Aug 30, 2014
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July 2013 Archive for EHedger Report

RSS By: Dustin Johnson

Dustin works with a wide net of large producers throughout the Midwest. His analytical market approach and objective hedge strategy development is specific to the needs of every individual.

Further Liquidation for Beans

Jul 24, 2013

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It was another massive selloff day for August soybeans and soymeal.  August soybeans were 70 cents lower (lock-limit) and August meal was $20 lower (also lock-limit).  That means we will have expanded limits for both products tomorrow.  August meal was synthetically trading another $18-$20 lower than limit-down which means it should open sharply lower on the night session.

The weakness was all follow through selling from yesterday’s rumors that China would be releasing 3 MMTs of reserves onto their domestic market.  Basis was down sharply and now we have had a two day drop totaling $1.27 ¾!  That is about a $2.00 difference in cash soybean prices from Friday afternoon until Tuesday afternoon.  Once the ball gets rolling it can be hard to slow the downward momentum.  Margin calls can result in a cycle of further weakness until the weak longs are all out.  One thing to notice is that November soybeans have not been nearly as weak.  This could be for the fact that many of these longs were probably bullspread August-Nov.  As they liquidate their position, they have to sell August and buy the November contract, hence the support we have seen in that contract.  Up until now November soybeans have been able to capture some support from the tightness of old crop beans.  Take a look at the August soybeans chart with a November contract overlay below:

 2013 Soybeans

We have been talking about the excess premium built into the market for some time now.  We haven’t had excellent weather everywhere, especially in the western belt, but still we have trended lower.  In our opinion this excess premium is from market conditioning after having three disaster growing years in a row.  Many in the market have put a higher likelihood of a repeat weather disaster than probably necessary.  As we are getting past some of these monumental points in the year like pollination, more premium comes out.  Soybeans are in that stage where a weather problem could still develop.  We put that chance the same as any other year.  But if we get into August and rains are adequate, look out for the large long position in beans to run for the exit.

If December corn keeps breaking it may start to get into the territory where revenue insurance starts paying.  If a producer grows exactly 100% of his/her actual production history and has an 85% policy, he/she would be protected below $4.80 ¼ ($5.65 x .85).  There is plenty of year left so if we really dip below this level it may not be a bad idea to get/add call protection on just to protect your sales and insurance.   It is important not to do this if you do not have enough downside protection.  To see how this strategy may help your marketing plan give us a call for a free consultation using the AgYield software.  You can plug in your current sales, insurance, futures and options, and cost of production to see how future transactions can help or hurt your bottom line.

EHedger  |  866.433.4371
 
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


August Soybeans Parabolic

Jul 23, 2013

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August soybeans are going parabolic!  Yesterday the contract closed 29 ½ cents higher to make new highs for the move.  Today it closed 57 ¾ cents lower at $14.62 ½.  Crazier yet, cash basis dropped 65-75 cents.  For producers holding on to cash beans that is about $1.15-$1.30 a bushel less than yesterday in many parts of the country.  November soybeans closed 28 ¼ cents lower and December corn 12 ½ cents lower.  This is a new low move for December corn.

There were rumors that China could be selling up to 3 MMTs of state reserve soybeans which is a sign of lowered import needs.  This pressured the cash markets hence the soybean basis break.  On top of that the midday GFS run increased the chances of precipitation for the next few weeks alleviating some of the production concerns as we head into August.  Yesterday’s crop ratings showed only a slight decline for soybeans which could have also played a part in today’s selloff.

We have been talking about the excess premium built into the market for some time now.  We haven’t had excellent weather everywhere, especially in the western belt, but still we have trended lower.  In our opinion this excess premium is from market conditioning after having three disaster growing years in a row.  Many in the market have put a higher likelihood of a repeat weather disaster than probably necessary.  As we are getting past some of these monumental points in the year like pollination, more premium comes out.  Soybeans are in that stage where a weather problem could still develop.  We put that chance the same as any other year.  But if we get into August and rains are adequate, look out for the large long position in beans to run for the exit.

If December corn keeps breaking it may start to get into that territory where revenue insurance starts paying.  If a producer grows exactly 100% of his/her actual production history and has an 85% RP policy, he/she would be protected below $4.80 ¼ ($5.65 x .85).  There is plenty of year left so if we really dip below this level it may not be a bad idea to get/add call protection on just to protect your sales and insurance.   It is important not to do this if you do not have enough downside protection.  To see how this strategy may help your marketing plan give us a call for a free consultation using the AgYield software.  You can plug in your current sales, insurance, futures and options, and cost of production to see how future transactions can help or hurt your bottom line.

EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees or agents.


Soybean Crop Rating Down Slightly

Jul 22, 2013

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Soybeans started out strong Sunday night and carried the strength right through the close of the day session.  August soybeans led the charge closing 29 ½ cents higher.  August meal was lock-limit up $20 and limits will expand to $30 tomorrow.  Despite the strength in the oilseeds, corn and wheat both closed lower.  Much of Iowa missed the rains over the weekend but cooler temps and a more favorable 7 day outlook has kept a lid on corn prices.  The midday outlook took some rain out of the second week outlook which was also supportive for soybeans.

Crop ratings were released at 3:00pm CST.  The market was expecting an overall drop in corn/soybean ratings of 2-3%.  Corn was down 3% as expected and soybeans were down only 1%. That means corn’s good-excellent rating is 63% and soybeans is 64%.  For corn the most notable areas of decline were Missouri, (down 9%), Kansas (down 9%), and Nebraska (down 5%).  Overall the ratings were in-line with the market’s expectations for corn and better than expected for soybeans.  Winter wheat is now 75% harvested which has had a very quick comeback to bring us back to an average harvest pace.  Spring wheat’s crop ratings were down another 2 percent at 68% good-excellent.

The market is still trading in a weather-based, choppy pattern.  Crop ratings have declined slightly for both corn and soybeans but the national average yield isn’t expected to drop low enough for corn to bring carryout to a tight situation next year.  If soybean yields drop and the USDA demand estimate is correct we can see how a tight situation could develop.  However, we still believe a 10 MMT increase in Chinese imports year over year isn’t likely, especially at current prices.  We also have to compete with a record South American soy production.  Soybean demand is overstated in our opinion and the corn-bean ratio of 2.58 is on the high side as well.  If we get to August 1st and rains are adequate we could see this spread come back in-line very quickly.  For now we want to remain well hedged going into harvest using a combination of cash sales and options.  To sign up for a free trial of our market letter including hedge recommendations, click here.

EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.


Grains Choppy Ahead of the Weekend

Jul 19, 2013

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December corn finished the day unchanged at $5.00 ¾, November soybeans 8 ¼ higher at $12.74, and September wheat 4 cents higher at $6.64 ½.  August soybeans made a new high for the move at $14.92 ¾ today.  The tightness of old crop soybeans continues to be the main supporting factor for the entire complex including the November contract.  This has been part the reason the new crop corn to soybean ratio has been so strong.  Today’s midday weather forecast took some rain out of the forecast for IA/NE which was also supportive for prices.

Today’s Commitment of Traders report shows that the managed money is still net short corn although they have lightened up that position by almost 20,000 contracts over the course of a week.  The other large (reportable) traders were liquidating some of their net long position and the non-reportable trader added to the net short position.  The managed money is long soybeans and adding to the position.  They are net long 124,432 contracts of soybeans using futures/options combined.  They added about 25,000 contracts between Wednesday 10th – Tuesday 16th.  The managed money went from a large net long position in corn to a net short position this year, yet they are still very long soybeans.  It fits perfectly with the fact that soybeans have been holding more support than corn during that time frame as the corn – bean ratio clearly shows.  With a sizable position held by the funds we could see some large swings in the opposite direction once they decide to liquidate.  That would be something to watch out for if we start out August with good weather and a good forecast.  Monday we will have crop ratings after the close.  Otherwise weather will be the main thing to watch for price action.  Have a great weekend!

November Soybeans/December CornNovember Soybeans/December Corn

 
EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.


Corn-Soybean Ratio Hits New Highs

Jul 17, 2013

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December corn closed 8 ¾ cents lower today to finish at $5.02 holding that critical level of $5.  A slightly wetter midday forecast and a stronger US Dollar Index were both factors in the price drop.  As we progress into August the market could continue to take out some of the uncertainty premium they have built in. I think this is why we are seeing corn break while soybeans are still holding support.  The market is pricing in a large weather premium for soybeans long before the critical month of August when beans are made.  For this reason we want to keep plenty of downside coverage on your new crop beans.  Wheat has been following corn lower but September Chicago wheat is still holding a fairly decent premium to September corn.  Today’s EIA report was par with expectations for ethanol production/stocks and was not a major market influencer.

The USDA announced a new crop soybean sale to China for 165,000 MTs.  The tightness of old crop soybeans has been a large supporting factor for the new crop as well.  The corn-bean ratio is now at 2.56 to 1.  This is historically high and the ongoing strength in this spread points to what I just mentioned regarding the extra premium beans are getting over corn as time progresses (see chart below).  This is not due to a significant change in demand. It is from the change in the perception of supply.  If we don’t get a large yield cut in beans as many are suggesting, and China doesn’t import 69 million mts as the USDA is suggesting, than this spread is probably overdone to the upside.  Corn would have to rally against beans for this spread to come back into line.  Another likely scenario in our opinion is that the spread trades lower but it happens in a bear market from soybeans falling at a faster pace than corn.  Weather in August is still key for this spread so we will have to monitor the extended forecasts as we get closer.  I am just pointing out that we can’t add a higher chance of a weather problem developing this year as we do any other year just because we have had three bad growing seasons in a row.  Tomorrow morning we have export sales at 7:30 am.  Analysts are estimating 450-650 soybeans, 1200-1400 corn, and 900-1200 wheat. Have a great rest of the week.

November Soybeans/December Corn

November Soybeans/December Corn

EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.


Crop Ratings Lower, Prices Higher

Jul 16, 2013

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Corn, soybeans, and wheat closed higher on Tuesday from the drop in crop ratings and the slightly drier European weather model.  Corn and soybean ratings were down 2% this week which was at the low end of estimates which started the overnight rally.  The US Dollar index was sharply lower today which was also supportive for commodities.

There are still plenty of strong opinions from both the bulls and the bears regarding production and demand, a lot of that depends on the location of the onion.  The Eastern Corn Belt is looking at above trendline yields while many believe the western belt is developing enough problems to be below trendline.  The next few days are expected to be hot and dry but the forecast is still calling for favorable rains to follow after the ridge breaks up.  Any changes to the forecast will still be the main driving factor for price action but if we progress into August without significant problems the market could continue to work lower.  We are keeping an open mind about production but we have to remember that corn is still rated 66% good-excellent and soybeans are 65% good-excellent.  There are areas that are worse than others but every year we can expect to get those sore thumbs somewhere; it is the average that counts. To that point, when we are coming off of three bad growing years in a row we can see how the market would tend to lean toward the side of caution and be rather conservative about yield estimates.  Meanwhile the USDA has demand pegged very high for having corn above $5.00 and soybeans above $12.50.  We still have that record South American soybean crop to help support the world’s needs.  The USDA is expecting China to import 69 million metric tons of soybeans next year when we are hardly able to scratch 59 million this year.  Corn feed demand is pegged sharply higher than last year even though those fundamentals don’t add up at these prices. When we consider all of these moving parts we can see how the market may be adding too much risk premium currently and prices are at risk of dropping into harvest when we get some actual production results and more weight is put on demand.  For now we want to stay well hedged through these large weather swings. If you would like upside protection on your corn hedges "just-in-case" look at the October corn calls to take us into harvest.

EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.


CBOT Prices Higher

Jul 09, 2013

It was another strong day at the CBOT with December corn leading the way.  The sharp rally started during the overnight session and accelerated after the midday GFS model was released.  The model has a high pressure ridge developing for much of the Midwest next week.  The changes to the midday model started the rally and the higher prices triggered some stop losses, extending the rally even further.  The forecast needs to be monitored closely but at this point the risk premium added may be on the high side again, especially with the upcoming WASDE report.

Thursday’s report will be significant for the fact that the USDA will be using the updated acreage estimates from the June 28th report.  The latest estimates have corn acres pegged at 97.379 million planted and 89.135 million harvested.  The June WASDE report had yield down to 156.5 bushels per acre due to the late planting.  If they leave yield unchanged total production should be 13.949 billion bushels, but there is a chance to see a higher yield since the crop ratings have been improving.  I have included the table of analyst estimates from the Reuter’s poll below.  The market expects corn carryout to be 1.896 billion bushels in the US.  Many of these estimates are using the USDA demand numbers which we still believe are too high given the current prices. It’s not that we believe it is impossible to reach these corn usage levels but it would have to be from a lower new crop corn price.  We still have to get through pollination with average weather but as we get closer to harvest the market should be working out more risk premium as it shifts its focus back to demand.  Many revenue insurance policies will start to kick in as prices get lower.  The idea is to at least get price protection from current prices down to whatever level the insurance will kick in.  This depends on your (or your County’s if using GRIP) yield.  Keeping a realistic estimate of where this level is may help you become a better marketer as you decide how much coverage you need in other areas of your marketing plan.  As always we don’t know what’s around the corner for weather and we want to make sure we will be OK in any yield or price scenario so going over these in AgYield is our number one recommendation.  Please contact us if you would like to see your current marketing plan in AgYield. Have a great week!

ANALYST ESTIMATES FOR THE JULY WASDE REPORT:

All Wheat Production

 

 

 

 

 

Average Est

Est Range

US 2012

 

All Wheat

2.070

2.015 - 2.140

2.3

 

 

 

 

 

 

USDA 2012/13 US Grain and Soybean Ending Stocks

 

 

 

Avg Analyst Est

Analyst Range

USDA June 2012/13 end-stocks est

Corn

0.725

0.537 - 0.800

0.769

 

Soybeans

0.121

0.104 - 0.135

0.125

 

 

 

 

 

 

USDA 2013/14 US Grain and Soybean Ending Stocks

 

 

 

Avg Analyst Est

Analyst Range

USDA June 2013/14 end-stocks est

Wheat

0.632

0.566 - 0.690

0.659

 

Corn

1.896

1.618 - 2.338

1.949

 

Soybeans

0.263

0.164 - 0.329

0.265

 

 

 

 

 

 

USDA World Production

 

 

 

 

 

June USDA 2012/13 est

May 2013/14 est

Argentina Corn

26.50

 

27.00

 

Brazil Corn

77.00

 

72.00

 

Argentina Soybeans

51.00

 

54.50

 

Brazil Soybeans

82.00

 

85.00

 

EHedger  |  866.433.4371
Premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.

EHedger is a premier full service commodity brokerage offering risk management services for the agricultural sector as well as professional traders.
Trading commodity futures and options involves substantial risk of loss and may not be suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may not place an order to buy or sell commodity futures contract by e-mail. The market information contained in this message has been obtained from sources believed to be reliable, but is not guaranteed as to its accuracy or completeness. Market information may not be consistent with current or future market positions of EHedger LLC, its affiliates, officers, directors, employees, or agents. EHedger LLC will not disclose anyone's position due to their confidential and proprietary nature. Recipients assume the risk of reliance on and indemnify and hold EHedger LLC harmless for any and all losses, costs, or tax consequences incurred as a result of their use of market information. The contents of this e-mail message and any attachments are intended solely for EHedger LLC's customers and brokers. This communication is intended to be and to remain confidential. Any duplication or distribution without the express written consent of EHedger LLC and this disclaimer is prohibited. If you are not an intended recipient of this message or if this message has been addressed to you in error, immediately alert the sender by reply e-mail and delete this message, its attachments, and any related messages from your computer and destroy any hard copies. If you are not an intended recipient or this message has been addressed to you in error, you are prohibited from delivering, distributing, disclosing, printing, copying, or relying on this message and/or any attachments. Opinions are solely those of the author and subject to change at any time, and are not a solicitation or recommendation to buy or sell commodity futures or commodity options. Past performance is not indicative of future results.


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