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11-28-2018 11:13 PM
Well the December Corn Futures contract settled on Tuesday, and it came very close to the support area I had been watching at $3.54, bottoming at $3.5525 before being saved by the bell with the settlement of the contract.
March 2019 is now lead corn future contract, and what a difference a year makes. It seems a lot of production had been held off market during the rally in October, and was let go to a substantial degree in November, which was the impetus for the fall into the mid-$3.50s. However, with the turn of the contracts, we have had a surprising rally on Wednesday that lifted the March contract back into the mid-$3.70 area where the December contract had spent a lot of time before working lower.
I say what a difference a year makes because there certainly does seem to be at least a short term upward bias to corn prices for 2019. I think a lot of traders who were long in the December corn waited on Tuesday to see how the March contract would start trading once becoming front month, and when the saw the prices moving higher early on Wednesday, they jumped on the bandwagon and gave March corn a good lift for its first day.
As I write now, I am looking at March corn trading in Asia at $3.745, and I expect after Wednesday's rally that there will be a bit of backing and filling for the next few days. It would not even surprise me to see March corn move back as low as $3.585, which is a very powerful support now for the March corn. Clearly there is a feeling that the large harvest of 2018 will be worked off to some large degree by the time March of next year comes around, and there are at least some end users and speculators that are jumping on that band wagon now.
Its always hard to price the March contract for me, because there is no good data at this point on how much of the harvest has been stored for the Winter in the hopes of higher prices in the Spring. I try to rely on farm contacts in the corn growing States to give me some indication of how full the grain elevators are, but that information is sketchy at best. Plus even smaller farmers now have significant storage bins with dryers on site, and with 22,000 farms still working in the Midwest its virtually impossible for me to get a good read on the degree to which there will be carryover from this harvest into 2019.
But in the big picture, I don't think much has changed. I expect there to be sellers above the resent levels, but a bit higher than where they were all camped out for the December contract. So whereas the $3.85 to $3.95 area was a good target to aim for in December, I will raise that a bit for the March contract, and expect to find sellers in a big way between $3.90 and $3.9875, at which the March contract failed in late-July and early August. And slightly above there is the downtrend line resistance that will come in at slightly over $4 for the first quarter of 2019.
From a speculative trading standpoint, when last we discussed the market I was short about 60% of my targeted amount, looking to sell more if we broke down through $3.60. When that break came, I sold another 20%, looking for a test of the $3.54 area, where I had said in my last commentary that I would have to re-evaluate conditions at that time, as the market seemed to be running out of steam to the downside. So being 80% short as the contract rolled from December to March, I only rolled 50% rather than the full 80% of the short December position into a short position in March, having done that on Tuesday between $3.68 and $3.70, and now wishing that I had waited a day.
From here, I am thinking that the market will take a bit of a correction downward for a day or two, and then the March corn will move higher toward the levels specified above. The selling pressure from the harvest seems to have moved enough of the crop that there is some room to see the market re-balance for a while before the next big move takes place. In terms of actual crop, 80% of your expected production for 2018 should already have been moved , with three quarters of that between $3.65 and $3.75 and the other quarter just below $3.60. You still should have 20% of the 2018 harvest in your bin, and you should be able to get a nice bonus for banking that corn for several winter months. I would put 2018 to bed if the March corn contract rises above the $3.90 level. And if March gets up to the $4 level in the March contract, I would start placing some of your expected production for 2019 by selling September or December 2019 corn at what ever price its at when March trades to $4. I would not sell a lot, maybe 20%-25%, just so if the bear trend re-asserts itself once the downtrend resistance line is tested, at lest you have a trophy sale in pl;ace at the top of the ensuing down-move to help out your revenue for the following years. And since you are selling just a portion of the 2019 production, if corn launches a massive up-move for 2019, you will have plenty of time and room to average up your sales.
Let me be quite clear...even though I expect lower corn prices during the next year than where we are right now, the odds that corn goes higher in price during the next few months are quite good, and as such, watchful waiting is a good strategy to employ right now. Patience now - a patience you can afford because you sold enough of your 2018 harvest to provide you with the cash flow you need during the winter months - will be rewarded in the first quarter of the new year.
That's how it all looks to me right now. Charts of agricultural commodities seem to have a bit of life in them that e have not seen since last May. While we still remain in a bear market unless the previous major high of $4.1225 can be taken out to the upside by a front month corn contract, at least for the short term we could very well see a further move higher before the next big move down shows up...or the market reverses long term trend. One of the big factors, as I have been writing, is whether the US economy takes a dive in 2019. The oil market certainly is pointing in that direction, and even the Fed Chairman struck a cautious note about the economy in a speech on Wednesday. Ag markets may be a bit quiet for the winter, but what happens across the economic landscape during the next few months will determine what happens to those prices for the rest of 2019.
11-29-2018 09:48 PM
I just talked to a guy that would sell 1/3 of his APH if new corn got to $3.50 cash which would is about where C9Z is now. But my luck is I sell right up to that line and the next day ...or that afternoon it breaks through the $4.12 and it`s off to the races..the top wide open for a 30 cent run and I shot off all my dry firecrackers before the celebration
With the economy and recessions, isn`t it probably a good thing everyone is on pins and needles? Seldom does the expected recession materialize.
11-29-2018 10:12 PM
There's a saying that when everyone is on one side of the ship it usually sinks. But right now, all the tea leaves really do seem to be lining up. Housing starts, permits, and home sales are suffering, Weekly Jobless Claims just took a big jump for the first time in a long time, oil can't find a bounce, bond yields very oversold, the stock market having more bad days than good, car sales causing industry layoffs.Plus, its been a long time since the last recession, consumers basically have whatever they wanted to get and are exhausted. These are the kind of indicators which in the past have opened the door to recession, sort of like the feeling you get when you know that one more drink is going to make you sick.
And to make matters worse, the Fed sort of has its hands tied if things start to unravel quickly. All these big egos are not going to allow their reputation to be shot to hell if they start easing while they are still in a proclaimed tightening cycle.
No one is any better than anyone else at predicting the future of economies. so sure, this may just be a temporary slowdown tied to the affect of tariffs on China. You can see how the stock market reacted the other day on a rumor of some kind of trade deal, the Dow rose over 600 points. But I doubt that Trump is going to drop everything, because he really does want to reduce the US trade deficit, so life as it was known for China prior to Trump is gone until at least 2021. And the US economic expansion may very well die of old age.
Bottom line is that its a good time to be cautious.
11-30-2018 09:33 AM
Here's to all the folks out there that rolled their December contracts to March. Looks like a good move for now.
I of course, am not one of them....... Cashed mine in and the money's in the bank.
Not looking back.......only looking ahead. This appears to be the best way to farm these days.
11-30-2018 09:59 AM
There's never a bad time to take some cash off the table. Lots of risk involved with holding a finished product that you sank capital and work effort into to produce. As you have read from my commentary, I like to keep something in reserve in case luck runs my way, but not at the expense of cash flow or at least recouping my capital. Most traditional businesses run on a 10-20% profit margin after paying the owner for his or her time labored. That's the portion of your revenues to gamble with, not the corpus of the capital needed to operate the business.
The time to sell 2018 production was in May of 2018, and if that was missed at least the market gave a chance to recoup the capital invested at a reasonable level over $3.60. The remaining 20% or so carried over hopefully will increase the revenue for the 2018 season, but vigilance still is required. The ag markets are in very critical price areas right now, and caution must be taken so as not to give back what's on the table right now.
Having said that, the charts for corn look favorable for now, and I expect a test of the last front month high at $3.79 early next week. There could well be some back and fill activity from that test into the next crop report. But for now the picture looks favorable for March corn futures to move up to the $3.90 to $3.98 resistance area. We'll see how things look once we get there, because depending on how the market trades in that area, there can be a big move in either direction at that point.
11-30-2018 11:05 AM
I agree, especially in the winter months when there is not a lot of concern about weather impacting the corn crop for 2019. This winter the market could be especially sensitive to those numbers, particularly in products affected by the tariffs. If the tariff imposition has caused a lot of bean farmers to cut back on the acreage they intend to devote to beans in 2019, so as not to get stuck with a lot of supply they cannot move at a decent price, you could wind up seeing some huge divergences in price activity between beans and other crops directly affected by the tariffs and those that are only marginally affected.
Speaking of winter weather, I knew a fellow in the ag markets some time ago who had a trading method that relied on the amount of snowfall in the farming States during the winter. His thesis was that the more snow that fell in the winter, the better the crop would be in the following season, as the crop yield is related to how much water is in the ground to hydrate the crop when the heat of the summer hits. He had a database of snowfall per country that went back years, and he had figured out a system that told him what he claimed would be the almost exact yield per acre based on any amount of winter snow that fell. I lost touch with the guy over the years, but I know the method had been good to him while I knew it. To some degree it makes sense, but the fly in the ointment was getting a good read on the acreage planted, as the yield number alone would not be a good predictor of coming supply without knowing the number of acres planted.
Its amazing how many factors go into the marketplace determining the price of an asset.