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marketeye
Veteran Advisor

Early planting=Higher markets?

Just picked the brain of a well-respected floor trader on a number of topics.

 

We talked mainly about whether this fieldwork-friendly weather (except for this week's rain) could slow farmer-selling. Thought you might be interested in hearing his perspective.

 

Marketeye:  Does the planting-friendly weather mean higher cash and futures prices? And which market would this affect, corn or soybeans?
Floor trader: Farmer’s actions are often similar.  In general they are reacting to the same economics, and problems with a like response.  So for the two to three weeks that they are most active in the mid-west, I would say cash grain flow suffers.  I would also add that the aggregation of farms into larger entities with on farm storage, has changed cash responses to market rallies.. they can pick up the phone and sell anytime but to get the physical grain moving requires the farmer to often load and transport there own grain.  The difference is that in the past more of the grain harvest was aggregated to the elevator.  Grain would be stored at a merchandizing point with more logistical transport.  Today, there is more stored on farm than ever… so when the ethanol needs 10 trucks coming at him he used to call the elevator who could have 10 truckers deliver on a given day or several dedicated drivers to get the grain moving.  With an individual farmer it may take 10 days to deliver 10 trucks… and if you ask 10 farmers to give a market on basis you may or may not find them willing or able to push on a given day since they are all in the field, especially when they are planting… or at the same ball game..… so a lot has changed… that perhaps strings out the timing of cash grain movement and can frustrates pipeline demand for grain if it gets behind…

As far as early planting weather and higher/lower futures prices…it really depends on the set up for the year… when we had 60% of stocks in storage in the mid-1980’s it was hard to react too much to weather..in general….today… we have implied ending stocks for corn and beans at 3 to 5 weeks of demand, on top of this we have had corn prices higher relative to beans for most of the year… and now late in the marketing year we find a 20 million ton reduction in SA soybean production… so the set up is that we need to find more bean acres in the Northern Hemisphere to meet demand.  In fact, we need to find 77 million acres.. up 2 million from the Feb outlook …corn maybe not so much 94-95 would (with normal yield/weather) would find the new crop corn balance sheet ample… yet end of year economics clearly favored planting corn… the concern now is that an early start to corn tends to extend the planting window and acres could increase for corn when we don’t really need that to happen given the current state of the world.   So early planting is friendly new crop (nov) beans…

In years past you would typically see planting intentions in corn at the highest number and June final would be within several 100,000 acres of that number if weather was normal…if it rained and delayed mid-west planting in late April through May then you could see acreage decline by 1 to 2 million… especially when our intent is to grow record corn acres above 95 million…and much of that would be found in beans on the June final..

As far as soybeans are concerned the firm cash basis to me is more a function of logistical problems, and dollar REAL moves in the currency, union strikes etc.. that has delayed the movement of early harvest in Brazil…as those seasonal concerns abate so should the river basis… and I would think the interior would follow..




Marketeye: If farmers do hit the fields earlier than normal, what does this mean for the annual farmer vs. end-user stand-off? Will the commercials just have to start paying up?
Floor trader: End users have been hand to mouth this year.. and so they have habitually had to be price takers on basis… its because corn prices have been so high for so long..and ethanol producers have seen negative margins for most of the marketing year so far… and the meat producers have not seen good margins either… so no one steps out to lock in poor margins….it forces them to ration consumption where they can…but makes them price takers when they need the grain…it’s a function of a tight supplied market.
What the stocks report at the end of the month will help answer two questions.  The first was last years crop truly smaller than the survey? or is this simply a well capitalized farmer holding out?… if the stocks are there then the market ration that is already occurring will limit further rallies… if the crop was truly over-estimated then it will not matter… the market will remain inverted and high prices will be needed to ration corn demand… also if the acreage is too large for corn then perhaps an economic adjustment will be made with beans versus corn through the end of planting.. but that could have Dec corn breaking as much as Nov beans rally..… the trade has already normalized near a 2.3 ratio up from 1.8…by my estimate it would take a 2.6 ratio to create a neutral incentive based on current cost of production and normal yields…5.20 Dec corn at 2.6 ratio would yield nov beans at $13.52

Commercials are not just paying up… they may pay up for spot basis and keep cash markets inverted but total quantities used are less.. that is the fear into the stocks report…we may find that there is some serious rationing that is occurring… and if its simply the corn farmer holding on then there would be more downside to prices than what I think most right now are willing to admit…

Talking with cattle feeders..there has been a significant liquidation of the cattle markets out west… early spring will put feeders onto pasture sooner than later… wheat is already working into the feed ration in all meat groups… and it will only increase its ration as SRW comes on in late June..ethanol production is slowing also…I don’t know if you follow the Wednesday’s weekly production numbers but they are off sharply since the first of the year…

Marketeye: There's already talk that a farmer in southeast Iowa has planted corn. Soil temps show the soil is a whole month ahead of schedule. A number of southern Ilinois farmers have hit the fields with planters too. Will the Planting Intentions Report lose its thunder, if the corn planting wave starts early?
Floor Trader:  Southern Illinois is like the Delta…they plant early to avoid heat stress aflotxin…winter and spring moisture is plentiful and they finish the crop with irrigation if they have it…so I understand… they may be ok…but…word of warning… I planted 40 acres of corn the third week of April in 80 degree weather several years, ago  north of Cedar Rapids IA and… it snowed the following week…and May was cool and wet… I replanted on May 10th and had a horrible crop…I might go 10 days’ early this year cuz of dying la nina analog etc… but if cold weather comes back in April you could still see a delay in corn planting and if you dip to freezing in April in the plains you could screw up the SRW…

Wheat will be too far out of dormancy to rebound from a frost..




Marketeye: What's the market play if the warmer-than-normal weather sticks around?

Floor trader:  If its warm with rain, all is ok and we can look forward to above trend corn yields…if we start looking warm and dry in May…everyone will throw up the 1988 analog year… and ….I guess the cattlemen association would have to sue the EPA again to wave the ethanol mandate for a year… and Brazil would have to bust out another 10 million acres of soy production… and then maybe China will finally let GMO crop seed into their country…etc…

Beans in China are trading at $18.00 and corn traded last week at $10.00….import margin into China at current prices turns to a loss around $13.60-$13.90 board futures… and around $6.80 corn futures.

 

Mike

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10 Replies
Palouser
Senior Advisor

Re: Early planting=Higher markets?

Good interview!  Lots of material there. Knowledgeable trader who is fact based.

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rayjenkins
Veteran Advisor

Re: Early planting=Higher markets?

Farmer marketing patterns during April/May have changed signficantly in past 10 years.........we now buy 2-3 times as much corn in that time period--directly from farmers-than we did in 2000......the single biggest change over this period of times is the amount of freight/trucks controlled by the farmer......and today, it not unusual for the bulk fill planter to get loaded up and the farmer to tell his support person to jump in the semi and haul a load of corn to the processor...

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sw363535
Honored Advisor

Re: Early planting=Higher markets?

Great stuff, Mike

Thanks

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sw363535
Honored Advisor

Re: Early planting=Higher markets?

Ray,

your exactly right, delivery from farm storage is not that big an issue.  Good example.

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marketeye
Veteran Advisor

Re: Early planting=Higher markets?

sw363535,

 

You're welcome. I thought this might be an interesting read for everyone. He's a solid source. Can't catch him all of the time. But, when he has a chance, it's always nice to shoot a few questions at him.

 

Mike

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rayjenkins
Veteran Advisor

Re: Early planting=Higher markets?

Actually, the "hard spot" in corn deliveries now tends to be post-harvest and before the ground stops tiling and dozing activity...used to be that folks would get rested up for a week and be ready to jump back in the corn truck, but now they want to focus on other items as mentioned above until they can't go any longer....and then they are ready to haul corn full throttle..

 

back in January I took a call from a guy who said he would have to re-schedule his deliveries "because we are heading back to the field to start tiling again"......it's been THAT kind of crazy winter weather this year....

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marketeye
Veteran Advisor

Re: Early planting=Higher markets?

Ray,

 

Do I hear you say that you can get corn just fine during planting season. But, the hardest timeframe to get loads of corn is after harvest?

 

Mike

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Jim Meade / Iowa City
Senior Advisor

Re: Early planting=Higher markets?

Iinteresting thread.  I wonder if it means I've already missed the boat on new crop corn bids?  I've been selling old crop corn on rallies.  Will clean out my bean bin in a week or so.  Sold a little new crop beans and a little new crop corn, but am still nervous about new crop corn marketing.

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rayjenkins
Veteran Advisor

Re: Early planting=Higher markets?

Marketeye, I don't know if the verbage I would use to describe planting season corn access as "just fine", but it is something we have to plan for each year and we know that if we have X percentage of coverage for the April 15-May 31 period we are usually going to be OK. One thing we do to encourage contracting then is to offer longer delivery periods on contracts---normally we might go full month or less, but might offer six weeks so the farmer feels more comfortable they can find a window of time around fieldwork activity.

 

The challenge in fall is the Nov 10-30 time period.....you don't know how big harvest is going to be or how long it's going to last....if you go out and buy a lot of corn for delivery in that Nov 10-20 time period and you end up with a big harvest, you just lost a big opportunity to buy a lot of late harvest spot activity as bins fill (now, THAT scenario has not been evident in south Iowa for several years with our short crops, but am looking forward to something better)......so we normally pay up to buy corn for last 10-15 days of November and then develop a gameplan based on info as we get ready to start harvesting......right now our bid for last half November is 10 cents better than first half November (-15Z vs. -25Z)

 

Now, here is our bid structure for September and early October and why folks are running the planters early:

 

FH  Sept         6.25

LH  Sept         6.00

Oct 1-6           5.66

Oct 1-13         5.56

Oct15-31        5.26

 

essentially a dollar difference in cash bids between Sept 1 and Oct 15.......and another 15 cents better if you can hit the last week of August....farmers are more willing to contract corn for LH Sept this year because they had a good "experience" last year with a fair amount of corn ready to harvest at high moisture in the Sept 10-20 time period.....and over the years we have developed a small pool of corn suppliers who are experienced in early harvest activity and "know the drill".....

 

Ray J

 

 

 

 

 

 

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