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What’s the Next Step for Corn, Soybeans and Wheat?

by Archer Financial Services | Apr 11, 2018
By Chris Lehner
To learn more about Chris, click here 
 

With the largest amount of Brazilian new crop moving to ports beginning April and increasing through July, it’s normal timing to see exports slacken from the US. Unfortunately, regardless of what might happen if tariffs are imposed on U.S. crops, as the table shows, exports for all grains and oilseeds besides sorghum are down.  If Brazil’s soybean crop ends up at 115 million metric tons or larger as most analysts are predicting, like a year ago, they will sell throughout the summer and into the U.S. new crop harvest as they did a year ago.

With U.S. farmers storing 3 percent more corn and 21 percent more soybeans than they did in 2017 as of March 1st, any delay of movement could end up negative. I hate to say it, but what U.S. farmers need is an honest to goodness weather market during the growing season. I am not concerned about crops being planted late. As we have seen year after year, crops will be planted and even when late as it happened last year in parts of Illinois and Indiana, big crops can be grown. U.S. grains are dependent on summer weather. Corn is made in July and soybeans are made in August, and any weather problems especially in July for corn, will move it higher and take soybeans with it.

GRAINS INSPECTED AND/OR WEIGHED FOR EXPORT

REPORTED IN WEEK ENDING APR 05, 2018

-- METRIC TONS --

CURRENT     PREVIOUS  Percent

----------- WEEK ENDING ----------  MARKET YEAR  MARKET YEAR Change

GRAIN      04/05/2018  03/29/2018  04/06/2017    TO DATE     TO DATE        For Year

 

BARLEY              0           0          73       21,071       32,362     -34.9%

CORN        1,937,040   1,445,186   1,212,682   26,475,989   34,553,205     -23.4%

FLAXSEED            0           0       2,229        4,745       28,990     -83.6%

MIXED               0           0           0            0            0

OATS              399           0         100       12,579       13,293     -5.4%

RYE                 0           0           0            0            0

SORGHUM       246,316     125,239     162,895    4,067,385    3,906,037     +4.1%

SOYBEANS      373,940     578,838     858,320   41,893,537   47,842,322     -12.4%

SUNFLOWER           0           0           0            0            0

WHEAT         430,080     424,880     659,183   20,368,295   22,493,275     -9.4%

Total       2,987,775   2,574,143   2,895,482   92,843,601  108,869,484     -14.7%

---------------------------------------------------------------------------------

https://www.ams.usda.gov/mnreports/wa_gr101.txt

Monday, April 9, 2018   USDA Market News

What’s ahead?

With the USDA lowering Argentine production by 7 million metric tonnes and increasing Brazil’s production by 2 million metric tonnes, along with lowering U.S. stocks by 5 million bushels, the rally of late in soybeans could be near since it was expected. Plus, it is still unclear what China may or may not do as far as tariffs. With China already buying more soybeans last year and so far, this year in Brazil, and with Brazil combining moving into full harvest and movement to ports, don’t expect even without tariffs, China to shop anytime soon for soybeans in the U.S.

Wheat markets in the U.S. are going to be hurt with livestock producers preferring corn over wheat. Also, world supplies are increasing, and Russia is expected to move an additional 1 million tonnes to 38.5 million tonnes, which is 10 million more than they did last year.  Global 2017/2018 ending stocks are 2.3 million tonnes higher at 271.2 million, which is a new record.

 

Corn

The USDA lowered Brazil’s and Argentina’s production by 14.5 million tonnes due to the drought in Argentina and less Brazilian production for their second crop. If South American production drops as much as the USDA expects, I believe this will end up helping prices. Brazil’s cattle and hog numbers are up this year and with new corn distilling plants coming on line and with three out of the 10 sugar cane distillers moving to corn, increased usage will drop South American stocks.   The USDA raised ending stocks for corn in the U.S. by 55 million bushels.

The grain markets are in a flux. There are too many “ifs.”  Last week’s markets were extremely volatile and without knowing what tariffs may or may not happen are truly concerning.

In my opinion, with recent rallies, if U.S. farmers have old crop, take advantage of the recent rally and look to re-own later. The soybean basis in the U.S. remains much wider than normal. There is a reason for it. Although the crush is increased and is supportive to crush margins, the increasing ethanol distilling will keep DDG prices at a better price than meal and crushing for meal leaves soy oil too vulnerable for movement to the downside, especially with the USDA estimating biodiesel usage lower.

Long term, I like grains and see corn as the market leader. Short term, the recent rally offers an opportunity to sell. I do not like using options at this time unless they are to protect a short or long futures position. The carrying charges in the grains makes buying options too costly. Time will eat up the carry.

 
If you are a speculator or a hedger wanting assistance with an analyst and broker with 30 plus years of solid experience, give me a call 913.787.6804 or send an email to chris.lehner@archerfinancials.com.
    

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The risk of loss in trading futures and options can be substantial. Past results are not indicative of future results or performance. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. Research analyst does not currently maintain positions in the commodities specified within this report. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright ADM Investor Services, Inc.

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