Special Market Update
Grain Market Commentary
Monday, August 7, 2017
By Greg Johnson, Executive Account Representative, The Andersons
Are you ready for the USDA’s August 10th Supply and Demand Report?
Review of the 2017 Summer Rally
With less than a month to go, it appears as though the 43 cent summer corn rally of 2017 will go down in the history books as the 2nd smallest rally in the last 10 years. December 2017 corn futures made a $3.74 low on June 23rd. It made a high of $4.17 on July 11th. December corn is currently at $3.85.
The $1.32 summer bean rally of 2017 will be the highest of the last 4 years, but well below the $1.80 to $2.00 rallies of 2007, 2008, 2009, 2010, and 2011. November 2017 bean futures made a low of $9.07 on June 23rd. It made a high of $10.47 on July 11th. November beans are currently $9.66.
August 10th USDA S&D Report
At 11:00 am on August 10th, the USDA will release its monthly supply and demand report. This is the first report of the year that the USDA will estimate the corn and bean yields based on actual crop checks and farmer surveys. (Up till now, USDA has been using a trend line yield). In the August report, USDA will use population stands as well as ear length to estimate their corn yield. They will not use ear weight until their September report.
Traders are expecting the USDA to estimate the corn yield at 166.2 bpa, which would be down 4.5 bpa from USDA’s July trend line estimate of 170.7 bpa.
Traders are expecting the USDA to estimate the ending supply of corn for the 2017/2018 crop year to be 1.940 billion bushels, which would be 385 million bushels lower than their July estimate.
Traders are expecting the USDA to estimate the soybean yield at 47.5 bpa, which would be down 0.5 bpa from USDA’s July trend line estimate of 48.0 bpa.
Traders are expecting the USDA to estimate the ending supply of soybeans for the 2017/2018 crop year to be 433 million bushels, which would be 27 million bushels lower than their July estimate.
How has the USDA report compared to traders’ expectations over the years?
The USDA August corn yield has been higher than the average trade guess in 9 of the last 13 years.
The USDA August soybean yield has been lower than the average trade guess in 10 of the last 12 years.
Based on that alone, one would guess that corn prices have been lower on report day, while bean prices would have been higher. As you can see below, it has been just the opposite. Corn prices have been up 8 out of the last 10 years on the day of the August report, while soybean prices have been up just as many times (5) as they have been down (5) on report day.
So, what should you do?
- On any post-report rally, clean up your old crop corn and beans. Don’t gamble on higher prices with two crops (the 2016 and the 2017 crop).
- Have offers in to price new crop corn and beans at realistic, profitable levels. Determine what your break-even price is, and get some grain marketed at those levels. Take a look at USDA’s projected carryout when placing offers. Remember, that 1.9 billion bushels of corn and 400 million bushels of beans are not going to propel corn prices to $4.00 cash or bean prices to $10.00 cash. Be realistic with your offers.
- Remember, you can make just as much money in a down market as you can in an up market. If you sell corn at $3.95 now, and it goes down to $3.70 this fall, you can un-price it and add 25 cents to wherever you eventually re-sell the corn. But you can only un-price it if you have priced it first.
- If you think you are oversold on new crop corn or soybeans, you can always attach a call option feature to your cash contract, thereby giving you a minimum price contract with upside price potential.
- If you think there is significant upside and downside potential in the price (think soybeans), you can enroll bushels in a min/max/averaging contract. This contract will lock in a floor (in case prices go lower), while still allowing you to participate in any upside rally (in case prices go higher).