Weekly Market Recap and Tom's Take, October 16, 2020

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MARKET UPDATE:

December corn lost 1 3/4 today, closing at $4.02, but that is up 7 for the week. March corn futures ended at $4.07, down a penny, but gaining almost a nickel week on week. 

January beans lost 11 3/4 today, to end at $10.50 1/4, down 15 1/2 for the week. March soybean futures gave up 7 3/4 today, putting them at $10.37 3/4, down 10 1/2 this week. Please note that March futures are 12 1/2 LESS than January soybean futures. That inverse continues to widen for every subsequent month this crop year, before the bottom drops out for November 2021, which closed at $9.70 1/4 today, or 80 cents less than January futures. 

This week’s BIG Story is the continued resiliency of both corn and soybean prices. Even though soybean prices closed lower today and were off for the week, futures continue to stay above $10, and have given people the opportunity to sell cash beans at or above $10 at times this week. 

Corn prices crossed the $4 mark for December futures and have been able to close above that psychological level for the past 2 days. The spread between December and July corn futures narrowed quite a bit this week. At the end of last week, July corn was trading about 14 1/2 cents above December futures, and as we end this week, that spread has come into about 7 cents. Just something to keep an eye on for those unsold bushels. We’re not in an inverse like we see in soybeans, but there is little motivation to hold corn for 6 months to pick up 7 cents. 

One other thought: Last week, both corn and soybeans ended on a pretty high note following the WASDE report last Friday. But, then Monday came and December corn futures dropped 6 cents while January bean futures lost almost 30 cents. Just keep in mind that there is A LOT of volatility in this market right now, with both corn and beans trading at or near their most recent highs. As many grain buyers are fond of saying: if you’re not selling these values, you are buying them. Just be careful that you are not risking too much by holding on to too many bushels at these levels. 

For more info on items impacting corn and soybean values, please tune in to our weekly podcast, The Bull Bear Banter. You can find it here: https://landusexperience.podbean.com/

TOM’S TAKE:

Today I want to take a little time to discuss the 2020 Averaging Contract Program. To be perfectly clear, this contract did not produce the results any of us would have liked this year, for either corn or soybeans. 

In the case of corn, the pricing period started March 16th, and ended July 10th, using December futures. This produced an average futures price of $3.438, while December futures on July 10th closed at $3.44 3/4, so it was pretty close to where the average ended up. A couple of weeks later, it looked better, when on Friday, August 7th, Dec futures closed below $3.21. We were feeling pretty good about having an averaging contract 20 cents above the market at that point. And then Monday, August 10th hit, ravaging the state with the Derecho storm that literally changed the landscape, destroying crops, bin sites, and many other buildings. Add to that, an ever-widening drought in Iowa reducing yields in a large area. Since August 7th, December futures have climbed about 80 cents. I always say, “compare the results to October 1st ”. Well, even on that day, our averaging contract was about 40 cents below the market. 

And as for soybeans, the information is even worse. This pricing window was from April 20th to July 24th, using November futures. That produced an average futures price of $8.6735, while November futures closed at $8.99 1/4 that day. So, we’re already behind. But by August 7th, it’s about neck and neck, as November beans lost a little more than 20 cents in that 2 week period. On October 1st, Nov beans ended the day at $10.23 1/2, and have added even more since then. 

So, I definitely understand why people are not happy with pricing grain on the Averaging Contract this year. And even though we say this is a good contract for a portion of your bushels in 7 or 8 years out of 10, I am sure that there are people that will say, “I’ll never do that again”. I certainly hope not, but I get it. 

The only advice I can give anyone about this for next year is this: If you want to plan on a worldwide pandemic, a drought in Iowa, and a once in a lifetime wind storm in 2021, then by all means, DON’T use the averaging contract next year. However, if you want something with a proven track record that performs 75 to 80% of the time, we’re still going to encourage people to sign up again, because we like the odds. Most years, the response is “I wish I would have done more”. 

By the way, did you know that Ted William’s LIFETIME batting average was .482, which is still the record in Major League Baseball? I know that’s not an apples to apples comparison, but I still like contracts that perform 75 to 80% of the time…something to think about 

Let me know your thoughts, Tom.Guinan@LandusCooperative.com