February 17, 2017 CORN
February 17, 2017
CORN UGLY FINISH March corn made new highs for the move this week, topping out at $3.80’0 before ultimately settling 11’6 cents off those highs at $3.68’2. Open interest has been increasing on the impressive rally higher, signifying new buying on the way up. Declining open interest on Thursday and Friday signified long liquidation, with a three day weekend partially responsible for traders taking some profits. The finish made the charts a little ugly, with a bearish hook reversal showing up on both the daily and weekly charts. Support lurks below at $3.63’4, the 50 Day Moving Average, with more March Corn Futures significant support at $3.58’0. This market is overwhelmingly technical right now, so a pullback to these levels would be expected. On the week, March corn lost 6’2 cents to settle at $3.68’2. ETHANOL Ethanol production pulled back slightly this week with 1,040k barrels/day reported for the week ending 2/10/17. The dip was not unexpected as margins have been weak for nearly a month and ethanol stocks continue to surge. Ethanol and DDG exports to China have slowed dramatically which is causing a backlog of finished products and byproducts. Still, ethanol demand remains very strong and given the current production numbers so far in 16/17, higher adjustments to ethanol demand are likely coming from the USDA. Ethanol stocks jumped again this week, up 17 mln gallons from the week before (+1.8%) and 161 mln gallons over the past 6 weeks (+20%)! Current stocks are still below year ago level’s (975 mln gallons), but are the 2nd highest on record for mid-February.
EXPORTS Corn sales disappointed market bulls on Thursday when 30.8 mbu were reported. The total was the lowest in the past 5 weeks and down from last week’s 38.4 mbu total. Total commitments climbed to
1,652 mbu, up 63% from last year’s pace. With the USDA estimating exports at 2,250 mbu, weekly exports will need to average 23.2 mbu/week in order to hit the number. Corn shipments were reported at 49.4 mbu this week, above market expectations and the highest total in 19 weeks! Cumulative shipments are running 77% ahead of last year’s pace and stand at 916 mbu. The weekly pace required in order to hit the USDA’s 2,225 mbu target comes in at 42.5 mbu, which is no guarantee considering production estimates out of South America. MEXICAN MUSINGS Since we’re not trading fundamentals right now it probably doesn’t matter, but Mexican politician Armando Rios Piter made the news this week when he indicated that he plans to introduce a bill that would switch Mexico’s primary corn source from the US to South America. This of course, is in retaliation to Trump’s claims of implementing a border tax on Mexican imports. Trump pounded on the campaign trail that a southern border wall would be constructed and that “Mexico is going to pay for it.” Trump is critical of NAFTA, which eliminated tariffs between Canada, the US, and Mexico over two decades ago. The threat of tariffs has Mexico looking to retaliate in the corn trade, where they are the biggest customer of US corn exports. Mexico is forecasted to import 13.8 MMT of corn this year, while the combined two country carryout between Brazil and Argentina is forecasted to be just 8.5 MMT. Editor’s Note: Even if Mexico wants to explore the expensive options of sourcing South American corn, it won’t be available to buy in the quantities they need. Not without displacing corn needs that South America is already satisfying. Global corn demand doesn’t magically disappear just because Mexico decides to buy grain elsewhere. Of course, any traction in this development wouldn’t be positive, but I think we need to keep global demand in perspective. USDA BASELINE PROJECTIONS The USDA issued their full report on long term baseline projections. The agency offers a preliminary release in the fall with the full report getting published in February. This week’s report did not deviate from the numbers last fall, so the market viewed it as a non-event. For what it’s worth, the USDA has 2017 corn acres at 90.0 mln and soybeans at 85.5 mln. The USDA’s Outlook Forum takes place February 23-24th, and is typically more impactful to the marketplace as it serves as a precursor to the March 31st Planting Intentions report. $4.00 NEW CROP CORN December corn did the unthinkable this week, breaking the $4.00 mark for the first time since last June. It was a slow crawl on the way there as active farmer selling nearly matched the mass influx of outside money. The market cleared the psychological hurdle in Monday’s trade before putting in highs at $4.03’6 on Thursday. The two session sell off to end the week resulted in a concerning looking chart, as new highs combined with a lower finish will trip a sell signal to many chart traders. Despite the poor finish, the market feels broadly that outside money wants to own commodities. This appetite is being fueled partially by “inflation trade” as market participants largely anticipate an inflationary economy under a Trump administration and tightening monetary policy. Producers are being presented with a wonderful opportunity to reduce new crop price risk at these levels. Don’t get lulled to sleep up here – the cash market is telling you what is actually occurring with supply and demand, and it’s not friendly corn (check basis values across the state). With a carryout north of 2.3 bbu $4.00 corn is far from guaranteed. If you’d like to protect these values and still have an opportunity at higher prices, CVA’s Min/Max contracts are a great way to go. The ProEdge team was executing $4.00 floors with $4.40 ceilings for the same cost as an HTA this week! Call your Specialist for details on how to lock profits in for 2017!
BASIS Corn basis continued to back off this week as new highs were made for the move. Favorable weather, declining ethanol margins, a rising futures market, and expensive rail freight have all combined to create the weakest basis environment we’ve seen since late last summer. Corn is moving easily and there’s plenty left to keep the pipeline full. Basis values and the CBOT are showing you the battle between supply and demand fundamentals and technical trading. The cash market is validating what everyone knows about the corn market: there’s a ton of it out there. The CBOT is telling us that the market doesn’t care one iota about the fundamentals right now as outside money is behind the wheel. Of course, there are ways to manage both ends of your risk and that’s what the ProEdge team is here to help you with! Expect basis to remain weak for the next month. RECOMMENDATIONS Producers needing to make old crop sales can take advantage of the recent rally and sell deferred values to lock in carry. Basis values are really weak right now, making cash sales less than desirable. Using some HTA’s off the May or July board gives us a chance to see values firm back up, though big time improvement doesn’t feel like a lock today. New crop opportunities are staring us in the face, especially if we haven’t sold anything yet. $4.00 corn! That’s all we should have to say, right?!?! Don’t get too cute up here – profitable sales early in the game take the pressure off of your entire year. How wonderful would it be to grow the crop this season knowing that a portion of it has profit attached? Pretty good feeling! Call your ProEdge rep to get orders placed!
SOYBEANS POOR FINISH March soybeans didn’t have a real great finish to end the week, losing 28’6 cents on Thursday and Friday as long traders fled ahead of a 3 day holiday weekend. Fundamentals made the market action even more discouraging considering the positive NOPA crush numbers and respectable export sales on Thursday. Like most commodities, the speculative crowd dumped soybeans to end the week, a clear signal that this market is in the hands of the technical trader. Fundametals remain negative for soybeans as exports are looking less likely that they will grow – South American harvest continues to push on. Despite the tougher March Soybean Futures fundamental picture it’s hard not to think that soybeans have higher prices in front of them. The broad influx of cash into these markets is extremely powerful. The market was due for a correction after such a push – look for another run yet in the next month. On the week, March futures lost -16’4 cents to settle at $10.32’4.
SOUTH AMERICA Soybean harvest had been moving along at a record pace but has slowed in the past week due to some variable weather. Over 50% of the crop has been harvested, which is nearly double the pace of the previous year. The early harvest of soybeans has enabled producers to seed 2nd crop corn, which typically needs to make it in the ground by February 20th to avoid hot temperatures during pollination. EXPORTS Soybean export sales were reported at 32.7 mbu this week, but the USDA threw a curveball by revising last week’s total down to 14.1 mbu (from 19.7 mbu originally). That revision takes some of the shine off of this week’s reported number, but all things considered it was still respectable. The total brings cumulative shipments to 1,901 mbu vs the USDA’s 16/17 estimate of 2,050 mbu. In order to hit that mark, weekly sales will need to average just 6.9 mbu from now through the end of August. Soybean shipments came in towards the lower end of expectations this past week with 42.1 mbu reported. That total is down from last week’s 60.6 mbu total and reflects the seasonal nature of slowing exports. Cumulative shipments are running 15.5% ahead of last year at 1,528 mbu. Weekly shipments will need to average 17.7 mbu from now through the end of August in order to hit the USDA’s estimate. Editor’s Note: This number looks to cause problems for the soybean market going forward. Last year’s pace was a bit of an anomaly following the crop issues in South America. A more normal pace puts weekly shipments a shade under 9 mbu/week, well off the 17.7 mbu number required to hit the USDA’s numbers. The bad part? The carryout is already at 420 mbu. The only way to reduce it from here forward is to grow demand, so concerns over the export number aren’t positive in fundamental terms. NOPA CRUSH January NOPA crush data was released this week. Crush numbers were above expectations with 160.6 mbu reported vs expectations of 159.1 mbu coming in. The total compares to 160.2 mbu last month and 150.5 mbu a year ago. The totals were a touch surprising considering the erosion of crush margins during January. Cumulative Sep-Jan crush stands at 776 mbu, up 3.4% from last year’s pace – the USDA is looking for a 2.3% increase for the year. Soybean oil stocks stood out at 1,629 mln pounds, well above the 1,510 mln pound guess coming in. Soybean meal exports were reported at 891k tons vs 950k in December and 687k tons a year ago. Soybeans and meal reacted positively to the good numbers, while oil sold off immediately following the release. Chart courtesy of FC Stone
NEW CROP SOYBEANS November soybeans notched a new, high close this week, closing at $10.34’2 on Wednesday. New crop soybeans could not take out last November’s high of $10.43’0 before selling off on Thursday and Friday. Money is dictating the direction of all commodities right now as November soybeans followed all others in finishing the week on a sour note. Still the strength and degree of money flow has to encourage the bulls, even in a market that is looking at significant acreage expansion. Cash values off the combine continue to hover between $9.25 and $9.50, offering producers a Nov Soybean Futures great opportunity to reduce some risk on early sales. Producers who would like the chance to sell $10.00 instead should take a look at CVA’s Triplex contract. The ProEdge team was executing $8.80 / $10.80 Triplexes this week, giving you a chance at selling $10.80 futures next fall – this will net you $10.00 cash assuming an 80 cent basis. Call your ProEdge Specialist for details on how this can work for you! BASIS Soybean basis was steady this week with processor values mostly unchanged across the landscape. Processor margins aren’t the best and board values have continued to encourage sales. That combination along with a slowing US export program has kept values much weaker than normal for this time of year. Hedgers can still pick up some carry by rolling positions forward and waiting on basis. RECOMMENDATIONS Soybeans continue to hang out near the upper end of the range, although the weekly ranges make a guy feel a tad nervous. The fundamental picture continues to feel negative, so be sure you’re comfortable with the amount of risk you’re carrying on old and new crop. Of course, if sales at current levels are profitable we encourage producers to get to a level they are comfortable with. If you haven’t sold any new crop beans you are essentially saying “I am would rather be long this market at current prices than short.” We are ok with that thought process, but not on 100% of your bushels. These prices continue to offer opportunities to reduce risk. For producers looking to make forward sales, consider cash offers or CVA’s Triplex contract. Call your Specialist for details!
WEATHER MOISTURE NEXT WEEK Temperatures look to remain unseasonably warm for the foreseeable future with highs in the 70’s forecasted for early next week. Moisture creeps back in too, with a slight chance of rain this weekend and a rain/snow mix in the cards for Wednesday through Friday next week. Conditions look favorable for grain movement to continue, so expect that to weigh against any basis appreciation.
Precip – Wed thru Fri Next Week
For what it’s worth this far out, NOAA’s March-May temperature and precip outlook is calling for above normal temps in the WCB and for normal precipitation patterns to develop. From the NE/SD border north, the maps show above normal precipitation chances, which would envelope the northern 1/3 of IA and all of MN, SD, ND, and WI.
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.
CORN UGLY FINISH March corn made new highs for the move this week, topping out at $3.80’0 before ultimately settling 11’6 cents off those highs at $3.68’2. Open interest has been increasing on the impressive rally higher, signifying new buying on the way up. Declining open interest on Thursday and Friday signified long liquidation, with a three day weekend partially responsible for traders taking some profits. The finish made the charts a little ugly, with a bearish hook reversal showing up on both the daily and weekly charts. Support lurks below at $3.63’4, the 50 Day Moving Average, with more March Corn Futures significant support at $3.58’0. This market is overwhelmingly technical right now, so a pullback to these levels would be expected. On the week, March corn lost 6’2 cents to settle at $3.68’2. ETHANOL Ethanol production pulled back slightly this week with 1,040k barrels/day reported for the week ending 2/10/17. The dip was not unexpected as margins have been weak for nearly a month and ethanol stocks continue to surge. Ethanol and DDG exports to China have slowed dramatically which is causing a backlog of finished products and byproducts. Still, ethanol demand remains very strong and given the current production numbers so far in 16/17, higher adjustments to ethanol demand are likely coming from the USDA. Ethanol stocks jumped again this week, up 17 mln gallons from the week before (+1.8%) and 161 mln gallons over the past 6 weeks (+20%)! Current stocks are still below year ago level’s (975 mln gallons), but are the 2nd highest on record for mid-February.
EXPORTS Corn sales disappointed market bulls on Thursday when 30.8 mbu were reported. The total was the lowest in the past 5 weeks and down from last week’s 38.4 mbu total. Total commitments climbed to
1,652 mbu, up 63% from last year’s pace. With the USDA estimating exports at 2,250 mbu, weekly exports will need to average 23.2 mbu/week in order to hit the number. Corn shipments were reported at 49.4 mbu this week, above market expectations and the highest total in 19 weeks! Cumulative shipments are running 77% ahead of last year’s pace and stand at 916 mbu. The weekly pace required in order to hit the USDA’s 2,225 mbu target comes in at 42.5 mbu, which is no guarantee considering production estimates out of South America. MEXICAN MUSINGS Since we’re not trading fundamentals right now it probably doesn’t matter, but Mexican politician Armando Rios Piter made the news this week when he indicated that he plans to introduce a bill that would switch Mexico’s primary corn source from the US to South America. This of course, is in retaliation to Trump’s claims of implementing a border tax on Mexican imports. Trump pounded on the campaign trail that a southern border wall would be constructed and that “Mexico is going to pay for it.” Trump is critical of NAFTA, which eliminated tariffs between Canada, the US, and Mexico over two decades ago. The threat of tariffs has Mexico looking to retaliate in the corn trade, where they are the biggest customer of US corn exports. Mexico is forecasted to import 13.8 MMT of corn this year, while the combined two country carryout between Brazil and Argentina is forecasted to be just 8.5 MMT. Editor’s Note: Even if Mexico wants to explore the expensive options of sourcing South American corn, it won’t be available to buy in the quantities they need. Not without displacing corn needs that South America is already satisfying. Global corn demand doesn’t magically disappear just because Mexico decides to buy grain elsewhere. Of course, any traction in this development wouldn’t be positive, but I think we need to keep global demand in perspective. USDA BASELINE PROJECTIONS The USDA issued their full report on long term baseline projections. The agency offers a preliminary release in the fall with the full report getting published in February. This week’s report did not deviate from the numbers last fall, so the market viewed it as a non-event. For what it’s worth, the USDA has 2017 corn acres at 90.0 mln and soybeans at 85.5 mln. The USDA’s Outlook Forum takes place February 23-24th, and is typically more impactful to the marketplace as it serves as a precursor to the March 31st Planting Intentions report. $4.00 NEW CROP CORN December corn did the unthinkable this week, breaking the $4.00 mark for the first time since last June. It was a slow crawl on the way there as active farmer selling nearly matched the mass influx of outside money. The market cleared the psychological hurdle in Monday’s trade before putting in highs at $4.03’6 on Thursday. The two session sell off to end the week resulted in a concerning looking chart, as new highs combined with a lower finish will trip a sell signal to many chart traders. Despite the poor finish, the market feels broadly that outside money wants to own commodities. This appetite is being fueled partially by “inflation trade” as market participants largely anticipate an inflationary economy under a Trump administration and tightening monetary policy. Producers are being presented with a wonderful opportunity to reduce new crop price risk at these levels. Don’t get lulled to sleep up here – the cash market is telling you what is actually occurring with supply and demand, and it’s not friendly corn (check basis values across the state). With a carryout north of 2.3 bbu $4.00 corn is far from guaranteed. If you’d like to protect these values and still have an opportunity at higher prices, CVA’s Min/Max contracts are a great way to go. The ProEdge team was executing $4.00 floors with $4.40 ceilings for the same cost as an HTA this week! Call your Specialist for details on how to lock profits in for 2017!
BASIS Corn basis continued to back off this week as new highs were made for the move. Favorable weather, declining ethanol margins, a rising futures market, and expensive rail freight have all combined to create the weakest basis environment we’ve seen since late last summer. Corn is moving easily and there’s plenty left to keep the pipeline full. Basis values and the CBOT are showing you the battle between supply and demand fundamentals and technical trading. The cash market is validating what everyone knows about the corn market: there’s a ton of it out there. The CBOT is telling us that the market doesn’t care one iota about the fundamentals right now as outside money is behind the wheel. Of course, there are ways to manage both ends of your risk and that’s what the ProEdge team is here to help you with! Expect basis to remain weak for the next month. RECOMMENDATIONS Producers needing to make old crop sales can take advantage of the recent rally and sell deferred values to lock in carry. Basis values are really weak right now, making cash sales less than desirable. Using some HTA’s off the May or July board gives us a chance to see values firm back up, though big time improvement doesn’t feel like a lock today. New crop opportunities are staring us in the face, especially if we haven’t sold anything yet. $4.00 corn! That’s all we should have to say, right?!?! Don’t get too cute up here – profitable sales early in the game take the pressure off of your entire year. How wonderful would it be to grow the crop this season knowing that a portion of it has profit attached? Pretty good feeling! Call your ProEdge rep to get orders placed!
SOYBEANS POOR FINISH March soybeans didn’t have a real great finish to end the week, losing 28’6 cents on Thursday and Friday as long traders fled ahead of a 3 day holiday weekend. Fundamentals made the market action even more discouraging considering the positive NOPA crush numbers and respectable export sales on Thursday. Like most commodities, the speculative crowd dumped soybeans to end the week, a clear signal that this market is in the hands of the technical trader. Fundametals remain negative for soybeans as exports are looking less likely that they will grow – South American harvest continues to push on. Despite the tougher March Soybean Futures fundamental picture it’s hard not to think that soybeans have higher prices in front of them. The broad influx of cash into these markets is extremely powerful. The market was due for a correction after such a push – look for another run yet in the next month. On the week, March futures lost -16’4 cents to settle at $10.32’4.
SOUTH AMERICA Soybean harvest had been moving along at a record pace but has slowed in the past week due to some variable weather. Over 50% of the crop has been harvested, which is nearly double the pace of the previous year. The early harvest of soybeans has enabled producers to seed 2nd crop corn, which typically needs to make it in the ground by February 20th to avoid hot temperatures during pollination. EXPORTS Soybean export sales were reported at 32.7 mbu this week, but the USDA threw a curveball by revising last week’s total down to 14.1 mbu (from 19.7 mbu originally). That revision takes some of the shine off of this week’s reported number, but all things considered it was still respectable. The total brings cumulative shipments to 1,901 mbu vs the USDA’s 16/17 estimate of 2,050 mbu. In order to hit that mark, weekly sales will need to average just 6.9 mbu from now through the end of August. Soybean shipments came in towards the lower end of expectations this past week with 42.1 mbu reported. That total is down from last week’s 60.6 mbu total and reflects the seasonal nature of slowing exports. Cumulative shipments are running 15.5% ahead of last year at 1,528 mbu. Weekly shipments will need to average 17.7 mbu from now through the end of August in order to hit the USDA’s estimate. Editor’s Note: This number looks to cause problems for the soybean market going forward. Last year’s pace was a bit of an anomaly following the crop issues in South America. A more normal pace puts weekly shipments a shade under 9 mbu/week, well off the 17.7 mbu number required to hit the USDA’s numbers. The bad part? The carryout is already at 420 mbu. The only way to reduce it from here forward is to grow demand, so concerns over the export number aren’t positive in fundamental terms. NOPA CRUSH January NOPA crush data was released this week. Crush numbers were above expectations with 160.6 mbu reported vs expectations of 159.1 mbu coming in. The total compares to 160.2 mbu last month and 150.5 mbu a year ago. The totals were a touch surprising considering the erosion of crush margins during January. Cumulative Sep-Jan crush stands at 776 mbu, up 3.4% from last year’s pace – the USDA is looking for a 2.3% increase for the year. Soybean oil stocks stood out at 1,629 mln pounds, well above the 1,510 mln pound guess coming in. Soybean meal exports were reported at 891k tons vs 950k in December and 687k tons a year ago. Soybeans and meal reacted positively to the good numbers, while oil sold off immediately following the release. Chart courtesy of FC Stone
NEW CROP SOYBEANS November soybeans notched a new, high close this week, closing at $10.34’2 on Wednesday. New crop soybeans could not take out last November’s high of $10.43’0 before selling off on Thursday and Friday. Money is dictating the direction of all commodities right now as November soybeans followed all others in finishing the week on a sour note. Still the strength and degree of money flow has to encourage the bulls, even in a market that is looking at significant acreage expansion. Cash values off the combine continue to hover between $9.25 and $9.50, offering producers a Nov Soybean Futures great opportunity to reduce some risk on early sales. Producers who would like the chance to sell $10.00 instead should take a look at CVA’s Triplex contract. The ProEdge team was executing $8.80 / $10.80 Triplexes this week, giving you a chance at selling $10.80 futures next fall – this will net you $10.00 cash assuming an 80 cent basis. Call your ProEdge Specialist for details on how this can work for you! BASIS Soybean basis was steady this week with processor values mostly unchanged across the landscape. Processor margins aren’t the best and board values have continued to encourage sales. That combination along with a slowing US export program has kept values much weaker than normal for this time of year. Hedgers can still pick up some carry by rolling positions forward and waiting on basis. RECOMMENDATIONS Soybeans continue to hang out near the upper end of the range, although the weekly ranges make a guy feel a tad nervous. The fundamental picture continues to feel negative, so be sure you’re comfortable with the amount of risk you’re carrying on old and new crop. Of course, if sales at current levels are profitable we encourage producers to get to a level they are comfortable with. If you haven’t sold any new crop beans you are essentially saying “I am would rather be long this market at current prices than short.” We are ok with that thought process, but not on 100% of your bushels. These prices continue to offer opportunities to reduce risk. For producers looking to make forward sales, consider cash offers or CVA’s Triplex contract. Call your Specialist for details!
WEATHER MOISTURE NEXT WEEK Temperatures look to remain unseasonably warm for the foreseeable future with highs in the 70’s forecasted for early next week. Moisture creeps back in too, with a slight chance of rain this weekend and a rain/snow mix in the cards for Wednesday through Friday next week. Conditions look favorable for grain movement to continue, so expect that to weigh against any basis appreciation.
Precip – Wed thru Fri Next Week
For what it’s worth this far out, NOAA’s March-May temperature and precip outlook is calling for above normal temps in the WCB and for normal precipitation patterns to develop. From the NE/SD border north, the maps show above normal precipitation chances, which would envelope the northern 1/3 of IA and all of MN, SD, ND, and WI.
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.
