerns, every day may bring a different swing in prices. Our goal is always to manage risk first, and we have plenty to go around for both producers and end users, so stay tuned. Stay safe, and have a great harvest!

Dates to Remember:

Every Monday: Export Inspections, Crop Progress
Every Thursday: Export Sales and shipments
October 12th: Monthly Supply/Demand Report and Crop Production
October 22nd: Cattle on Feed, November options expire