Data Dump: December 23, 2019

Data Dump Truck


Merry Christmas!  To say it’s been a wild & frustrating time in the markets since I last wrote would be a major understatement!  When I left off in July, my seasonal projections were both pointing towards lower prices in a major way, but I was anticipating some sort of bullish change in the markets to begin sometime between August and early-October, based on my view that the crop was likely much smaller than USDA’s in-season’s estimates.  By the time we got to early-August, corn prices had dropped enough that I was again buying calls against existing sales, in anticipation of a glorious upside reversal on USDA’s “re-surveyed” acreage to be announced in the AUG WASDE.

Well, as we are all too aware of at this point, USDA didn’t come through with a bullish S&D in August, but instead revealed supplies much larger than anticipated and the market went limit down!  There was a moment in mid-OCT when I could have sold all those calls and recouped some premium, but instead I was stubbornly anchored to my convictions and let them all expire worthless in late-NOV.  Thankfully I spent less on calls than I earned earlier in the growing season.  Furthermore, this has been a great example of why I like to be long calls, rather than long futures or short options – from the outset I knew the worst-case outcome.

So where do I stand today?  Reluctantly, I must admit that USDA was probably correct (as usual…), because I heard a lot of “much better than expected” yields.  My personal yields were considerably better than expected, so therefore I still have more corn and beans to sell!  During this time of year I mainly just use three tools in selling grain:

1) Seasonals: Like a good crescent wrench, knowing the seasonal tendencies of grain prices is always helpful.

2) Market Carry: When the market is offering a premium over your cost-to-carry, you need to be looking out to the deferred months for selling opportunities.

3) Target Orders: Because they always work!

I don’t worry quite as much about my cost of production when selling old-crop, because the market just doesn’t care at this point.

CORN MARKET OUTLOOK:  My seasonal projection for JULY corn futures is shown in the following graph.  The curves are generated by taking a weighted average of the past 25 years of futures data, where the weighting is partially based on correlation/similarity, and partially based on stocks-to-use ratio, which currently stands at 13.7%.

Corn Proj 12-20-19

The projection curves suggest that, beyond a seasonal pullback in prices in the first week of January, there is a general tendency for rising prices until at least mid-May.  My goal this year will be to have all of my old-crop corn priced by June 15th or earlier, with the next third of old-crop supplies sold by March 1st.  Over the past 25 years, the average max gain in futures prices by March 1st was just over 7%, or about 28 cents from here, which is a bit more optimistic than the seasonal projections.  With all this in mind, I am going to set my next target at $3.85 cash for MCH delivery, which is a bit more than 20-cents higher from here.

SOYBEAN MARKET OUTLOOK: The seasonal soybean market projection shows a general uptrend in price through May 1st, with an interim peak around the FEB WASDE (Feb 10th).  The scale of the projection chart shows roughly 50-cents of upside between today and May 1st, which is very much in line with the average max gain in MCH futures by March 1st.

SB Proj 12-20-19

Since there’s more carry in the soybeans I will set my sales targets for JULY delivery.  While a 50-cent gain seems audacious from here, the soybean market has often made a fool of me with exaggerated price moves that exceed my preconceived notions.  Therefore, I’m going to go ahead with a $9.35 cash target that will require most of that upside to get hit, but plan to re-assess my assumptions later this winter.

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