Weekly Market Recap and Tom's Take, September 18, 2020

Bradford plot harvest

MARKET UPDATE:

December corn futures gained 3 1/4 today, closing at 3.78 1/2, up 10 for the week. March corn futures ended at $3.87 1/2, up 3 1/2 today, and gaining 9 1/4 this week.

November soybean futures gained 15 today, finishing at $10.43 1/2, up 47 1/2 week-on-week. January beans added 16 today to end at $10.47 1/4, up 48 for the week.

The BIG story this week is the continued rally in both soybeans and corn since August 10th:

  • On August 9th, December corn futures closed just above $3.20, and at the close today they are about 55 cents higher since the Derecho storm that ripped through the Midwest, as well as subsequent dryness and drought conditions to end the growing season.
  • November soybean futures are up to $1.70 since the storm. During that time, we’ve had 29 trading days, and all but 6 of them ended the day higher. Even more impressive is that of those 6 days we did closer lower, only 2 of them were more than a penny below the previous day. That’s a pretty strong performance for one commodity. 

There are a lot of items impacting both of these: 

  • Concerns about the actual crop size in the U.S. and concerns about weather in South American and other parts of the world. 
  • Strong export demand, combined with a relatively weak U.S. dollar 

At the end of the day, it’s going to come back to the Supply and Demand numbers. With combines starting to roll in many parts of the U.S., it won’t take long for analysts to have a pretty good feel for just how big these crops are. The question mark will then be demand. A lot of the domestic demand is somewhat consistent, without a market-disrupting event like COVID, so it will come down to export demand and the relative worldwide values of U.S. corn and soybeans. That story will evolve through the rest of the crop year. Regardless, I am sure it will be another interesting year ahead. 

For more info regarding items impacting corn and soybean values, tune into our FREE weekly podcast, featuring the Bull Bear Banter: https://landusexperience.podbean.com/

Tom’s Take:

As mentioned above, both corn and soybeans have really rallied the past 6 weeks. In the case of soybeans, we’re at the life of contract highs, and about a dollar higher than where the November 2020 soybean futures were a year ago. Corn prices have also risen dramatically, although it is not anywhere near the life of contract highs, and is almost 25 cents lower than a year ago for December 2020 corn futures. 

I know that many of you are bullish, and believe we’re going to continue to rally. And you might be correct. I’ve talked recently about my concerns, and I still worry about that day when we no longer see a “flash” sale of soybeans or corn to China. I continue to believe they will eventually shut off their purchases, especially for soybeans. 

So, what to do if you are bullish, but want don’t want to suffer a 50 cent to a dollar drop in soybean prices? My advice would be to put a floor under your cash price. We generally talk about Minimum Price contracts to do this. You first have to make a decision regarding how much time you want to buy. By that, I mean, do you want protection until late February, late April, or late June. Depending on that answer, we’d buy a call option for you vs. either the March, May, or July board. All three of these futures boards are trading between $10.30 and $10.40. So, for complete coverage, we’d advise buying a $10.40 call, which is going to cost around 50 cents today. Most of our locations are paying $9.80 or more today, so let’s use $9.80 for our example. Your minimum price then becomes $9.80 minus 50 cents and a 2 cent service fee, for a total of $9.28 – this is the floor or the worst possible outcome. Let’s say you decide to buy the May $10.40 call at 50 cents. Now, you have to make another decision at some point before April 23rd. If soybeans continue to rally, that call you purchased will increase in value. You just need to pay attention to what it’s worth on a regular basis. If at a later date, it’s worth 75 cents, you can contact us and tell us to sell it and we’d write a check to you for 75 cents/bu. Now add that to the $9.28 you received earlier to find your total cash value, and you end up with $10.03 per bushel. If, on the other hand, the day after you do a minimum price contract, soybeans start to fall, and the option you bought is now worth 25 cents, and you now think the price is going to continue to fall, you could (and probably should) sell it and get a check from us for 25 cents per bushel. You’d end up with a $9.53 cash sale ($9.28 + $0.50), which should be better than if you had paid storage AND had the prices drop.

Another alternative is what we call Min/Max Price. You will receive a higher floor, and a better minimum price, but you will also cap your upside potential. 

Both of these alternatives can and do work very effectively. Please contact your local Grain Marketing Advisor for complete details. If for some reason that sounds too complicated OR you are not bullish from these levels, I still think selling soybeans is a really good idea. 

One last thought, have you locked in your Fall inputs? If you haven’t yet, a good time to do that is when you’re selling grain. Use the income that you’re generating to buy your agronomy needs. I know one guy that always does both at the same time. If he’s buying agronomy products, he’s selling grain and vice versa. He told me his philosophy is that whenever he writes a check, he wants to also get a check. And if he’s receiving a check, he wants to write a check. That might sound too simplistic, but he swears by it and says it’s a pretty uncomplicated grain marketing plan. The more I think about it, the more I like it. 

Comments/questions? Let me know: Tom_Guinan@LandusCooperative.com

USDA TO PROVIDE ADDITIONAL DIRECT ASSISTANCE TO FARMERS AND RANCHERS IMPACTED BY THE CORONAVIRUS: 

https://www.landuscooperative.com/news-events/blog/usda-to-provide-additional-direct-assistance-to-farmers-and-ranchers-impacted-by-the-coronavirus