Weekly Data Dump: April 19, 2019

Data Dump Truck

As part of my weekly grain merchandising routine I prepare a summary of our hedged positions and a very brief overview of the markets, called my “Merchandising Dashboard.”  After preparing the Dashboard, I share it with my business partners and other associates during a 15-minute weekly teleconference.  Since I began in late-2016, the weekly ritual of preparing the dashboards has become a critical part of my decision making process.  You might think you have a plan, but you won’t realize how many details are missing until you try to write it down and explain it to someone else.  With that in mind, one of my “farmer” goals for this year has been to develop a planning routine similar to my Merchandising Dashboards to help me stay on-track with my personal farm’s grain marketing.

My intention is to generate a very brief (1-2 page) document (“The Data Dump”) every* week to communicate the following:

  • Current grain market conditions
  • Expectations for grain marketing opportunities and risks in the coming weeks based on seasonal and fundamental factors
  • Summary of Seasonal Averaging Contract progress
  • An overview of my current inventories, sales, and targets

* By “every week,” what I really meant “most weeks…” or “sometimes”…  We’ll see how it goes.

For this week’s Data Dump I will introduce my methods, so the format will be a lot “wordier” (is that a word??) than I expect in future weeks.

If I had more time, I would have written less…

-Somebody a really long time ago

My favorite approach to grain marketing is to use a seasonal price curve to identify likely “critical dates,” and use fundamental data (e.g. stocks/use ratio and other supply and demand indicators) to formulate target prices.  The next chart (below) combines both seasonal and fundamental market data.

CORN MARKET UPDATE:

Corn Proj 4-19-19

This chart shows:

  1. The blue bars (to the left) show the trailing 12 month price history for the contract (usually DEC corn or NOV beans)
  2. The blue dashed line to the right shows the “median projected price” through expiration of the contract.  The median projected price is calculated by taking the average of historical price changes for the contract, but weighted 70% by “fundamental similarity” (i.e. years with most similar stocks to use ratio are given greatest weight), and 30% by “pattern similarity” (i.e. years with price curves most correlated to the current contract are given greatest weight).
  3. The dotted black lines above and below the median projection price line show the 90th and 10th percentile lines for the projection, calculated using Monte Carlo simulation.  The Monte Carlo simulation estimates the projection line several thousand times, but with different correlation and weighting factors each time.  It’s important to keep in mind that the upper and lower percentile lines only show the likely range of the median projection; much higher or lower prices (that exceed either line) will occur.  While it may be helpful to use the projection lines to formulate target values, I feel they are helpful for identifying key dates for turning points in prices.
  4. The small, red line shows the current progress of our seasonal averaging contract.
  5. There are two circles over the line at today’s date that show the current value of the 2020, 2021 (and 2022) DEC corn contracts.
  6. There are two green lines, one at 3.99, and the other at 4.14, showing the levels of my next two target orders.

I want to emphasize that the projection lines shown in this chart are NOT PREDICTIONS of what prices will do; they are only weighted averages of historical price trends for previous crop years.

Along with the chart, I plan to write a few thoughts about the market each week.  Putting my thoughts onto paper helps me turn them into action, so I guess the comments are for my use, but I hope they’re more helpful than harmful for you (…and no refunds either way!…):

WEEKLY CORN MARKETING THOUGHTS:

  • We have about 60 days left in target season, and the price trend of the past three weeks is worrisome.  While I would typically expect better opportunities during the next 8 weeks, the weather forecast is suddenly looking much more favorable, and Twitter is littered with photos of awesome 256 row corn planters cruising at highway speeds across ready soils.
  • In addition to improving prospects for our corn crop, we’re being bombarded daily with news of South American crops exceeding expectations.
  • In the past couple of weeks there has been a surge of images showing the large-scale destruction of hog herds in China (not to mention very inhumane methods of euthanasia).  While the ASF story is not new, it seems the market is just now deciding that it will be an issue for corn demand as well as beans.
  • While at some point we may learn of fewer corn acres due to prevented planting, or losses of stored corn due to flooding along the Missouri river, the market currently doesn’t seem to care about those things, and there’s a chance it never will.
  • In light of these factors, I am going to make the following changes to my cash corn positions this week:
    • I will sell a little more 2018/2019, and my first 2020 corn on Monday.
    • I will move my highest target order (4.49) down to 3.94.

SOYBEAN MARKET UPDATE:

SB Proj 4-19-19

WEEKLY SOYBEAN MARKETING THOUGHTS:

  • The historical soybean seasonal suggests better pricing opportunities for nearly 90 days yet.  However, the soybean market has been in a clear downtrend since early February, and I’m skeptical we’ll see much of a normal pattern this year (at least without a bona fide trade deal).
  • Most of the corn market thoughts apply to the soybean market, but I would emphasize there is extreme uncertainty in soy consumption during the next year as the ASF story continues to evolve.  Will soybean/soymeal demand crater on the loss of pigs, or will it ramp up as the world’s livestock farmers try to fill the hole in China’s pork supply?
  • The projection chart doesn’t include anything for the averaging contract because it hasn’t started yet, and no targets are shown because I hadn’t decided on levels yet.
    • Admittedly, if I were doing this process every week, I probably would have been working more targets much earlier!
  • My soybean marketing actions for this week:
    • I am nearly 100% sold on 2018 beans, and about 27% sold for 2019, so I am comfortable waiting for a bounce to make new sales. HOLD!
    • I will enter enter the following targets on Monday:
      • Sell some NOV’19 soybeans at 9.29 and 9.59 (or cash equivalent)
      • Sell some NOV’20 soybeans at 9.59, 9.69, and 9.99
      • I feel the upper targets may be a bit of a stretch given the trend and current news flow, but I can envision a VERY BRIEF, but violent pop in the market if a favorable trade deal is made, so I want to have orders working.

That’s all for this week!  Please send questions, comments or opinions you’d like to share, or give us a call at: 712-643-5360

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s