May 19, 2017 CORN WAITING July corn bounced back Friday following negativity out of Brazil on Thursday. Very quietly, the weekly corn chart registered its highest close since early March, with July futures finishing at $3.72 4, up 1 4 cents on the week. Questions around corn acreage and replant scenarios are in the back of the trade s mind, in addition to crop condition as wet and cool weather has endured for over a week. Managed money remains record short for this time of year which is a sleeping giant under the right scenario. Old crop movement remains slow which led to additional strength in the July Corn Futures cash markets this week. On the charts, July corn remains in a wedge formation as price action consolidates ahead of a breakout. In which direction is the question. PLANTING PROGRESS Corn planting progress advanced 24% weekover-week this past Monday, which implies over 20 mln acres went in the ground. Steep advances occurred in the WCB where states like MN, IA, and NE were allowed to catch up quickly with an open week of weather. On the flip side, progress all but halted in the ECB where states like IL, IN, and OH nearly went backwards on progress as excessive moisture there has replant stories in the headlines. Nationally, corn progress sits at 71% complete Planting Progress 2017 2016 5-Year Average Nebraska 78% 71% 76% Kansas 60% 78% 72% Illinois 75% 82% 77% Minnesota 84% 92% 70% Iowa 85% 87% 75% US Total 71% 73% 70% vs 73% a year ago and 70% on average. Key states and their deviation from average in terms of planting progress: NE (+2), IA (+10), MN (+14), SD (+11), ND (+5), MO (+7), IL (-2), IN (-6), OH (-8) and KS (-12). Corn emergence was published at 31% complete vs 41% a year ago and 36% on average. ETHANOL Weekly ethanol production pushed higher this week as the industry leaves their seasonal maintenance period behind. 1,027k barrels/day was reported for the week ending 5/12/17, which compares to 1,006k the week prior and was good enough for the highest weekly total in 7 weeks. Weekly production was up 4% vs a year ago, part of the theme when comparing 16/17 production to 15/16 production. The USDA s current 5,450 mbu target would necessitate run rates to actually fall below last year s pace by 0.6%. Since this isn t happening, the trade expects the USDA to bump the ethanol demand number higher in the June S&D report (good news!).
EXPORTS Corn export sales came in at the upper end of estimates this week with 27.8 mbu reported. Cumulative sales of 2,079 mbu are running ahead of pace (+31% vs LY), leaving weekly needed sales of just 13.8 mbu from now through the end of August. Brazil s 2 nd crop will hit the market starting in July, so it remains to be seen if this pace can be sustained. New crop sales remain light with cumulative numbers the 2 nd lowest in 7 years. Corn shipments had a great week with 55.0 mbu reported. Cumulative shipments of 1,603 mbu are up 54% vs a year ago and are raising hopes that the USDA s 2,225 mbu export number gets bumped higher in the June S&D report. In order to hit the current estimate, weekly shipments need to average 32 mbu from now through the end of August. COMMITMENT OF TRADERS The COT report showed some light short covering for the week ending last Tuesday by 6k contracts. Despite the slight trim, their net short position remains near 225k contracts, a record short position for this time of year. This crowd apparently isn t buying into any weather concerns just yet, content to rest on bearish global fundamentals. Prior to Wednesday evening s Brazilian news, the US dollar was becoming more of a story, trading to its lowest level since pre-election last November. Concerns of Donald Trump s pro-growth agenda getting held up led to a pull back in US equities and weakness in the US dollar. Typically a weaker dollar is good for US commodities, and one could make a case that a poorer performing stock market might cause money to rotate back into oil, corn, soy, etc. It is too early to tell if this logic has any merit. NEW CROP December corn stayed within its recent range this week, finishing strong on Friday at $3.90 2, up 1 4 cents on the week. Weather may be starting to get the trades attention, at least to the point that the managed money short is being fiercely defended. Despite a net short position of over 200k contracts, the corn market has failed to move below it s nearly 2 month range. Excessive wet conditions in the ECB have many discussing replant scenarios. With moisture expected to fall over the weekend, these plans may be delayed further. With wet weather, the market tends to react much slower Dec Corn Futures than in dry/hot scenarios (think wet weather in 2015). This may not be enough to jar the market higher, but the performance of corn following the negative Brazilian news on Thursday is an encouraging sign. Despite what feels like a bleak outlook, producers can still sell $4.00 March 18 futures right now. Sales like this would be better than anything we ve had for the 16/17 crop (in the bin) since last summer. Consider where you ll engage if you haven t. If you don t have anything on the books you need to take a hard look at floors or simple HTA s / cash forward sales. Going deep into June without any new crop sold feels like a bad move given our balance sheet. If weather threats aren t deep enough to push the market higher, there needs to be a line in the sand on the calendar where you pull the trigger on new sales. Do you really want to go into harvest with little to no new crop corn sold? Visit with your ProEdge rep about placing targets!
BASIS Corn basis was firmer this week as CBOT values remain rangebound and farm selling light. Farm and commercial bushels remain plentiful, but a 20 cent trading range on corn for the past two months has led to a disengaged marketplace amid a lack of volatility. An inverse is present in the cash market as local demand centers want to satisfy nearby needs only. With available crop in the country, the expectation is that corn will move eventually, hence the inverted cash market. RECOMMENDATIONS Producers needing to move old crop corn should look at recent basis strength as an opportunity to remove the physical price risk through basis contracts, cash sales, or CVA s Extended Price contract. The first and last of these strategies would allow you to eliminate basis risk and still participate in a board rally should it surface. New crop sellers should make plans and place orders in the event we get the funds to cover. If the story doesn t come, what are your plans to protect new crop production? Consider $4.00 / $4.30 Min/Max contracts off the March 18 futures. Protecting $4.00 futures as a worst case would put us in a better situation than we re currently in, and the market is giving it to us right now. SOYBEANS BLACK SWAN July soybeans have been trending in the right direction since their collapse in the month of March. That changed Wednesday evening when reports of political turmoil out of Brazil surfaced, leading to an 8% drop in the Brazilian real. The unforeseen and unpredictable event loosened the Brazilian farmer up, who up to this point had been disengaged from selling soybeans due to strength in the real. Heavy farmer selling out of Brazil on Thursday led to steep losses in the soybean trade before a recovery surfaced to close out the week. The Brazilian news combines with a bearish July Soybean Futures fundamental outlook to suggest that soybean opportunities will be limited going forward. On the week, July soybeans lost 10 0 cents to settle at $9.53 0. BRAZILIAN TURMOIL Wednesday afternoon the O Globo newspaper reported that Brazilian president Michael Temer was involved in hush money payments to a jailed politician convicted of taking bribes. In a plea-bargain agreement with authorities, JBS businessman Joesley Batista indicated that Temer had encouraged JBS to continue paying Eduardo Cunha, former speaker of the lower house of congress, to remain quiet over kickbacks he received from JBS while serving as speaker. The article indicates that Temer s conversation with Batista was caught on tape, leading to calls for his resignation. Following the news, the Brazilian real broke as much as 8% Thursday morning, creating gyrations in global commodity trade. Editor s Note: South American soybean prices are derived from the CBOT, just like your soybeans are. The difference is that the price has to be converted to their domestic currency. An 8% drop in the real on $9.00 soybeans equates to 70 cents/bu! With soybeans down 20 cents Thursday morning, Brazilian farmers woke up to a net gain of 50 cents/bu for the price of their soybeans. Reports indicated that over 2 MMT (73 mbu) of farmer soybeans were sold out of Brazil on Thursday.
US PLANTING PROGRESS Soybean planting progress advanced 18% in the latest week to 32% planted. That Planting advancement equates to 16 mln acres using Progress the USDA s March 31 st Planting Intentions number. As with corn, large week-over-week advances were made in the WCB with NE (+24), IA (+31), SD (+24), and MN (+43) leading the charge. The ECB was much slower amid wetter conditions. Key states and their deviation from average in terms of planting progress: NE (+0), IA (+8), MN (+7), SD (+3), ND (+1), MO (+2), KS (-4), IL (-8), IN (-8), and OH (-8). Soybean emergence was listed at 8% vs 9% on average. EXPORTS Soybean sales were near the upper end of market expectations with 13.1 mbu reported. The number was clouded though, as the previous week s sales were revised downward by 2.2 mbu. Total commitments stand at 2,107 mbu with the USDA s export estimate only at 2,050 mbu. Cancellations are typical once we get into the summer months, but even considering that, a bump to US export demand would be expected in the June S&D report. New crop sales remain scarce, with the lowest commitments in the past 9 years currently on the books. Soybean shipments came in under expectations this week with 10.3 mbu reported. The number is still stronger than last year s same week tally and would require weekly loadings of 8.6 mbu from now through the end of August. NOPA CRUSH The April crush numbers were released on Monday and showed just 139.1 mbu in the report. The number was sharply below expectations of 145.7 mbu and even below the range of ideas coming in. The figure was 5.7% below last year s April number and brings cumulative crush to 1,283 mbu vs 1,277 mbu a year ago. In order to hit the USDA s 1,925 mbu crush target, May-Aug crush would need to total 642 mbu which compares to last year s 609 mbu over the same stretch. Soybean meal exports stood out in a negative way with just 595k tons of exports reported for April, which compares to 1,057k tons in March and 769k tons last April. Editor s Note: Further losses to the crush number on the balance sheet likely get absorbed by higher exports. Netnet the soybean carryout likely doesn t get any larger for 16/17. Chart courtesy of FC Stone 2017 2017 5-Year Average Nebraska 37% 27% 37% Kansas 16% 13% 20% Illinois 23% 28% 31% Minnesota 47% 61% 40% Iowa 40% 41% 32% S Dakota 29% 25% 26% US Total 32% 34% 32%
COMMITMENT OF TRADERS Managed money didn t change their positions much in the week ending last Tuesday. Friday s COT report showed their net short position around 75k contracts. Thursday s price action certainly grew this position though, as open interest (number of contract participants) went up as soybean prices fell. The funds typically do not stay short soybeans for very long, but with the fundamental outlook anything but friendly, is the current situation an outlier? NEW CROP New crop soybeans broke with the Brazilian news on Thursday before rebounding some on Friday. On the week, November futures lost 8 0 cents to settle at $9.51 6. The old crop charts are more telling, but the chart of November beans at right shows price action breaking through the bear flag that had been forming over the past 6 weeks. This recovery rally (in the eyes of technical traders) was merely a blip on the longer term move down. Thursday s action broke below the bottom end of our recent channel, suggesting further losses equal to the original move down are Nov Soybean Futures coming. If true that would project a move in November soybeans down into the $8 60 area. Fundamentally the story remains bearish for soybeans as one could make a case that acreage will be growing with the wet spring we re having. Weather complications that will impact US yield will be needed to provide support and provide us with rally potential. Producers needing to make sales should first consider where profitable sales lie and then place orders. With as much weather that needs to happen yet, waiting for a bullish story wouldn t be all bad either. Reach out to your ProEdge rep to discuss placing offers! BASIS Soybean basis was firmer this week as export business remains active out of the US Gulf and domestic processors search for coverage. Excess water on the upper MS river a few weeks ago led to slow barge activity and created a demand pull for WCB beans to the east. With a large carryout this year, values likely don t run away. A question going forward is how does the political turmoil and Brazilian currency situation impact export business out of the US? Off the cuff, the changes observed this past week likely push business back to South America. RECOMMENDATIONS Producers with old crop inventory should take a look at basis values and consider basis contracts, cash sales, or CVA s Extended Price contract. With the carryout this year we wouldn t anticipate any steep summer premiums for soybeans that some had grown accustomed to in previous years. Current strength is a good opportunity to eliminate basis risk. New crop sellers should determine where offers need to go and remain patient for those opportunities to develop.
WEATHER WET FOR A WHILE YET Moisture looks to remain in the forecast for the next week following soaking rains over the past 5 days. Wet weather flipped from the East to the West this past week, allowing for planting progress to resume in IL, IN, and OH. NE, KS, IA, MN, and parts of the Dakotas were inactive due to several inches of rain that fell over the course of the week. 5 Day Precip Outlook Looking ahead, the 6-10 day forecast has below normal temps settling in, but the maps do finally dry up as we close the book on May. Early Sunday morning there will be some frost advisories for portions of central Nebraska, so crop damage is a possibility depending on the severity. 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.