Sell into the story (Grain Marketing)
(Editor’s note: Rob Davis is a market advisor for Nagel Farm Service.)
In my last column I wrote about a farmers’ options when it comes to avoiding the low harvest price that we had at the time and discussed how to delay setting the futures price.
Since then we’ve rallied 45 cents off the lows filling the gap that was left open on the chart at $3.93.
The rally can be largely attributed to production challenges, as demand continues to fall short of expectations.
Rallies fueled by production challenges are not as strong and long lasting as a demand-fueled rally.
It is even more important to keep this in mind as the grain production has expanded around the globe over the past couple decades — a rally in the grain markets will be met with production from other counties that can supply us with grain.
We saw that happen earlier this year when ADM brought a few cargo ships of South American corn for delivery into the Carolinas.
My point is that farmers should continue to take advantage of these production related rallies and sell into the story — protecting profitable prices while we have them for the 2020 and even 2021 crop.
On Oct. 10 the December corn contract closed at 3.80 1/4.
This was after a 14-cent slide caused by the October Crop Report. Analysts were looking for a reduction in the national average yield — from 168.2 in September to 167.5.
The USDA actually increased yield to 168.4.
The market had been very focused on the looming winter storm and the surprise yield increase was a splash of cold water that sent the market trading lower instantly.
The overnight markets opened higher and I expect will soon shift the focus back to the storm that is forecasted to dump up to two feet of snow on immature corn and soybean crops in the Dakotas.
There are six states that are currently in the path of the storm and according to USDA data, those six states have about 23 million acres of immature corn — representing 3.5 billion bushels of production.
How much damage could be caused is really difficult to quantify, but the 2019 crop is possibly the most vulnerable crop on record.
Last week’s Crop Progress report pegged corn harvest at only 15% complete.
This is well behind the average, but the record was set back in 2010 at only 10-percent complete.
The December 2020 contract has traded around $4.10 recently and could be at risk of falling significantly if farmers shift acres to corn as analysts are currently predicting.
On Oct. 10, the November soybean contract closed at $9.23 1/2.
In my recent articles I’ve mentioned that the soybean market could be the dark horse this year, as late planting dates leave many acres at risk of frost damage.
The crop progress report from last week had harvest progress at just 14 percent, which is the lowest on record for this point in the year.
In the October Crop Report the USDA tweaked acres slightly lower and yields for each state were mostly changed by one to two bushels per acre — there were notable drops of three to four bushels per acre for bean yields in Kentucky and Tennessee — area that has been extremely good this crop year in corn but ran into the heat/dryness that we experienced here on Delmarva as beans were filling pods.
We’ve seen a lot of variation in soybean yields here on Delmarva — with a lot of small, low moisture soybeans coming in.
The local demand for soybeans seems to be sluggish with basis weakening again this year.
Don’t hesitate to reach out to talk about your options for selling your crop this year and next.
The trade negotiations rollercoaster continues, with China offering to increase soybean purchases from 20 million metric tons to 30.
For context the largest amount of soybeans ever sold to China was 36 million metric tons back in 2016.
One metric ton is equal to 36.74 bushels, so we’re talking about 367.4 million bushels.
While this is significant, especially considering the recent reductions in U.S. production, the opportunistic buyers that have recently started buying cheaper soybeans from the United States would likely shift some demand back to their previous suppliers in other countries.
On Oct. 10, the December wheat contract closed at $4.93 and the July 2020 wheat contract closed at $5.10.
The wheat market continues to follow corn, with some focus on the challenges that farmers are having getting the spring wheat crop harvested. The situation there is only getting worse with the nearby forecast for winter weather.
Here on the Delmarva, farmers are saying prayers as they sow wheat in the driest fall-time conditions in memory.
I never understood the saying “plant in the dust, the bins will bust,”but we’re all hoping that it proves true this year for our wheat crop!
(Rob Davis is a market advisor with Nagel Farm Service. He can be contacted at Rob@nagelgrain.com or 410-822-6300. Nagel Farm Service has been serving farmers since 1946 and offers Grain Merchandising, Crop Insurance and Risk & Profit Consulting services throughout the Mid-Atlantic region).
1-800-634-5021 410-822-3965 Fax- 410-822-5068
P.O. Box 2026 Easton, MD 21601-8925