Tucker Talk: June 26

It is a little damp but still a beautiful day.

A big day this morning at Farmer’s Coop Elevator as wheat had rallied $0.23 in the early morning hours last night.  The first few hours of trade after the opening bell saw corn up $0.13 and wheat up $0.25.  Both managed to trade and close above some strong resistances at their respective 100-day moving averages.  This is a good sign and indication that prices could rally higher in the near future.  Farmer’s Coop Elevator had one of the better business days since I have started.

Overall, the week was good for both corn and wheat.  We started out with a rally in both commodities that was attributed to short covering.  Just as the traditional 3-day short covering rally was starting to end, prices found a second wind.  Trade is beginning to have an attitude change about exactly how beneficial excessive moisture is in making grain.  Quality reductions are a concern for corn in parts of the corn belt that are seeing some tremendous amounts of rain.  The corn condition report on Monday confirmed this concern with the good to excellent rating dropping 2% from last week.   This spurred a second rally in corn which pulled wheat along with it supported by declining soft red winter wheat condition and short covering of fund contracts.  The week ended well with wheat up a total of $0.56 for the week and corn up $0.31.

The USDA second quarter stocks and acreage report is released on June 30.  Trade is currently debating final corn acreage.  Some argue that due to excessive moisture and early severe storms, the corn acre estimate is too high and will need to be reduced.  Others argue that acres were severely under-estimated in the first quarter, March 31 report and that acreage will remain the same or increase.  Well followed Informa left their acreage estimate unchanged in their report last Friday.  It is unlikely that this debate will be resolved until next Tuesday and could be supporting the current rally.

There is still a lot of old crop bushels being stored but the recent rally has spurred some producer selling which has caused basis to weaken across the corn belt.  We are nearing July 4th which has historically been a primary marketing point of the year.  The consensus is that if there has been no significant stress on a crop by July 4th then it is made.  This is mostly psychological and we can very easily see some late season stress on crops, especially in 2010 which is what this year is being compared to for weather.

Wheat has been in a sideways trend of about 70-80 cents since mid-April in which it has made about 3 cycles between the high and the low.  The high of those cycles just barely touches $5.00 cash price in Hemingford which is near our closing price today.  Kansas harvest reports suggest better-than-expected wheat quality.  They report average yields, test weights, and protein levels despite previous concern over lower test weights and protein due to excessive moisture.

Annual Meeting

Annual Meeting

Technical Analysis: June 19

Corn

On Tuesday, July Chicago Board of Trade corn hit the contract low of $3.46 that was seen on October 1.  This is a major support level as it represents the low.  Any trade through this level could see further declines.  Corn saw a slight increase this week but could not trade through resistance at the 40-day moving average.  Any large gains are probably out of the question until after the June 30 stocks report.  Resistance currently lies at the 40-day moving average $3.60 and higher at $3.67.  Support is at the contract low of $3.46.

Wheat

Wheat is currently playing a weather game and has declined all week due to occurrences of rain events across the US.  Prices traded through the 40-day moving average support on Monday and continued to decline.  Initial support lies at $4.95 and other support lies at $4.85.  Resistance lies at about $5.20 with the 10, 20, and 40-day moving averages all converging at that point.  Long-term resistance lies at $5.53.

Tucker Talk: June 19

Sunrise at the Mirage Flats location.

Corn

The low on Tuesday matched the low seen on October 1. Excessive rains continue across the corn belt.  There are reports of small corn plants yellowing due to nitrogen leaching out of the soil from excessive rain in the western corn belt. Excessive moisture may be harming crops but the trade is still following the old adage of “rain makes grain.” A similar wet year in 1993 did not see trade fully appreciate the harm of too much rain until October of that year.

Trade is concerned about feed usage and corn acres in the June 30 stocks report.  There is concern that feed usage estimates are too high and that corn acres will need to be reduced due to wet weather preventing planting.  However, there is also concern that acreage estimates were too low to begin with.  If this is the case then the acreage estimate may not change at all.  If feed usage estimates are reduced and corn acreage remains the same, there will not be good news for prices as this is not good for stock levels which are already high from old crop carryin.

The well followed Informa has left their corn acreage estimate unchanged from March at 88.7 million acres which is below the USDA’s 89.2 million acre forecast in March.

Wheat

Last Friday, Egypt bought 180,000 tons of wheat from Russia and Romania at values 66 cents under US prices.  When compared to the highest bidder, the US was still 49 cents too expensive.  Despite several reductions in estimated wheat production around the world, with Australia, Russia, and France all reducing estimates, wheat values decline.  Trade believes that excessive moisture will result in more bushel.  This may be true but the value of those bushel significantly declines.  Trade may not realize this until later in the season.  It currently looks like  protein levels below 12 will be severely docked but there should be a good premium for higher protein levels.

In Nebraska, winter wheat condition rated 14 percent very poor, 20 percent poor, 31 percent fair, 33 percent good, and 2 percent excellent.  See the report below for more information.

Crop Report June 17 2015

Technical Analysis: June 12

Corn

July Chicago Board of Trade corn started out the week well while it followed wheat higher into Wednesday before the supply and demand report came out.  The report was bearish for wheat so corn followed wheat back down.  Corn was unable to close above the 40-day moving average on Wednesday which would have been a good short-term bullish pattern. Short term resistance currently lies at $3.63, the 40-day moving average and long-term resistance is at $3.67.  Support lies at $3.48.

Wheat

July Kansas City wheat had a rough go on Wednesday when the supply and demand report came out a little more bearish than expected.  Prices fell Wednesday and Thursday.  Prices are currently testing support at $5.23 which is also near the 40-day moving average. If prices can remain above these levels we are still in a bullish pattern.  Other support lies at $4.95 and $4.85.  Resistance lies at $5.53 and $5.64.

Tucker Talk: June 12

Ladybug on a wheat stem.

Corn

The USDA Supply and Demand report on Wednesday saw only an increase in corn carryin from last year due to a 25 million decrease in US corn use for ethanol.  This caused a small increase in estimated carryout.  Globally, production estimates are up 3 million metric tons (mmt) due to the record production levels seen in South America.

Trade is currently worried about the possibility of a large carryout resulting from limited acreage reduction, reduced exports, and lower feed use.  Trade is looking to the next report which is the June 30 stocks report in which we will need to see record feed usage to keep us on track with the USDA S&D report.  If these values fall short, they more than offset any reductions in planting acres and we may have to rethink the corn balance sheet.

Some risk premium is being added to the market with worries of hot temperatures adversely affecting corn pollination in Georgia and the Carolinas.  When coupled with the increasingly record short fund position of 167,000 contracts, we could see a significant rally. Trade is still concerned with this year’s weather patterns looking similar to 2010 when it started out really wet in the spring and then turned out hot and dry in the latter half of the summer.

Wheat

The USDA Supply and Demand report was more bearish than expected on Wednesday with US yield estimates increasing from 43.5 bu/acre to 44.2 bu/acre.  This coupled with an increase in carryin of 3 million bushel results in an overall carryout increase of 21 million bushel tempered only by a small increase in feed usage of 15 million bushel.  This caused values to decline $0.17 on Wednesday and another $0.07 on Thursday pulling corn down with them.

Rains are currently plaguing wheat harvest as well as wheat production with rust and other diseases being reported.  In the panhandle of Nebraska we are seeing rust, wheat streak mosaic, and barley yellow dwarf due to wet conditions impacting the plant and preventing spraying of such diseases.  There is still concern of dry areas in Russia and Canada that is bullish for the market.  Wheat that is being harvested has quality issues which is also bullish.

Look at the Nebraska wheat report here.

Crop Report June 10 2015

Marketing Opportunities to Protect Your Bottom Dollar

Saving your dollars.

The overall, long-term trend for both corn and wheat is still bearish with chances of short-term rallies occurring from weather scares and fund short covering.  When we look specifically at western Nebraska and Farmer’s Coop Elevator’s business, there are a large number of old crop bushels in the elevator as well as on the farm that will need to be sold and moved in order to make room for the next year’s harvest which is expected to be more than sufficient.  Unfortunately there are currently no signs either wheat or corn prices will reach previous years’ highs in time for the 2015 harvests.  The following ideas offer ways for the producer to stay in the market but move his grain.

1) Basis Contract to Protect Cash Price.

Basis has firmed up in the last couple weeks (Farmer’s Coop is currently -$0.50 on old crop wheat and -$0.25 on old crop corn) and has improved cash prices due to the fact that producers are not selling.  This could all change very rapidly if July 1 comes and everyone decides they want to sell what they have stored on the farm and there is a “run” on old crop selling.  There is a very good chance that basis will weaken if this occurs due to the surplus of supply in the local market..

A basis contract is a contract offered by Farmer’s Coop that fixes the basis to protect against any weakening in basis but the final futures price can be determined at a later date.  We offer a cash advance of a portion of today’s market value in exchange for ownership of the commodity.  This allows the producer, and Coop, to ship the grain to get ready for the new crop harvest but the producer is still in the market to take advantage of any price increases.

2) Minimum Price Contract to Set a Price Floor

This contract allows the producer to set a price floor and stay in the market for unlimited upside potential.  The producer sells his grain at today’s market price and purchases a call that expires in the future.  The purchase of the call will cost a premium but in exchange, the producer sets a floor and stays in the market, all while transferring ownership and moving his grain.  There is a 5,000 bushel minimum on this contract.  There are many different variations to this contract depending on the producer’s risk preference and how much he wants to pay in premium.

3) Delayed Price Contract

Farmer’s Coop Elevator will be raising storage rates effective July 1, 2015.  Open Storage rates will be $0.001315/day, or $0.04/month, per bushel on all grains except Millet, which will be $0.001973/day, or $0.06/month.  Current rates are $0.000986/day, or $0.03/month, per bushel for all grain except millet. Millet is

$0.001644/day, or $0.05/month, per bushel.  This will apply to all Farmer’s Coop Elevator locations.

Farmer’s Coop Elevator has decided to offer Delayed Price, or DP, as an option in lieu of open storage.  DP rates will be $0.001069/day, or $0.0325/month, per bushel (3/4 of a cent less than open storage). Upon execution of a DP contract, title of the grain passes to Farmer’s Coop.  Pricing of DP grain works exactly the same as pricing open storage grain only you pay less than if you kept the grain in open storage.  Farmer’s Coop Elevator is looking to acquire ownership on stored grain so we can ship it to make room for wheat harvest.  The more room we have, the less wheat needs to be stored on the ground.

This option allows the elevator to move the grain, the producer to keep the status quo (storing grain waiting for a price he likes), but the cost is less with a Delayed Price Contract.

If you have any questions about these contracts or other marketing opportunities contact Tucker at the Hemingford office 308-487-3325, or on his cell at 308-360-0830.  You can also contact me through my email at tucker.hamilton@farmcoop.com.

Tucker Talk: June 6

The sign in front of our main office in Hemingford.

Corn

The final planting report for corn was released on Monday reporting an overall planting progress at 94% with Kansas, Nebraska, and Texas lagging in planting at a normal pace of 1.5 million acres.  If you add the lack in progress in Iowa, the Dakotas, Minnesota, Wisconsin, and Kentucky due to passage of insurance prevent plant dates, the unplanted acreage number increases to 2.7 million acres.  A reduction in acres does not mean a reduction in production however with an increase of 2 bushels per acre offsetting the reduction in acreage.

The overall price trend is still bearish with 1.8 billion bushel of old crop carryin along with good conditions being forecasted for this coming year’s crop.  The only chances for short term rallies are short covering by funds.

Wheat

Wheat saw a good rally at the beginning of the weak as trade worried about some frost damage and dryness in Canada and increasing dryness in Russia.  This spurred the start of a fund short covering rally that continued into Tuesday where a sharp drop in the US dollar spurred further price increase.  Wednesdays highs prompted selling as producers that needed to move old crop to make room for new start to realize that prices may not reach $6.00 again before wheat harvest.  Those highs were lost however after the Informa production estimates came out, estimating that US winter wheat production would be 9 million bushel more than the USDA’s May estimate. Wednesday was also day 3 of fund short covering and historical trends tell us that short covering rallies generally only last 3 days.  Funds are still short 154,000 contracts after covering 11,000 shorts on Tuesday.

The new Russian export tax is now in place and is tied to the value of the Russian Ruble.  If the Ruble devalues, the export tax increases.  Trade is concerned about persistent dryness in Russia, Canada, Australia, and some European Union areas negatively impacting those regions’ wheat production.  Overall, trade is playing a weather game and any small fundamental change could spur a short covering rally.

Technical Analysis: June 6

Corn

July Chicago Board of Trade Corn is beginning to form a short-term bullish trend.  Prices were weak on Thursday but were able to shrug it off to close higher to form a bullish outside day.  Important short-term support is at Thursday’s low of $3.56 which corresponds with the 10-day moving average.  If this level holds firm, the minor short-term uptrend will remain. If it does not, further support lies at $3.48.  Resistance lies at $3.67.

Wheat

July Kansas City Wheat had an expected fall on Wednesday after 3 days of fund short covering but was able to rise again and continue climbing with news of dry areas in wheat producing regions (see Tucker Talk).  Thursday’s low at $5.24 is now strong short-term support ahead of lower, swing low support at $4.95.  Resistance lies at $5.64 and was tested twice a couple weeks ago.