PreHarvest Grain Outlook

August 2, 2017 02:15 AM
Bloomberg Wheat

Positive factors could create profits

There’s reason for optimism as the growing season winds its way toward harvest.

“It’s surely not as bearish this year as it was in last couple of years,” says Dan Basse, president of Chicago-based AgResource Company. “We may have to walk grain off the farm as opposed to shoveling it through an ethanol plant, but that’s OK.” 

Producers who enter the preharvest period with a strong marketing plan and an understanding of where corn and soybeans might head could enjoy profitable sales.

Modest Improvements. Several fundamental factors are casting a more positive tone on corn and soybeans this year compared to 2016 and 2015, Basse says. Among them:

  • steady to slightly higher demand for U.S. grain;
  • possible weakening of the dollar; 
  • trimming of acreage in competitive grain-growing regions such as Russia and South America; 
  • access to new markets, such as China’s recent U.S. beef imports.

Investment in on-farm storage infrastructure also is a net positive, adds Doug Werling of Lafayette, Ind.-based Bower Trading.

“Demand is lock in step” with stocks, Werling says. “Prices are supportive. You may have dips during harvest times, but the U.S. producer with on-farm storage can really prevent horrible basis levels, especially in the Corn Belt.”

Sales Strategies. Growing conditions remain a key focus for both crops. A wet spring in the majority of growing areas resulted in thousands of acres of replanted corn, Werling points out, and dry conditions have been present in places. 

“If it were to continue to not rain in some of these areas and stay dry in the northern Plains, that is an inflammatory market scenario,” he says. Under normal conditions, corn on average rallies 30¢ to 50¢ during the summer, and soybeans rally from 50¢ to $1. Those moves can create opportunities to sell cash grain and then defend the sale.

Farmers can approach defense in three ways, Werling says. The simplest is to buy a call option. The second option is to explore spreads, such as a bull-call spread, if U.S. stocks are drawing down and farmers are looking for the carry to come out of the market. A third option is to buy straight futures. 

Corn Versus Soybeans. Prices for corn should stay in a familiar trading range with large global supplies, barring a growing-season weather event, Basse predicts. Look for a harvest low of $3.40 for December futures and a peak of up to $4.30. 

“Producers should be rewarding rallies” with sales, Basse says. 

Demand from ethanol plants and international buyers remains strong, Werling adds. Both factors are supportive but not friendly because of burdensome old-crop supplies. 

Soybean prices likely will move sideways with a downside of $8.25 or $8.50 likely, Basse says. “There’s some weather premium and downside risk,” Basse says. “It’s not substantial—not like this past year, where the market was in a lasting bear trend. At $10 or higher, farmers should be selling.”

Werling is neutral about the soybean market. Global protein demand is supportive, but U.S. farmers continue to compete with a big Brazilian crop.

What to Watch with Wheat

This year’s spring wheat balance sheet will be the second-tightest since 2007, says Dan Basse, president of AgResource Company. That reflects a shortage of high-protein wheat.

“We believe spring wheat prices will go above $7 per bushel,” Basse says. Hard red winter wheat could also see price gains because of low stocks.

Meanwhile, he says, not much has changed for soft red winter wheat. December 2017 futures traded at just over $5 as of mid-June. Pay attention to dry conditions developing in the Black Sea region, he advises. Heat in the area could result in a smaller-than-projected wheat crop, though it won’t be a big market factor.


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