Last Friday’s USDA Moves the Grains

Corn: September corn closed down 8 cents at $3.78 ¼. December new crop corn settled down 8 cents at $3.84 ¾. This is a fresh 4 year low as well as new contract lows for both September and December. For the week, September corn dropped 31 cents, while December dropped 30 cents. Both contracts left gaps on the weekly charts as well. The USDA report pounced on the market at 11 AM. US production was pegged at 13.86 billion bushels, down slightly from June at 13.935. The yield was 165.3, unchanged from June, but on the low end of the average analyst guess. US stock piles for old crop 2013-14 were estimated at 1.246, up from June’s 1.146 million bushels. New crop 2014-15 carry out was pegged at 1.801 million bushels, up from June’s 1.726. World old crop carry jumped from June’s 169.05 to today’s 173.4 mmt. New crop 2014-15 stock piles also jumped to 188.1 mmt from June’s 182.65 mmt. The weather forecast remains non-threatening. Monday we will get new crop conditions at 3PM. The funds are most likely short corn now after liquidating over 150K contracts of corn over the past 2 weeks. Sep corn has now lost $1.43 in 40 trading days, or 28% of its value. For new crop corn, using the USDA estimate at 13.86 billion bushels assuming a 170 average, gives us a 14 billion bushel crop. Dec corn has dropped 25.6%. That means the value of the US crop has lost just north of 18 billion dollars in value in 8 weeks. Hedgers: Continue to roll down puts following our risk/reward parameters.

Wheat: September Chicago wheat closed down 22 ½ cents at $5.26, which is a new contract low and 4-year low on the continuation charts. Today’s WASDE report was not friendly for wheat. US carry over for 2013-14 increased to 660 million bushels up from June’s 574 million bushels. This was higher than the average analyst prediction as well. Worldwide new crop carry increased slightly to 189.5 from June’s 188.61 million estimate. All wheat production was pegged at 1.992, at the high end of the average guess. All winter wheat came in at 1.367. Fundamentally and technically, the picture is bearish. Worldwide crops are plentiful. On May 6th, September wheat peaked out at $7.51 ¾ during the height of the worry about lower yields in the spring wheat combined with the Russian’s maneuvers in the Ukraine. In the past 40 trading days, Sep wheat has lost $2.26 or 30% of its value. Hedgers: Maintain put protection on your bushels until you sell them. The August options are expiring in 14 days. If you have good value in these options, use those profits to extend your protection through September or December.

Soybeans: September soybeans closed down 22 ½ cents at $10.99 ¼. New crop November closed down 18 cents at $10.75. For the week, September beans dropped 67 cents, while leaving a 7-1/2 cent gap on the weekly charts as well. New crop lost 58 cents on the week, New crop fell to a 3 ¾ year low , left a 3 cent gap above for the week, and fell to the lowest price since November of 2010, 3 ¾ years ago. The USDA pegged US production at 3.800 million bushels, an increase from June’s 3.635 estimate. They left the yield alone at 45.2 bu/acre. Old crop carry out jumped to 140 million bushels, up from June’s 125 million bushel. New crop carry out projected to 660 million bushels, up from June’s 574 million bushels. The carry out figures for both old and new crop lit the fuse for most of the day’s downside. Any ideas about pipeline tightness and crushers running out of supply have most likely been washed away by the flood of sellers in the market. At one point, it looked like August beans might test the new 1.00 limits, dropping a nifty 73 ½ cents down to $11.59 1/4, only to spin around 40 cents to end the day down “only” 37 cents at $11.95 ¾. Any way you cut it this report is not friendly to the bulls. The funds have most likely flipped to net short beans now. Monday’s commitment of trader’s report will tell the tale of their position. On May 22nd November beans peaked at $12.32, which was a 1 year high price. In the past 30 trading days, SX has dropped $1.58, or just 13 percent. Final yields are in the hands of Mother Nature. Soybeans are not made until August, so a lot rides on the next 6 weeks of weather. Hedgers: Continue to take profits on deep in the money puts according to our risk/reward parameters.

In the bible, Noah sat through 40 days and 40 nights of punishing rains while the Lord washed away the sins of the earth. Coincidentally, the grains have suffered great losses over the last 40 trading days. The highs of May have been washed away by the perfect storm of weather, crop genetics, and a relatively healthy worldwide supply of grains. The final catalyst was the speculative funds. At one point in May, these “masters of the universe” were long over 200K contracts of corn and 160K contracts of beans. I wrote then, that they were the farmer’s biggest supporter and that their bullish ness needed to be taken advantage of by the farmers with hedges and cash sales. Now with their longs liquidated over the past weeks, they are most likely now net short corn, wheat and beans.

If you have been following the marketing plan in a disciplined manner, you should be in a decent position now. Most of you have been able to take profits on your down side protection over the past 3 weeks. Or recommended cash sales which Mark suggested during the first 5 months of the year are now looking pretty darn good.

If you are new to the program or have been hesitant to place hedges, it’s not too late to get protection in place. Now more than ever, it’s important to have your risk on paper here with us, rather than just hoping for the best in the cash market.

At the end of the day, it’s a simple issue of supply and demand. This was certainly an eye-opening week, but on Monday we’ll be back with fresh eyes ready to help you manage the risk in these volatile markets.