Farmers Grain Market Letter 05/19/15 8:35:36 AM
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Where Next? We were told recently of a producer remembering 1977, in the middle of a 560 acre field, with the temperature over 100 degrees, repairing a broke axle on a disc, and thinking that coming back to the farm may not have been his best option. Then came January 2007, when corn went over $4.00, and we thought there would never be another poor day in the Delta. It has been an incredible run! Since January 2015, we have traded below $4.00 and may spend some time in this area if we don’t experience any weather scares this summer. It’s all about the weather! Yes, we did have an early planting season...we are ahead of schedule, but looking at our May USDA Supply/Demand numbers for corn yield, it was a fairly conservative 166.8 BPA. While that is still the 2nd largest yield on record, with early planting on most of the Western Corn Belt, and not too late on the Eastern Corn Belt, we could have come in as high as 170 bushels. Again, it is all about the weather! El Nino seems to be on the way, as we see improved precipitation moving into late spring/early summer. We seemed to get most of the South Delta planted in one quick stretch, and then the North Delta, as rains eventually lightened up. If El Nino will allow us to have regular rains and cooler weather, then we can expect an opportunity to have yields continue to be above average. What about the price? El Nino means generally favorable conditions for us in the United States, but in Southeast Asia, it means hot and dry. The drought seems to be price sensitive, especially for wheat, cotton and palm oil. The world will be watching, as demand has been soft for corn and wheat. That may begin to change. Technically, we saw wheat have a big “UP” day recently. This shows that non-commercial Funds that are short wheat are looking to quickly unload their short positions (buy back) to lock in profits. This type of short-covering could be the catalyst for a spring rally. This crop is ahead of schedule in the Western Corn Belt, but all is not well in the Eastern Corn Belt or the Southeast in general. This has been a wet spring in the east. There is a possibility that there could be a lot of acres of prevented planting in the South and up the Ohio River, due to excessive rains. This always makes for some surprises when the June 30th Quarterly Report comes out. Acres tend to move around. What if Yields Drop? Remember, it’s all about the weather! What would summer be without a weather scare? A 5% drop in corn yields would have us under 160 BPA and substantially below 1.5 billion carry out. We could build a rally on that, especially if wheat was in a short-covering mode. The U.S. Dollar & the Price of Crude The Dollar has been on a strong run, which is not friendly to our exporting grain. This is the highest it has been in 15 years. Crude is the opposite; it fell on Saudi Arabia flooding the market with cheap crude. Their displeasure with fracking has them trying to break that industry with cheap crude and gas. It almost looks like a spread-trade, short crude–long Dollar. That seems to be adjusting recently. If the Dollar backs off, that may give us the demand we need to build a summer rally. Old-crop corn and soybean carryovers seems to be getting smaller with each month’s passing—nothing explosive, but a little tighter as each month goes by. This will not create a cure-all rally, but with the help of some Hot & Dry in July, we might get the chance to sell most of this crop and maybe even some for next year. Rice The May long-grain Supply/Demand report showed an increase of 0.5 mln cwts on the supply side, from additional imports. There were no changes to usage. The net effect on ending stocks is an increase of 0.5 mln cwts to 28.1 mln cwts. There were no changes to the medium grain balance sheet this month. World Supply/Demand showed only nominal changes in ending stocks. The only item of note on this report was a 1.2 mmt (7%) drop in ending stocks in India. This could be something to watch as India is experiencing poor monsoon rains in some areas. Two important USDA reports came out in late March—the March 1st Stocks report and the Prospective Plantings report. Stocks show rough rice up 26% over a year ago. Overall, 2015 acres are projected at 2.92 mln acres, down 24,000 vs 2014 crop. Long-grain acres are projected at 2.2 mln, down 10,000 vs 2014 crop year. Medium/short grain acres are projected at 718,000, down 14,000. Both reports were bearish for long-grain. Long-grain stocks were higher than the trade expected and projected acres were 200,000 higher than needed for current demand. There will be another acreage report in June, with revised numbers which should be more accurate.
The rice market has continued to slide lower for a variety of reasons:
1. Inability to sell Iraq. One of the largest buyers in the world, seems to be closed to U.S. rice.
2. The crash of crude prices stymied strong business we had with Venezuela earlier.3. Higher U.S. dollar continues to put price pressure on U.S. exports.4. Negative USDA reports (see earlier).5. Speculative shorts in futures believe stocks too high and acres too high, plus they are making $.6. The new farm program may be encouraging more rice acres, as some producers view it as a safety net to plant rice acres vs. taking the payment and planting something else. One bright spot is we are out-pacing last year’s long grain exports by 19%. As cheap as our prices are, we should be running strong on exports. Another market that has been greatly beneficial more recently is Columbia, purchasing more rice than was anticipated earlier. We badly need new, sizeable business from buyers like Iraq or Cuba. The Cuban wheels turn slowly, but at least this time they appear to be turning. Cubans have a rice consumption of 900,000 mt (34 mln cwts milled), half of which they import. Here’s an eye opener—rice imports into the U.S. are projected at 24.0 mln cwts (53 ml/bu), equal to the total production of Mississippi and Texas combined, or about 11% of total U.S. production. The Lighter Side A Texan farmer goes to Australia for vacation. There he meets an Aussie farmer and gets to talking. The Aussie shows off his big wheat field and the Texan says, “Oh! We have wheat fields that are at least twice as large”. Then they walk around the ranch a little and the Aussie shows off his herd of cattle. The Texan immediately says, “We have longhorns that are at least twice as large as your cows”. The conversation has, meanwhile, almost died when the Texan sees a herd of kangaroos hopping through the field. He asks, “And what are those”? The Aussie asks with an incredulous look, “Don’t you have any grasshoppers in Texas”? FGT News Construction Ahead!—At Greenville, work continues on a second barge loadout and two new receiving pits to be ready by harvest; two new bins totaling 1.2 million bushels will be finished in June; and a second outbound scale is ready now. New inbound scales have been added at Mound, Waverly, and Greenwood; and new outbound scale ticket printers at multiple locations. Stop by to visit Bruce, Lucy, & Karen as Waverly puts the finishing touches on a new office/scale-room building. These are a few of the investments FGT is making to continue to improve customer service, especially at harvest when speed and efficiency are critical to our customers’ farm operations.
Personnel—Jamie Clendenin joined FGT in April as Merchandising Manager. He will work with C C Craig to market FGT’s grain. Jamie has been in the grain business with a major grain company for the past twelve years. Jamie’s wife, Devlin, and their son and daughter will be moving to the delta from the St. Louis area this summer. Sights and Sounds Kids shout, school’s out Summertime beckons “come play” Planters turn, headin’ for home Prayers begin for rain and shine Just and unjust share alike Romans 6:15-23 What then? Are we to sin because we are not under law but under grace? By no means! Do you not know that if you present yourselves to anyone as obedient slaves, you are slaves of the one whom you obey, either of sin, which leads to death, or of obedience, which leads to righteousness? But thanks be to God, that you who were once slaves of sin have become obedient from the heart to the standard of teaching to which you were committed, and, having been set free from sin, have become slaves of righteousness. I am speaking in human terms, because of your natural limitations. For just as you once presented your members as slaves to impurity and to lawlessness leading to more lawlessness, so now present your members as slaves to righteousness leading to sanctification. For when you were slaves of sin, you were free in regard to righteousness. But what fruit were you getting at that time from the things of which you are now ashamed? For the end of those things is death. But now that you have been set free from sin and have become slaves of God, the fruit you get leads to sanctification and its end, eternal life. For the wages of sin is death, but the free gift of God is eternal life.