Prices have not looked good over the past two weeks with corn making new contract lows on Tuesday. Traders shored up their positions before they left for Christmas break and many of them will not return until after the new year. Farmer selling is sparse as producers balance their books before they roll into a new tax year. This low volume and lack of interest results in increased price volatility.
China is petitioning for no dumping on distiller grains in order to use up domestic supply of out-of-condition corn. Trade is still trying to determine what will happen if China actually halts imports of DDGs. Legal proceedings will most likely bring a halt to this in the future but it is doubtful that the US will see any benefit from this as our corn is still overpriced compared to South America.
El Nino is considered to have peaked and is on its way to either La Nina or neutral status. A weak to strong El Nino is expected into the spring and could result in average to above average yields. Some traders are already predicting a larger corn crop than what is currently being estimated. Meanwhile, Mississippi freight is shut down due to flooding, and severe winter storms are impacting the Southwest.
If world demand doesn’t rise, the strong dollar may result in higher carryout and the US being the reserve holder for corn until it is needed. Foreign currency weakness is also to blame for the lack of foreign demand for US commodities. Any strengthening in foreign currency values would be just as supportive to our market as a devaluation of the US dollar. Corn exports are 15% behind the pace needed to reach the USDA projected total.
Cattle prices rallied after a surprising cattle on feed report on December 18th and continued as winter storm Goliath hammered the southwest US. An estimated 20,000 head of dairy cattle, ranging from small calves to cows, were lost as snow and ice drifted 15-20 feet deep. A cheese plant reported that they only received 10% of their normal milk deliveries on Monday. Cows that can’t be milk will show reduced production for months to come. Goliath is being compared to winter storm Atlas that occurred in South Dakota a couple years ago. Many of us were not affected by this storm but to many it will always be known as the winter of 2015.
The week started out with the usual short covering for traders who plan on taking off for the holidays and was smashed on Wednesday. Several pieces of news came out on Wednesday that, when combined, cause two days of weak markets. First, the Federal Reserve raised its interest rates by 0.25% which the trade has been expecting. Second, Argentina released its restrictions on exchange rates with the dollar causing a devaluation of the Peso by approximately 40%. Trade knew this devaluation was coming but was expecting a laddered approach rather than a sudden release. Third, the US embassy in China received official notice from the Ministry of Commerce of formalizing the anti-dumping claim against US DDG. Argentina’s reduction on export taxes coupled with its devaluation of the Peso is expected to greatly increase the number of exports from the country. This news caused a major bump in the dollar and severe drops in prices with Kansas City March wheat losing $0.11 and March Corn losing $0.07.
The weak markets continued Thursday morning but were pulled up by continued short covering and a rally in the Soybeans. Fresh news from South America of dryness preventing planting in some major Soybean areas spurring a needed rally.
Markets will trade normally next week until Thursday. They will close an hour early on Christmas Eve (11:00 PM) and will remain closed until Sunday night for the normal night trading.
Wheat has continues to be a dog in the market despite a slight, pre-holiday, short covering rally. Argentina is expected to become a competitor in wheat exports in the next few months due to the elimination of the export tax on wheat and the devaluation of the Peso. Any rally in wheat futures is expected to knocked down by widened basis in the cash market in order to keep wheat values competitive in the world market. Informa increased their estimate of winter wheat production by 11 million bushel based on FSA data of increased wheat planted acres.
As producers, we often forget about the other side of the coin that is the demand side. Economic theory dictates that when prices are low, you will see new demand enter the market which in turn causes prices to increase. This demand is either new buyers entering the market thinking they can make a profitable margin from the lower input prices or from the consumer substituting to the cheaper product. There has been unconfirmed rumors of old wheat mills re-opening because margins look better.
The year is coming to an end and there were several newsworthy events this year. This article provides a good summary of the year’s major economic events and provides good links for topics that interest you. I would recommend it.
2015 Agricultural Year in Review
Wintery day at Farmer’s Coop.
Some Merchant Plus Marketing plans started their pricing periods on November 16, 2015. The objectives of the INTL FCStone marketing professionals are 1) to reduce price volatility, 2) provide protection against extreme price decreases, and 3) achieve a price that is higher than the daily average of the pricing period.
Across all three pricing programs, the FCStone officials implemented trades in the first week to put in partially fixed floor prices while leaving the upside open to higher trade. This protects against any price drops but would still allow for gains if prices moved higher. This past week allowed some gains in prices as all futures rallied slightly. The officials began trading in some classic option collars as the markets rose in order to layer in a rising floor while slightly limiting upside potential.
It is still very early to start considering what final prices will be since we have only progressed 1 month in what are 4, 9, and 12 month pricing periods. These are initial results of what the expected FUTURES prices will be.
Another pricing period for Merchant Plus marketing has been developed for only NEW CROP CORN and is available for sign up. Click on the link for more information.
Merchant Plus Marketing
Farmer’s Coop elevator has also developed a Mean Contract that will help producers take advantage of seasonally higher prices when they are pricing their corn. Corn is priced at an average daily FUTURES price over the seasonally higher spring months. This contract is also only for NEW CROP CORN. Click the link for more information.
Corn rallied over the past several weeks spurred by short covering before the holidays and remains bullish in what traders are calling a seasonal tendency. Corn futures have a strong tendency to rally from the beginning of December through late winter and sometimes into spring and early summer. The large amount if corn in storage and the need to remain competitive in the world market will limit rallies in the cash market as buyers adjust basis. Basis values have already weakened $0.05 across the U.S. as year-end movement has increased.
Net farm income is forecasted to be down 38% from last year which will obviously impact farm spending. Machinery and implement dealers will likely be the first to feel this impact with crops and crop inputs feeling the pressure. As prices remain depressed, more producers are sharpening their pencils and spending time and effort calculating break-evens in order to try to remain profitable. Sometimes another $50/acre in input cost could raise yield enough to bring break-evens above current prices.
The final USDA Supply and Demand report was released on Wednesday the 9th. Corn export estimates were decreased 50 million bushels and ethanol use was increased 25 million bushels in the wake of EPA’s increase in ethanol blending levels in gasoline. Overall, the report was quiet with year-end corn carryout was increased 25 million bushels.
There is currently no heavy news in the wheat market to spur a rally. The USDA raised the wheat carryout number on the supply and demand report on Wednesday. It will take a while to eat through these stocks and the wheat prices may not see a recovery any time soon. The major factor in crop production is weather. The strong El Nino over the past year resulted in no weather concerns for wheat anywhere in the world. The question in the following year will be whether the El Nino will transition into a La Nina, causing a drought year, or if it will continue and cause another year of record yields.