Skip to main content

02/26/24 An Election Year Rally Comes Next

By The Commstock Report
This report follows the one aired early last December when I forewarned of the anticipated March 1st "John Deere Low". Today's low, after turning from red to green, is good enough to qualify. I personally do not use the kind of basis contracts that have gotten farmers in trouble with the commercial grain market this month as March contracts were priced this week. I have also argued against using "price later contracts", otherwise called "no price established" contracts, which have automatic trigger pricing in August if farmers do not act first. Farmers collectively fail to act on pricing these contracts until expiration which the commercial trade is able to use to their advantage in predator fashion. That is why John Deere February and NPE expiration August lows are so common. Farmers in general fought the corn market this year storing and holding more corn than usual. With a building carryover, that is asking for trouble. Commercials know that they will eventually end up with what they need without having to bid for it, with spreads going to more than full carry in the market.   Last year the crop insurance guaranteed price was 591. That was a good price, good…
Read More

02/23/24 Bearish Export Fundamentals Add to the Technical Pressure

By The Commstock Report
The grains were slightly stronger overnight before breaking lower in response to a disastrous weekly export sales report. Corn and wheat sales were at six-week lows while new soybean export commitments were a marketing year low, all coming in way under expectations. It was particularly bearish that China did not buy any U.S. corn and that there were cancellations of China's previous soybean purchases. Soybean meal sales were also at a six-week low and soybean oil export activity featured net cancellations. The silver lining of this week's disappointing trade numbers could be that China has washed out of most of the purchases already made at much higher prices and that buyers will find value again in U.S. exports after the latest price slide.   It remains the same story for soybeans in that U.S. exports have struggled to compete with cheaper supplies from Brazil. Offer prices from both the U.S. and Brazil are down at new one-year lows, but the U.S. maintains a premium of nearly 14 percent above Brazil. Soybean prices in Brazil have fallen cheaper as the fresh harvest comes online, although harvest pressure may soon wane with progress that will likely reach past the halfway mark by…
Read More

02/22/24 What’s Mucking Up Farm Bill Prospects

By The Commstock Report
We may not be at "the bottom," but at least can "see it from here"   In hindsight we wish we had more soybeans sold, but being 75% sold on corn since Dec. 6 feels good. On 11/30/23 we were already 50% sold and advised rewarding good basis and selling another 10% if March futures hit 488 and another 15% (to 75%) when March hit 493 (or by Christmas, whichever came first).   Then on Dec. 4, this p.m. report warned about the "John Deere low" that often occurs near March 1st of every year. Specifically, that column read "Farmers typically need to raise some cash through grain sales to make equipment payments, cash rents, land payments and taxes." We also warned, "Commercials know this need to raise money by farmers and often step back from the market to see how low it can go, knowing that farmers will be forced to make some sales regardless of the price as March approaches." We noted the huge jump in corn carryout and reminded clients those new March targets for advancing sales were close. We just didn't realize how close! The 488 target was hit the very next day and 493 on…
Read More

02/21/24 The Slippery Slope of Impeachment

By The Commstock Report
Last week the House of Representatives voted to impeach Secretary of Homeland Security Alejandro Mayorkas for failure to secure the southern border and enforce immigration law. Although the first vote failed to pass, it was brought back up and succeeded by a single vote, 214-213 without the support of a single Democrat. Despite the House having successfully initiated the impeachment, it is all but guaranteed to go nowhere in the Senate. To remove an official from office through the impeachment process the senate requires a 2/3’s majority. Given the Democrat’s 51-49 majority in the Senate and the partisan split on the House vote, there is little to no path for a successful Senate vote. In fact, it is likely that the Senate won’t even take up the issue, likely utilizing a procedural trick to bury it in committee until it expires at the end of the session.   As fruitless as this effort is likely to be, it is ultimately a symptom of the cheapening of the impeachment process over recent years. To put it in perspective, including Mayorkas, the House of Representatives has only successfully voted to impeach a federal officer 22 times in the history of the country,…
Read More

02/20/24 Can The Cotton Market Save Us?

By The Commstock Report
We all might have to learn how to plant cotton this year, currently that is the only crop that pencils.  While grains have been doing a death spiral, cotton has enjoyed a steep rally approaching contract highs.  Much of that has to do with increased exports to China, combined with tightening stocks.  The February WASDE report saw US supply drop by 100,000 bales to 2.8 million bales.  As a rule of thumb, we consider anything under 3 million bales to be tight.  You might recall cotton's meteoric rise to over $2/lb in 2010 when ending stocks fell to 2.6 million bales.   On the production side, cotton acres dropped sharply by 25% from 13.76 million acres to 10.23 million this past season.  Subsequently production is estimated to drop to 12.4 million bales, the lowest production level since 2009.  Much of the US cotton industry success is based on exports as nearly 100% of the crop is shipped out of the country.   Similar to the soybean industry, the cotton industry is heavily reliant on China and how much they buy from us.  Approximately 40% of US cotton exports end up in China.  China is so important to the market, that…
Read More

02/15/24 USDA Outlook Confirms Our Fears

By The Commstock Report
The USDA released their annual Grain Outlook this morning and it was not good.  Much of the results were telegraphed ahead of time as we had shared in previous reports that even with cuts to corn acres, ending stocks still increased due to improving yields and an already hefty supply.  The USDA foresees 91 million planted acres this season, down 3.6 million from last year.  They are using an average yield of 181 bpa compared to 177.3 last season.  This brings ending stocks up 2.532 billion bushels compared to 2.172 billion for this year.   There was a lot of pushback last year on the USDA using a national yield of 181 bpa for corn.  I don't think they will get the same pushback this year considering 2023 results.  Despite adverse weather, we still set a record for national corn yield at 177.3 bpa.  What happens in a normal weather year?  What is scary to me is that the 181 bpa corn yield is seen as a ceiling when it is not.  If we can get 177 bpa in a bad year, who's to say we cannot get 182 or 183 in a good year for a national average? With…
Read More

02/14/24 Will the Cattle Herd Continue to Shrink?

By The Commstock Report
It should be no secret to our subscribers that the cattle numbers have been falling for some time now and the severe multi-year drought across the plains was primarily to blame. Pastures were scant, hay prices went through the roof and feedstuffs (corn, ddg, etc.) were outrageous for the better part of three years. This combined with an extremely strong cow market to ignite a herd liquidation like we have never seen in the US cattle industry.   The aforementioned cow market was what took this liquidation to the next level and superseded anything we saw in the 2014 cattle market run. When you are actively killing the factories, eventually the product stops coming out the door and consumers are left searching for alternatives. We haven't quite reached these extremes, but the writing was on the wall if something didn't change so we entered into the greatest bull-run in the history of the US cattle market. Boxed beef kept pace for the bulk of this run and most were questioning how demand wasn't being destroyed at the retail level. Increased imports of foreign cattle and beef were met with decreased exports of both from the US to other countries. This…
Read More

02/13/24 LRP Market Impacts

By The Commstock Report
There has been a lot of chatter recently about Livestock Risk Protection and how many have been abusing the subsidized program to "harvest subsidies". Reports of this have garnered enough attention that some grassroots organizations like the Iowa Cattlemen's Association are even adopting policies to attempt to change the program so that some of these maneuvers are more difficult. The argument to this point has been that people are "subsidy harvesting" by purchasing LRP on a specific set of cattle and then selling an equal value put option to effectively pocket the 35-55% subsidy and remain net neutral the market.   Example:    Purchase LRP on feeder cattle steers with a floor of $268/cwt.                       and an end date of 09/02/24 for $10/cwt.   Sell $268 put option for $13/cwt. with an expiration date of 09/02/24, pocketing the $3/cwt. government subsidy.   In this example, if the price continues to move higher the cattle are gaining value, the short put premium will be realized profit while the LRP won't pay an indemnity and premiums will be due within 30 days of the policy end date. Win, win, lose. If the bottom…
Read More

02/12/24 USDA Missed The Mark

By The Commstock Report
The February WASDE report gave us another bearish report that will likely give bears further incentive to maintain their foot on the neck of any potential rally.  We had not expected much by way of changes in the domestic stocks reports.  Most of the focus was on potential production changes in South America.  CONAB gave us a glimpse of hope when their report was released earlier in the day.  CONAB cut Brazil's production estimates on the low end of the range, giving us our first government report below 150 MMT this year at 149.4 MMT.  This was a big cut from their previous report of nearly 5.9 MMT.  I have always held a bias towards believing CONAB more when it came to Brazilian production simply because they have more of a presence.  The same way I don't rely much on the USDA to tell me what the South American crop size is, I would not rely on CONAB to tell me what the US crop size is.   And yet the trade still listens more to the USDA related to South America.  We did not expect the USDA to catch up to CONAB, but we did expect them to make…
Read More

02/09/24 The Moment You Have Been Waiting For

By The Commstock Report
In the past I have been asked "Why don't you criticize Biden more?" Here is what you have been waiting for. I have not been pleased with a number of things in the performance of the Biden administration and I am in the super-majority of 70% of Americans who think that forcing us to choose between Trump and Biden is abusive. I will pick out three things that I think that Biden really mucked up on…the first was the incompetent exit from Afghanistan, number two would be the failure to address immigration/border security and the third would be the fiasco now unfolding with EV mandates. I am sure that subscribers could send me a much longer list.   The exit in the middle of the night from Bagram air base, leaving the keys on the desk for stunned Afghans, as part of a wholesale withdrawal of US forces from Afghanistan, was one of the most embarrassing exercises in disloyalty ever conducted by the US. We left our key allies in the country fully exposed and unsupported to a ruthless enemy while we hightailed it for the exits. The unwillingness to support the existing government forces with which we had worked…
Read More

Sign Up For The Commstock Report

Sign Up Now to Improve Your Marketing and Protect Your Profits

Subscribe

Already a Subscriber?
Sign In