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August 2012 Archive for Standard Grain

RSS By: Joe Vaclavik

Joseph Vaclavik is the president at Standard Grain in Chicago. Standard Grain provides futures and options brokerage to farms, feedlots, elevators, processors, end-users and traders. Visit www.standardgrain.com for more information.

 

Thursday Morning Grain Market Update...

Aug 30, 2012

       Grains are mixed this morning after an impressive rally yesterday. The November soybean contract posted a new contact-high close yesterday; beans have emerged as the true bull market in the ag complex during the past several weeks as corn and wheat have been unable to even test recent highs.  Wheat has exhibited strength on rumors surrounding a possible Russian export ban.  Russian leaders will meet tomorrow to discuss their physical grain outlook.  Many traders believe the potential export ban or restriction will not be initiated until early this winter.  Early corn yields have been variable, but mostly within or slightly below expectations.

Export Sales this morning at 7:30am CST, pre-report estimates:

·         Corn        250,000 – 400,000mt

·         Soybeans    600,000 – 800,000mt

·         Wheat       450,000 – 600,000mt

Soybean exports continue to run well ahead of schedule.  More than 55% of projected new crop exports have already been booked vs. an average near 30% for this point in the marketing year.  Soybean demand has proven to be much more inelastic than demand for corn or wheat, both of which have clearly lost a significant portion of their demand base as a result of high prices. 

Traders around the world will be watching Fed Chairman Bernanke speak in Jackson Hole, WY tomorrow.  Many financial traders still believe a QE3 scenario is in the near future.  The Jackson Hole Economic Symposium is an annual meeting that is hosted by the Federal Reserve Bank of Kansas City.  Outside markets are mostly mixed this morning ahead of tomorrow’s speech.  Equities are marginally lower along with crude and metals.  The euro is slightly higher.

Weekly ethanol production was down 4,000bpd at 819,000bpd.  The EIA reported ethanol stocks at 18.4mil/barrels, down 1,000 from last week.  Ethanol numbers have essentially leveled off during the past 3-4 weeks after a record low number was posted several weeks ago. 

Export Sales this morning, first notice day for September futures tomorrow.  USDA’s September Crop Production report will be released on the 12th.  We look for soybeans to make new highs this week or early next week.  Corn and wheat may be range-bound until we know more about the corn crop and the state of both domestic and foreign demand for corn.  $17.60 is a key level in Nov beans.  The $8.35-8.40 area will be key resistance for the corn on any major rally.  Wheat has consistently been a "sell" above $9.00 in the December contract.

www.standardgrain.com | info@standardgrain.com | (312) 462-4438

Why Not to Store Grain This Fall

Aug 21, 2012

The drought has done the marketing for grain farmers this year. All-time highs were printed in November soybeans today, while December corn is within an earshot of the highs at $8.49. There is no carry in either market, meaning that the nearby contracts are trading above the deferred contracts. The soybean market especially is indicating that the crop should be sold as soon as possible; the November soybean contract is now trading more than $2.00 per bushel higher than the July ’13 contract. On-farm storage allows producers the flexibility to hold onto grain in anticipation of more favorable markets. While the "top" in these markets may have not yet been seen, we believe there is an extraordinary amount of risk in storing corn or soybean production that has yet to be priced.

November ’12 vs. July ’13 Soybean Chart (daily)

joe chart
 

We prefer selling corn and soybeans out of the field this year. If you’d like to maintain ownership, re-own your sales using the cheaper deferred contracts. CALL options are probably the best bet for re-ownership, as we’d prefer to not own futures at the all-time highs for any reason. Risk management is the most important part of navigating these uncharted waters. By selling grain off the combine and re-owning using CALL options, you will have taken the risk out of the cash market and moved it into a limited-risk position in the futures market. Limiting risk is the most important part of marketing in any year, especially an unprecedented one such as this.

Risk Disclaimer: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Please contact your account representative for more information on these risks. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance.
 

Wednesday Morning Grain Market Update...

Aug 15, 2012

 

The grain markets are higher across the board this morning, led by soybeans. Forecasters are looking for less rain than previously forecasted in some areas while temperatures remain cool. Early corn yields continue to be extremely disappointing. Some technicians are looking for a bounce from oversold levels in the grain markets after December corn tested key support in the mid 780s yesterday. Wheat futures continue to be the weak leg of the grain complex, but will likely need to stay competitively priced relative to corn.  
      Pro Farmer will kick off their 2012 Midwest Crop Tour on Monday. The tour begins in western Ohio and moves through Indiana, Illinois, Iowa, S. Minnesota, E. Nebraska and S. South Dakota. The group will provide yield estimates for each state and a final yield number at week’s end. 
      China’s CNGOIC is now calling for a 197mmt corn crop, down from the previous estimate of 197.5mmt. Infestation of armyworms in much of the crop is to blame for the cut.  Governors of two more states, Arkansas and North Carolina, sent letters to the EPA calling for temporary suspension of the ethanol mandate. Governors of several other states have done the same during the past few weeks. 
      There have been reports of southern corn barges being moved north to supply ethanol plants. Although these may be isolated incidences, it certainly speaks to the lack of old crop availability in the Corn Belt. We maintain the belief that USDA’s current old crop carryout estimate of 1.021bil/bu is far too high. 
      Outside markets are mostly quiet this morning. Crude oil is marginally lower, but still trending higher for the most part. The euro is lower along with equities, metals and bonds. Today is a slow news day. Export sales will be released tomorrow morning and crop progress again on Monday afternoon. 
      “End-users will buy breaks” has been the battle cry of the grain bulls this week. Although we agree with the logic, the confidence in which many analysts have forecasted this “virtual floor” in the grain markets is of concern. Overconfidence is not a quality possessed by successful traders, and we believe that ruling out more downside in the markets after trading to new all-time highs in both corn and soybeans is unreasonable. 
 

 

www.standardgrain.com | info@standardgrain.com | (312) 462-4438

Too Early to Sell 2013 Corn?

Aug 14, 2012

A bushel of corn that is only worth $6.40 seems pretty cheap these days.  Unfortunately, that is near the current market price for corn delivered next fall.  It is our opinion, believe it or not, that the most pressing marketing issue for farmers right now is the 2013 crop.
 
This year’s epic production disaster did the marketing for you.  You’ve got $8 corn and $16 soybeans for fall delivery.  Although the markets can certainly go higher, we’re interested in having the vast majority of this year’s production sold out at current levels (Producers that are unsure of 2012 production possibilities on their own farm should use option strategies to set a floor). 
 
There is very little carry in the corn market, which means there is really no reason to store grain.  If the all-time highs aren’t good enough, re-own your sales with call options, which have become significantly cheaper since Friday’s USDA report. 
 
Next year, producers could be fighting an uphill battle.  Again, corn acreage both here and abroad will be enormous.  Every farming country in the world will try their hardest to overproduce grain.
 
Given good weather next year, we’ll undoubtedly be looking at record corn production in the US.  It may only take one year for this market to return to lower prices. 
 
We favor a combination of option strategies and forward sales in the December ’13 corn on a move above $6.50 on the futures board.  We wouldn’t mind having up to 20% of next year’s production priced in the coming weeks if our objective is hit.  We like using a strategy that involves scaling into sales.  For example, sell 2% of your total production every day that the Dec ’13 trades above $6.50 for 10 days.
 
Let it be acknowledged that the proactive marketer hasn’t been very successful the last 3 years, as we dealt with significant crop issues in 2010, 2011 and now in 2012.  There will be a year, sooner or later, that this pattern changes.  Whether it’s 2013, 2014 or beyond, farmers should take the necessary steps to protect profitability every year.       
 
 
RISK DISCLAIMER: Trading in futures products entails significant risks of loss which must be understood prior to trading and may not be appropriate for all investors. Please contact your account representative for more information on these risks. Past performance of actual trades or strategies cited herein is not necessarily indicative of future performance.
 
Standard Grain, Inc.

Grains Marginally Higher Tuesday Morning...

Aug 14, 2012
The grain markets are marginally higher this morning in what could be a typical “Turnaround Tuesday” type trade. Crop ratings for corn were unchanged in the good-excellent category at 23% while soybeans increased 1% to 30% good-excellent. The corn crop is rated 51% poor-very poor; soybeans are rated 38% poor-very poor. Last week’s rains helped the bean crop to some extent while cooler weather and more rain chances should give the crop in some areas a fighting chance at decent yields. Winter wheat harvest is wrapping up in the north while spring wheat harvest is now 65% complete. The spring wheat crop is rated 61% good-excellent; many have noted high protein levels. The December corn contract seems comfortable at the $8 area for the time being, as many traders believe that more rationing needs to be accomplished. Today is the last trading day for August soybeans, meal and oil. Noted agronomist Cordonnier lowered his corn yield estimate by 2pba to 123.0bpa; Dr. Cordonnier lowered his soybean yield by 2bpa also to 36.0bpa. Early corn yields out of the south continue to be extremely disappointing. Most of the early corn in states like KY and MO are running below 100bpa, with many fields being “zeroed-out” by insurance adjusters. Outside markets are mostly quiet this morning. Crude oil is marginally higher and continues to hold above the $92 mark this morning. Equity futures are higher, bonds lower and currencies mixed. European stock markets are higher this morning on better-than-expected German and French GDP data. Eurozone GDP fell by .2% in the second quarter according to a preliminary report. President Obama announced yesterday measures to assist livestock producers affected by the drought. The USDA will buy $170 million of meat and fish in order to assist troubled livestock producers. Many livestock producers quickly criticized the program, noting that input prices, and not the actual prices of their product, are the main problem. The food will go mainly to food banks and food assistance programs. Obama also commented on the farm bill yesterday, noting its importance to rural communities. Moving forward, weather conditions are mostly benign as cooler temperatures and scattered showers assist soybean growers. It will be very interesting to see whether or not end-users bid-up grain prices later this week on the small break in prices. Spread action in soybeans is far more convincing than the spread action in corn. Bean price may not need to move significantly higher on a flat price basis in order to ration demand given the enormous inversions between nearby contracts and the July ’13 contract. www.standardgrain.com | info@standardgrain.com | (312) 462-4438

New Highs in Dec '12 and Dec '13 Corn...

Aug 09, 2012

www.standardgrain.com

      The December corn contract is trading at new all-time highs this morning, as traders scramble to cover shorts and square-up ahead of tomorrow’s USDA report (“cheat sheet” on next page). Many fear that the USDA will lower corn yields, as well as harvested acreage, drastically. Many analysts believe that the market has not rationed enough bushels to satisfy our supply/demand situation despite significant evidence of demand destruction. Floor traders noted a tremendous amount of CALL option buying yesterday. Some early yield reports from the south and other scattered areas have been disappointing. Early harvested corn will likely be the worst this year. The soybean market has rebounded from recent lows, but still trades about $1 removed from the highs in the November contract. Rains during the first part of August have pressured the bean market. Many believe that the bean crop still has a chance to tack-on additional bushels. Wheat futures came back from a 20+ cent lower trade yesterday to finish higher on the day, and are seeing some follow-thru buying this morning. 
Export Sales this morning at 7:30am CST, pre-report estimates:
·         Wheat                425,000 – 600,000mt
·         Corn                 900,000 – 1,000,000mt
·         Soybeans             275,000 – 400,000mt
Weekly ethanol production was reported at 817,000bpd in yesterday’s EIA report, up 8,000 from the previous week. Ethanol stocks were seen at 18.7mil/barrels, down 750,000 from last week. Ethanol production has been lagging in recent weeks, but has rebounded from the record low weekly number seen 2 weeks ago.
Rain averages in IL, IN, MN, NE and OH were actually above normal for the first 7 days of August, according to our lead forecaster. This is obviously a stark contract from rain amounts in June and July. Temperatures, however, continue to run at least 4 degrees above normal in most major corn and soybean producing states. The 1-3 day precip map continues to call for soaking rains across much of the eastern Corn Belt. Much of IL, IN and OH should see rains in excess of 1.00” between now and late Friday. Amounts in the west will be limited.

Tomorrow’s USDA report is the wild card of all wild cards. There is an extremely delicate balance between supply and demand in both the corn and soybean markets. The demand side of the balance sheet will be more interesting to us, as we believe that this year’s epic production (supply) disaster is a “known” in the market. As of right now, today is the best day in the history of the corn market to do some marketing for fall delivery.  

www.standardgrain.com                  

 
 

 

 

 

Friday’s USDA Report: A Guide for Producers

Aug 08, 2012

The USDA will release their August Crop Production report on Friday morning at 7:30am CST.  The report will include updated supply and demand numbers for both old-crop and new-crop corn, soybeans and wheat.

The trade believes that the USDA will cut their yield estimate for corn by another 19bpa, to 127bpa, if not more.  Most look for corn production to total near 11.02 billion bushels.  While there is much debate over the supply side of the balance sheet, less may be known about the demand side.  How much demand will be cut, and from where?  Corn has now been priced near $8.00 on the futures board for nearly a month.  
 
The demand implications of these high prices in our current economic environment remain to be seen.  A similar story is shaping up in the soybean market.  While most agree that we’re now looking at sub-40bpa national yields, much less is known about the demand side of the balance sheet. 
 
The grain markets are in uncharted waters from a standpoint of both price and supply/demand.  Even the most seasoned traders have not seen this scenario play out in the past.  These are truly unprecedented times for agriculture.
 
What should a producer do?  Many do not have a solid grip on what type of production they’ll have, and are hesitant to make sales as a result.   Despite the obvious production shortfall, we do not believe that downside in the markets can be ruled out.  This is a futures   market; the vast majority, if not all, of this year’s production shortfall has likely been priced into the market.
 
Nobody can predict with any degree of certainty where these markets are headed.  We believe that $10 corn is possible, and we believe that $6 corn is possible, given the right scenarios. 
 
Producers must shore-up their marketing ahead of this report.  Even short-dated options can help set a floor through the end of the week.  Producers should continue to roll-up PUT options in corn and soybeans, indefinitely.  If corn goes to $10, growers should own $9.50 PUTs.  If soybeans go to $25, producers should own $22 PUTs.  Take what the market gives you and be happy to have the premium paid for PUT options be a loss leader in your business.    
 
Standard Grain, Inc.
One Financial Place Suite 3990
Chicago, IL 60607

 

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