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Veteran Advisor

Floor Talk, September 27, 2019

At the close:

At the close, the Dec. corn futures finished 1¢ lower at $3.71. March corn futures are 1¢ lower at $3.83 3/4.

Nov. soybean futures closed 5 1/2¢ lower at $8.83. Jan. soybean futures ended 5¢ lower at $8.97.

Dec. wheat futures closed 3¢ higher at $4.87 1/4.



December soymeal futures closed $0.50 per short ton lower at $295.10.

 December soy oil futures closed $0.33 lower at 28.84¢ per pound.



In the outside markets, the NYMEX crude oil market is $0.59 per barrel lower, the U.S. dollar is lower, and the Dow Jones Industrials are 127 points lower.

Britt O'Connell, Cash Advisor for Commodity Risk Management Group, says that investors are awaiting Monday’s USDA September Supply/Demand and Quarterly Grain Stocks Reports.

“Markets are softer, today, heading into the weekend. It's rainy, it’s been a quiet week, corn and beans have found a range, and apparently traders checked out,” O’Connell says.

USDA Report Outlook

Most are staying put ahead of the report on Monday, she says. For Monday’s Quarterly Grain Stocks Report, the trade expects the USDA to peg U.S. Sept. 1 corn stocks at 2.42 billion bushels, soybeans at 982 million bushels and wheat at 2.318 billion bushels.

“The USDA’s estimates on September 1 grain stocks will be our carry in numbers for the current marketing year. None of these could be considered tight, if the USDA uses the lowest trade estimates,” O’Connell says.

In its WASDE Report, the USDA is not expected to adjust U.S. corn and soybean yield estimates or harvested acreage, she says.

“The demand side of the equation has dominated the discussion and will for yet another month. Sample size seems too small yet on yield reports. Corn has a poor demand story. As of Sept 19, the cumulative corn sales were at 17.6% of the USDA's 2019/2020 forecast. This is behind the 5-year average of 26.2%. With the ethanol industry continuing to struggle, we could see further reduction in that basket,” O’Connell says.

While beans have record stocks to chew through, the demand side of the equation is a little better, she says.

“We have seen record U.S. crushings for the month of August and the year. While exports haven't been stellar, they have caught the attention of the trade recently, with Chinese purchases over the last two weeks up to 1.56 million tonnes.

O’Connell added, “Should both of these markets remain strong, beans could find support. Without help from either poor yields or weather scares in S.A., it will likely be hard for beans to find a lot of reason to move significantly higher. In light of the stocks situation, I would call stability a good thing,” O’Connell says.

 

Mike

 

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At 11:12am:

 

At midsession, the Dec. corn futures are 1¢ lower at $3.71. March corn futures are 1¢ lower at $3.83 3/4.

Nov. soybean futures are 5 1/2¢ lower at $8.83. Jan. soybean futures are 5¢ lower at $8.97.

Dec. wheat futures are 4 1/4¢ higher at $4.88.



December soymeal futures are $0.80 per short ton lower at $294.80.

 December soy oil futures are $0.36 lower at 28.81¢ per pound.



In the outside markets, the NYMEX crude oil market is $0.36 per barrel lower, the U.S. dollar is lower, and the Dow Jones Industrials are 30 points higher.

Mike

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At 8:40am:

In early trading, the Dec. corn futures are 1 3/4¢ lower at $3.70 1/2. March corn futures are 1 1/2¢ lower at $3.83 3/4.

Nov. soybean futures are 3 1/2¢ lower at $8.85. Jan. soybean futures are 3 1/4¢ lower at $8.99.

Dec. wheat futures are 3¢ higher at $4.87 1/4.



December soymeal futures are $0.70 per short ton lower at $294.90.

December soy oil futures are $0.26 lower at 28.91¢ per pound.



In the outside markets, the NYMEX crude oil market is $0.99 per barrel lower, the U.S. dollar is lower, and the Dow Jones Industrials are 72 points higher.

On Friday, private exporters reported to the U.S. Department of Agriculture export sales of 126,000 metric tons of soybeans for delivery to China during the 2019/2020 marketing year.

The marketing year for soybeans began Sept. 1.

Al Kluis, Kluis Advisors, says that the markets could remain in a sideways trading pattern.

“Soybeans were at the upper end of the range, while wheat and corn continue to struggle. However, even after a couple of good weeks of soybean exports, we are still well behind the pace we need. Even with a smaller corn crop this year, the smaller demand means we will have plenty of corn. This will limit rallies. Expect markets to remain choppy in a sideways pattern going into next week,” Kluis told customers in a daily note.

Kluis added, “The strong basis for corn will eventually slip away and get wider. With corn futures well off their summer highs (and the total crop size still in question), producers have been reluctant to sell. In addition, the MFP payments have helped keep cash in some producers' pockets, so fewer need to sell off their last few bushels,” Kluis stated.

 

Mike

 

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6 Replies
Senior Advisor

Re: And it doesn't help corn demand that another ethanol plant shutdown in Iowa, what's that make...

And it doesn't help corn demand that another ethanol plant shutdown in Iowa.  What's that make 19 or 20 shutdown?

Honored Advisor

Re: And it doesn't help corn demand that another ethanol plant shutdown in Iowa, what's that make...

Just wondering how many of those ethanol plants are only shut down until new crop supplies start coming in?

Veteran Advisor

Re: And it doesn't help corn demand that another ethanol plant shutdown in Iowa, what's that make...

...very good question.  Even the history of how ethanol inclusion ever got started in the first place is interesting.

Started looking at ethanol plant closings going back to 2008, when ethanol plants were either stalled or threatened with closings because corn was "priced too high."  Corn was $7.46/bushel then.

The Ethanol Industry is extremely fragile and depends on major tax breaks, low corn costs, etc., to make a profit.  Ethanol producers have been demanding that more and more ethanol be included in the gasoline blends, so more ethanol, less gasoline. 

This has more of a Big Oil vs Big Ethanol smell to it than anything else. 

But now you know that you can never sell your corn for more than $7.00 a bushel or the Ethanol Industry will "shut down."  Though it does help to explain why quantity has been the overriding factor for corn crop production - can't ever sell it for higher, so must sell more.  Interesting model. 

https://www.bellperformance.com/blog/the-major-differences-between-ethanol-and-gasoline

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Senior Advisor

Re: Anybody who's ever worked on gasoline leaks and how MTBE moves though the soil .....

Anybody who's ever worked on gasoline leaks and spills and how MTBE moves though the soil (I have) understands exactly why ethanol is so much better than MTBE from a drinking water stand point.  The MTBE plume moves about 5-10 times faster than the gasoline components and makes the drinking water unsafe to drink.  On the other hand, the gasoline components move slower so contaminate a much smaller area.  Likewise, gasoline can be separated from the ground water and at least partially cleaned up, unlike MTBE.

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Senior Advisor

Re: If you plot ethanol futures prices against RBOB .....

If you plot the ethanol futures prices against RBOB gasoline futures from 2010 up to 2017, you see that they move more or less in tandem.  The RINS system didn't set the price of ethanol it just established a relationship between the price of gasoline and the price of ethanol.

  In 2017, just about the time Pruitt started granting all those illegal waivers, that price relationship collapsed simply because there was no longer any incentive for gasoline refineries to blend ethanol.  The RINS system was established within the RFS precisely because the bill's drafters full well knew what the petroleum industry would do without it.

 Besides, you don't think that the fact that the petroleum industry needs $180 billion per year in tax subsidies doesn't make it "fragile".

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Honored Advisor

Re: And it doesn't help corn demand that another ethanol plant shutdown in Iowa, what's that make...

Rick hits an excellent point.... The purpose of uncle sam supporting ethanol from the start was largely its improvement over the other additives that have proven to be as bad or worse than lead was.  That purpose "environmentally" gave ethanol a good future.  It was not developed for the good of agriculture, that was just a nice addictive side affect of "knee jerk" thinking.  (like alcohols affect on cattle headed for the box, an unforeseen side effect -- a "poor joke of the day" attempt).  Soon those political folks lost interest when they finally realized their holly idea for environmental activism needed the use of gasoline to work.  (and electric cars need high cost/short supply petroleum to make them work economically)

Otherwise we have to admit the environment is not in our control and not the road to power and glory. The nearly dry spicket of oil just keeps flowing like the oceans just don't seem to rise as predicted.  (second attempt).

I disagree with you a little...... We are producing a product that doesn't knock producers out of the game until below $3.60/ bushel and knocks demand out somewhere above $7..... Who in this economy enjoys a  nearly up to 50% profit range.   That is a better range than gasoline itself has.  Corn before ethanol had a much smaller range..... and we are operating on a historically low carry over supply in US, Look at one of those maps that show all the ships at sea with beans or corn on them.  The world is operating on a just in time supply chain.  The US could not stop exports and feed its own useage for more than 6 months with crops at 13B and exports at 5-6B.  The rest of the world is on a much shorter string.  Unless we trust those Chinese claims to untold stocks in reserve..... They can't stop those ships for even a few months of trade dispute.  ---- Ethanol has a much bigger operating range than I expected...... but that's historic and depends on the petroleum price. 

It seems to me that the picture is always bigger than the little corner we point out.  It is possible --- since we are pretty restrictive on pipelines and big on regulations all the way around, there is a balancing act going on.  If we were short of petroleum a 15 to even 25% boost in ethanol would be possible and make sense.(and increased $ for us and oil) but would lower demand for petroleum which might be opperating at near as low a profitability point as corn.  With oil use at 7.5 billion barrels per year in the US and a corn crop of around 13 billion bushel(less 5B of export), thats one demand of production(Oil) at $434B of oil and a $32 billion corn crop needed in the US.  If their are both in a support range sales price, It makes far more sense to publicly support the corn crop rather than beating on the Oil industry.... which would just suggest we would rather pay Opec to produce than our own companies.  The demand for oil in the US is far greater than the demand for corn... IF we actually did reduce that oil demand where is Corn???

Eventually we need to actually discuss the subjects and not the uneducated rhetoric we get from politicians and the parrot press.

We through our environmental haste to grab power, tied the price of corn to oil......... If for no other reason, this one alone should keep agriculture in support of this President.  The leadership that brought us environmental frenzies have already moved on to sensless electric power without a clue how to supply it on a large scale economically, Their new weapon against the childish enemy fossil fuels.  

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Without ethanol and a drought how long ago would agriculture have been trampled into the dust with coal miners?   Sometimes ignorant folks do some very good things.  Now we got to convince them ethanol was one of those, or educate them............and ourselves. 

The Dean of Accounting lectured us once about the Political Science Department(in the same building) and their "Social Engineering" based classes his term before it was a term.  Which at that time (early 70's) was light on science requirements down to a simple bookkeeping class, No upper level sciences, No engineering, basic math, one statistics class, no physics, no geology etc etc...............He had been working on it, you could tell and this is paraphrased for proper wording.

His issue was that the Ruling body had placed PolySci in one of the Science Buildings on campus, next to the the "real" sciences, like physics, engineering, accounting, Math, etc........ A popular major among baby boomer "activists"....... "Their going to roll out of there and get elected to something on one level or another and serve the public without any of the skills it takes to understand how the world works." Dr. Wall.... Accounting FHSU 1973.   I do not remember it exact but I have never forgotten it.   We used to bring it up to rile him.

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