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07-10-2018 11:15 AM
Yes, my 'Where's This Market Going' segment is back. For years, I have picked the brain of one of my favorite market sources in Chicago. He remains anonymous, only because he trades for some big companies. But, I find his thoughts interesting, based on where he sits.
In his own words:
"Farmers have Revenue Insurance for now, softening some of the break.
Weather has been good, though we have some reservations its too early in beans to discount and high nighttime lows are perhaps curbing potential. But, I’m using a 177 bu./acre yield in my corn price model for now, 3 bushels above USDA.
So, I am buying corn here, as other origin suppliers are having trouble. A drought in Argentina last winter, a short 2nd crop corn in Brazil and capacity to lift corn perhaps, crowded out by beans as well, given Chinese push in Brazil. Ukraine seeing dry weather and Russia in a drought.
EU surveyors writing France down 4 million tons on wheat and Germany down 2 million tons.
I see Black sea corn trading at a 40 cent premium to US corn. So, there is head room to rally corn.
The soybean market action is a function of trade tariff and how much tonnage gets disrupted to China. Remember this is not an embargo, rather it’s just a 25% duty. Basis will adjust and is in the process of doing that. With Brazil basis at $2.30 over Chicago and US at .60, if Brazil pushes to $3.30, another dollar, then the Chinese importer would see US beans with a 25% duty as par with Brazil at $3.30 over.
The point is that basis prices could discount this fairly quickly and US could be back to selling beans.
The longer term question then is the higher priced beans into China and whether this sparks rationing in their total demand or not?
And, is the US missing 3 to 4 million tons in the first quarter that we never make up? This will build our new crop stocks.
I am bearish for another dollar if that is the way it works out and we are above trend yields. But, in the short run, basis can adjust without board prices having to change much.
If we take US soybean yields to 53 bu., as current conditions suggest, and put a $7 handle in front of beans, we look to see 5 million acres switched back to corn next year.
This is all conjecture and not worth trading too aggressively from short side, as it all could change with a ‘positive tweet’.
Also, China’s crop-weather is at risk, it has to whether the US market and next winter’s market with Brazil.
The Australian weather service put out a 50% chance of El Nino next year which could clip Brazil crops this winter," he says.
Feel free to respond with questions, concerns, and observations,
07-10-2018 07:11 PM
I`m no longer "in the loop" but farmers are delivering (selling?) corn like it`s harvest. Semis lined up at bin sites, semis on the road and semis at terminals. Even if crops in their backyard is crappy, and a quarter cheaper than it would`ve been off the combine last November. They have capitulated, given up hope with the social media, rosy reports south of highway 3.
Add to that, the coop got around to sending the spring agronomy total bill...ouch! Do you roll dice of a cash rally before October 1 or run it on the ground to make room for the very small 2018 crop? Some may be holding a little `16 crop too. Crawl to the banker and beg for a few more months of owning my precious corn?
07-10-2018 09:15 PM
I think this is a trader's perspective. I'm not real eager to go long from my position as a producer hedger. Not saying I won't, just it's not my style.
It's interesting to look at his long term outlook and bigger picture.