The WASDE was bearish for corn, soybeans, and wheat. All ending stocks number came in higher than expected. Below are the tables with results and estimates. Here are a few thoughts as the markets close.
1) Corn – This is probably as big as new crop carryout gets on the WASDE. Keep in mind that if corn only loses 2mm acres, that is probably 300mm bushels and ending stocks are closer to 2.1 billion. It is also hard to see a 176 yield. Every bushel we lose is about 80mm from carryout. So if we lose 2 million acres and 2 bpa (174 yield) then new crop carryout is under 2 billion. That could bring down global supplies over 10mm mts and back to the trade estimates. The world would still have large stocks and keep global corn prices in range. Now that this report is out of the way and priced in the market really should start paying more attention to planting and weather. The US-China trade talks will still be watched closely. The game plan going forward is to sell deferred futures during the next rally and write straddles. We need to collect the carry and collect the time premium in what is going to be a very range bound market. Call me to figure out a plan at 1-312-706-7610 or email firstname.lastname@example.org
2) Soybeans – Old crop and new crop are almost 1.0 billion bushels. We could still have another 50 cents for risk in beans if we stay at the acres in the March 30 report (84.6mm). With prices so low I can see more corn in the “I” states and more prevent plant in the less productive areas in the corn belt. There are big questions about farmers if they are going to add acres, not plant beans, or go into prevent plant. At these prices I think a lot of farmers don’t want to plant soybeans. With no China deal it is hard to see demand come back enough to make prices better. ASF is another head wind for demand. If you are planting soybeans then I think farmers should look at puts. I know prices are low but we could go to $7.50 in SX and $260 in Meal if acres do not come down. I don’t want to short futures in case there is a trade deal or a severe weather issue, so I would go with puts or put spread during the next rally. Call me to figure out a plan at 1-312-706-7610 or email email@example.com
3) Wheat – At this point the US government should buy up 500mm bushels for $2 billion and send it to the bottom of the ocean. President Trump tweeted earlier about using more US grain for aid to under developed countries. I don’t know how seriously we should take that tweet. Wheat is bearish, we have large supplies, the world has large supplies, and if there are no production issues in the US, Europe, Russia, or Australia, then price will be down at these levels for a while
Major Takeaways – The next couple of weeks makes or break corn. Soybeans could add acres but at current prices with no China deal it is hard to make that case. I think worst case scenarios are CN goes to $3.20, CZ $3.40, SN $7.50, SX, $7.80 WN, $4.00 and KWN $3.60. Maybe $7 soybeans discourages South American planting? Corn has a real chance to rally this spring/summer but it is all about US acres and yield. It will not be a demand story. Farmers need to sell the deferred contracts on rallies and use the new price ranges to sell straddles. The rest of this year is going to be all about Maximizing Opportunity in a Low Priced Environment. I’ll be holding a webinar on that topic soon and updating you about it next week
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