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08-29-2017 12:07 PM - edited 08-29-2017 12:09 PM
Welcome to the 'No Spin Zone" on the corn market. I have tapped one of my favorite trading sources in the market to explain to me (and you) just how farmers will handle selling corn with a 2 in front of the price. In his own words, no bull, no spin.
"We have 1/2 billion more bushel carry-in than last year and similar implied carryout.. with a lower export demand as Brazil has more corn to sell this year..
Last year Sept corn went to 301 and 314 3/4 in the Dec.. those lows were posted on August 30th...
So we are a tad higher this year on futures, but with lower basis.. MGEX has avg price of corn yesterday at $3.02...figure basis at -60+10 around the country.. with avg near -34... so... there should be some sub 3.00 corn ... last year HRW got under loan.. and traded $2.90 these are Texas feed markets..
i think corn is low enough and today may mark the bottom for a moment.. markets were down in general today.. 40 some stock indexes all down this morning after the missle over Japan wrankled sentiment...
The problem I have right now is lows in corn last year were made after USDA touted record yields.. and privates were even higher talking near 180 national yield when we made the low.. we are not doing that today.. we are sub trend and surveys get more empirical.. so UsDA will come on avg ear weights and lengths.. and i worry the variability out there will mean a lower corn yield.. our own in house is near 167-168 which would put today's low at bottom of expected range.. so low enough..
Farmers will do what they did this year.. take out Revenue insurance the last two year that paid out against 396 and 386...you can come close selling forward carry today.. with Dec 18 at 3.91....so farming for subsidy and near breakeven profits.. a function of over supply in a flat foreward demand environment.. by design ethanol mandates are flat..
Trade protectionism is bad for US ag.. cheer all you want for bio D import duties.. but we export more than we import.. and the world is comfortable right now.. with large government reserves in China on corn.. with Argentine planting more corn this winter.. and Brazil marketing a large crop there.. Russian wheat is 9 mmt higher than last year .. and we doubt they can store the crop.. they typically set base line feedgrain prices to world export market visa via.. feed wheat and roughly 165 dollars a ton.. today about where they traded on lows last year..
I have price farm land in SD where prices are down 30% off highs in dry land areas.. basis there at -90-60 most of last year.. so I assume they are staring at $2.70-2.90 corn.. I would point out that corn coming out of Dakotas is as far away from the world market as Central Brazil.. and farther than Ukraine.. saving grace for land equity is interest rates back on the lows today.. though tougher getting production loans at any price..
The official start date for planting soybeans in Parana Brazil is Sept 10th this year and Sept 15 in Mato Grosso.. Remember the largest harvest of the year in soybeans starts.. in January.. and peaks in March.. not November.. so in 2 weeks we will be back on the weather watch for SA.. maybe winter volatility down there can help but weather typically not a factor until main planting in October.."
Now, what say you?
08-29-2017 12:50 PM
Arrogance bejond belief.
08-29-2017 12:53 PM
08-29-2017 01:00 PM
I read it quickly, and thought, crap we must be bottoming that is as bearish as it gets...call the auctioneer. Nice to be reminded how hopeless it all is (well, not as hopeless as Dakota farmers), but I think we will have plenty of company in ag universe. The wise man sees opportunities. The horrible, horrible 80's allowed land purchases that was a once in a farm cycle lifetime for many.
Would like a follow up what he sees is in store for banks, farm magazines, coops, ag suppliers, machinery dealers, and all the rest and what their plan is to handle $2 corn. My little piece of the pie is nothing compared to what they have on the line.
08-29-2017 01:31 PM
Pretty simple...his numbers just don't add up. Demand is not flat, it is ever increasing around the globe.
Carryout as a % of use is much tighter than last year in most everything, and that is using pretty
suspect yield numbers. He can believe whatever he wants, but let's just be honest. There are quite
a few farmers who have to price old crop contracts by 9/1, and thanks to NASS, the commercials are
just taking them to the cleaners. It is Deja Vu all over again. (ie copy of 2015 and 2016).
At some point the users will realize we need more acres of corn beans and wheat next year to
feed the usage beast. Specs are getting short big again (which effectively brings supply forward in time).
If you have money the stock market, you should sell immediately, go build a grain bin and put corn
and wheat in it and sell the carry! Amazingly simple 20% returns.
08-29-2017 03:52 PM
Pete Meyer talked about this with Chip yesterday on Market Rally, I realize after the tour, Pete is kind of the skunk at the picnic, but if we`re going to survive what`s going on in farming now, we can`t afford to sit in the echo chamber and pooh-pooh those we don`t want to hear.
Okay, Pete talked about the "Technology treadmill" and what that is, is a small amount of farmers are early adopters of technology and make a ton of money, then more farmers jump on the treadmill until finally nobody makes money. Now, "this time" what may make it worse is other countries` farmers will also jump on the treadmill, being as we are in a "global economy". Here`s the wiki page on it.
Today, Technology treadmill is a term used in agriculture to describe the cycle of improving technology, reducing the cost of production, and increasing farm sizes. The technology treadmill theory was first described by Willard Cochrane in 1958 to explain the increasing land consolidation and ownership of farms and to show how the treadmill creates incentives for people to leave farming and become landowners.
The technology treadmill begins when a small amount of farmers adopt new technology early. These farmers make profits for a short while because their production costs are lower than other farmers. As more farmers get on the treadmill and adopt the technology, overall production goes up, prices go down, and profits are no longer possible â€“ even with the lower production costs. Consequently, new technology must be created to make profits possible again. Furthermore, the remaining farmers are forced to sell their products at lower prices and if they want to remain competitive, they must get on the best treadmill too. Those farmers who do not get on the treadmill go down in the price squeeze and the more successful farmers expand over them.[
The way I see it, we can approach it one of two ways, go back to supply management, set asides and price supports, which would require tariffs to prevent cheap beans from coming into Carolina ports (probably ain`t gonna happen). So, the probable alternative is to learn to love $2 corn and $6 beans and adjust our inputs accordingly. Maybe that means boycotting smartstax seedcorn and fungicide and planting straight (look ma, no hands!) $70,000 pickups and $10,000/ $300 rent land. Maybe $80/bag seedcorn, planting a little crooked, rust colored machinery and maybe land values will have to tumble back to the $2,000 range and $150 rent?
Maybe farming will have to go back to real farmers, instead of those that "spent themselves rich" over the last decade? We are in a period where we`ll have to make our money when we buy, not so much when we sell.
08-29-2017 04:03 PM - edited 08-29-2017 04:05 PM
I can't wait for a small rally in the markets.........you know......the time that the end users raise the price on what they market and blame ethanol for the higher prices they have to charge.
The complacency and arrogance of these folks is astounding.
And FWIW, I guess you can try.........but nobody can replace Bill O'Reilly when it comes to a no spin zone.
08-29-2017 04:28 PM - edited 08-29-2017 04:33 PM
NO SPIN////////............... like a FOX............
Just notice what he worries about........
All spin all the time..........
Hobby nailed it .................... Arogance like a well fed snake...
Embarassing that is one of your ..."my favorite trading sources in the market"
What does he trade.......favors.....
He wants to see farmers living with $2 corn like I want to see empty shelves at US Grocery stores.