Corn/Soybean Recco Update: Let’s take another look at the charts: As noted on the generic Elliot Wave chart we are likely in a 4th wave correction. I mentioned 537 a couple reports ago as a technical target for a rebound in December corn and it proved to be a barrier. We hedged a third of our new crop at 536. It could be jabbed which is why we set additional sales at 542. The chart pattern has also set up as a potential head and shoulders bottom that would project to 581 in December corn. Sell $6 Dec corn calls relative to your risk appetite. I would expect such a rally to be a spike based on a weather threat. I will change the price target for hedging the last third of expected 2023 corn production from 548 to 576. If, as expected, favorable growing conditions materialize in the latter half of June, then I would expect a major breakdown unto a summer low as the 5th wave decline unfolds. We are able to count a smaller degree 5-wave decline from the April 3 high in November soybeans (April 18 high basis July) to the recent low. This rally…
On the Grains:
Grains are just steady-to-mixed in overnight trade after yesterday’s gains. The debt deal was approved by the Senate and is off to the President’s desk for signing so default is off the table, finally. Along with some better economic data from China, that’s given crude oil a boost. In turn, that’s increased the likelihood OPEC will not decide to cut production further at this weekend’s meeting. Meanwhile, some soft U.S. data has traders back to thinking the Fed will not hike interest rates again this month but “wait and see” how the summer economic stats unfold.
At 7:30, we’ll get weekly export sales. Expectations remain very modest for corn and beans. They range from a net loss in YTD sales of 100,000 tonnes to a gain of 400K at most for corn, a net loss of 100K for beans to 300K at most. Wheat expectations are least in the “green” at both ends, from 200K to 450K in new net sales.
It’s officially a “weather scare” market after yesterday’s performance. It started with that hot-dry June forecast on Wednesday and then was fanned by the updated Drought Monitor that showed the drought footprint expanding. (I’ve got all the detail on that below in the Other Ag Headlines and Hotlines section.) Yesterday’s rally gave another shot at executing our recommended hedging for a third of ’23 production in December at 536 or better. It also gave another opportunity for those willing to sell $6 December calls for 20 cents or better as a price enhancement strategy.… Continue Reading
The hog market is a disaster and losses may persist before it gets better. There have been strong signs of underlying demand weakness for pork that has appeared to defy an explanation. The Supreme Court ruling to allow California’s Prop 12 ban on pork sales from hog operations that do not comply with California production standards for sow herd treatment adds another ton of bricks to weigh on the market. California represents 15% of US pork consumption so it has an oversized impact on US demand. I have been writing about our ability to buy Iowa Chops for $1.69 cents lb. here in NW IA. In looking at pork prices around the country, what I have found is that pork here is the cheapest in the nation. I have also been told that pork quality is the best here. For the most part the production and processing centers for the US are in this region so we are logistically best positioned to have the least cost pork. The CBOT River system prices the cheapest corn in the country with basis radiating from the river delivery location. It is a similar situation for pork here with pork plants in the…
On the Grains:
Grains are higher in overnight trade as we go to press, led by soybeans. (The weekly export sales normally announced today will be delayed until tomorrow due to the Monday holiday.) After making new lows yesterday, prices managed to come back and close near highs of the day and now we’re seeing follow-though in the overnight. Palm oil prices are higher on concerns El Nino conditions threaten production in Asia. Also injecting a bit of optimism is overnight passage of the debt limit deal in the House.
But I’m suspecting the biggest reason for the rebound overnight is the updated 30-day weather outlook released yesterday. It shows the whole month of June and (not just the first half) will be warmer and drier over a larger part of the Corn Belt and Dakotas than the prior maps showed.
A lot of corn-on-corn has been historically planted where we live in western Iowa. Much of it was the result of livestock producers wishing to produce their own feed. That is still the way that it is in our extended family operation. I have planted corn-on-corn for an extended number of years, most of the time during my 50-year career in farming, very successfully. Our corn yields have been rising in spite of corn-on-corn which can be a drag on yields. Stalk management has a lot to do with it. Years ago, we took care of stalks with fall moldboard plowing. Today stalks are baled for bedding. Stalk removal is traded for manure. I believe that corn economics is generally more profitable than soybean economics here. Corn yields are more reliable than soybeans. My last run of corn-on-corn was because I could not grow $8-9 soybeans profitably so I grew continuous corn. $13-15 soybeans became competitive with corn-on-corn. If soybean prices fade again then the incentive to grow corn-on-corn will return. I will probably consider it again in 2024. Corn requires more water to grow than soybeans and one response to the recent La Nina and accompanying drought was…
On the Grains:
Grains are all weaker in overnight trade, with crude oil back in a freefall after China’s official manufacturing activity gauge fell deeper into contraction in May and way below economists’ expectations. Also adding to pressure on grains is continued uncertainty the debt deal will pass Congress and avoid default, plus hints by a Fed governor another rate hike is coming after all.
After the close, we got the Crop Progress Report and it held several surprises. Corn planting is 92% complete and in line with expectations. Its 8 points ahead of average and last year’s pace. Emergence is at 72% vs. 63% average and only 58% last year.
The View from 40,000 feet for CBOT markets-Take Five PLEASE REFER TO THE HEDGE AND TRADE STRATEGY PAGE FOR UPDATES!! The global weather pattern is in a transition from what was a strong La Nina to an El Nino where crop conditions around the world essentially flip regionally. Australia, Indonesia and India tend to produce well during a La Nina while the US corn-belt/plains and southern Brazil/Argentina do not. The opposite conditions tend to occur during an El Nino. 2023 is the transition year. The current climate pattern has not yet fully conformed to what is seen during El Nino but is forecast to get there later this year. The timing of the ENSO transition will impact crop outcomes. A dry June actually conforms to a typical ENSO transition. If crops went in well and got started in moisture then a dry June gets them rooted in. If rains then come later in July and August, the bins will bust. There will likely be some places where rains do come too late. The positive PDO (cool water temps off California) is not what it needs to be yet for a typical El Nino but is weakening so it is heading in the…
On the Grains:
The grains are lower in overnight trade with soybeans weakest. (Before turning lower, December corn did manage to hit and exceed the 536 target mentioned for beginning the strategy described above that we outlined in yesterday’s “Monday Preview”.)
Beans are weakest this morning for two reasons. First, they’re less threatened than corn by the forecast for early June to be warmer and drier than normal in much of the Corn Belt and also by weakness in crude oil and its connection with renewable diesel demand. The weakness in crude stems from several sources. First there’s concern the debt limit deal struck by both sides over the weekend faces opposition by members from both parties. Normally, that’s the very definition of successful compromise when neither side gets all that they wanted. The stock markets nonetheless, are firm in overnight trade, likely for that very reason.
Another source of weakness in crude is a growing consensus that when OPEC+ meets this weekend they will not cut production further. The global economy remains on shaky footing with Europe already in recession and a new fast-spreading strain of COVID in China (dubbed XBB strain) is threatening to make that engine of global commerce start sputtering again. In other geopolitical news, the extension of the Black Sea deal looks less meaningful with weekend drone attacks on port facilities at Odessa and Russia again threatening to renege on the extension.
Weather-wise, not much has changed for the U.S. outlook. The first part of June is going to stress crops and it’s already showing in the Western Corn Belt.… Continue Reading
New Corn hedge Recco: It is time to hedge new crop corn on this 4rth wave rally. I am cancelling our previous recommendations to hedge in March 2024 futures and opting to use the December 23 contract now. I am starting at 536 and scaling up incrementally every 6 cents with equal sales at 542 and 548 until I have covered my expected production. I will also add to these futures hedges with call option sales using $6 calls or higher to supplement the net sales price. That should add another 20 cents or more from the sale of calls which is a risk but that is the game. This added risk of selling calls is of course up to you. I do not intend to hold these hedges to harvest but intend to take profit on a decline below 491 as 5th wave lows are made. I would think that the C-wave would bottom prior to harvest. I will store the physical crop and if we can see 5 waves down for Wave-5 of C, we will try to buy the C-wave low. Grains look open for a higher start when trading resumes tonight at 7:00 pm central, but…
Poor export performance has been the primary drag on the grain market during its latest slide lower. Corn prices have felt the weight of several Chinese cancellations, soybean demand has stalled out against competition from Brazil, and wheat exports have been underpriced by much cheaper offers out of Russia. One could argue that the export negativity has been fully priced into the market – the recent break from the middle of April to recent lows took $1 out of nearby corn futures, almost $2 off of July soybeans, and about $1.20 away from July Chicago wheat. RJ O’Brien analyst Randy Mittelstaedt stated in his latest weekly grain export sales recap that, for corn, “it appears more likely the USDA’s just-lowered 1.775 billion bushel export project is still in need of further downward revision.” Total old-crop corn sale commitments are tracking down 36 percent from last year versus the USDA projection for them to drop 28 percent. Mexico and Japan were still shown as strong buyers of U.S. corn in the latest report. Chinese importers have been cancelling recent purchases, not making new ones, but they have also been taking in large shipments of corn bought earlier in the year….