This report was a big nothing again. April report does not have any big changes as they do not give us a new crop balance sheet yet. They take the stocks from the last report on old crop and adjust demand so old crop is the only thing that is touched on this report. So as expected no big changes but they did tighten up corn carryout by raising exports, ethanol and feed demand. Bean carryout did come out just above trade expectations but we are at such low carryout levels that a few bushels are not going to make any difference. They lowered domestic crush but increased exports. China has started rolling some old crop beans to new crop which is expected this time of year but does lend credence to the thought that old crop exports are not going to be massively higher. Wheat was a big bearish as they raised old crop stocks but took it out of global supply.
Corn & Beans
In my comments after the report last week I dismissed USDA’s acreage numbers as pure fiction. As I spent the week thinking about those numbers I have decided that the truth is much more subtle. It is like the opposite of a self fulfilling prophecy. The fact they printed those numbers means they must be made untrue. We cannot have that few acres planted no matter what. The market has two jobs right now: slow demand and get more acres.
Ignoring all the outside noise for a minute and just looking at the fundamentals of supply and demand we are headed toward what could be an inflection point in this rally. The Midwest is dry and all things point to a fast unhindered planting season. The market needs to make sure more acres are planted. If we get way more acres planted AND we get timely rains all summer with no threatening weather this market could print the highs sometime before the June final planting numbers come out. Personally I do not think this is a likely scenario but it is a possible scenario and therefore needs to be discussed. One of the biggest reasons I do not think it is a likely scenario is that even though La Nina is weakening, much of the Midwest is going into the growing season very dry. They can hold almost all the moisture they need for the growing season when they start off with the tank full but this year they do not have the tank full. There are also some weather phenomena, other than La Nina, that point to the likelihood of a dry season. Starting off empty means no room for error.
This whole discussion has not even touched demand yet. China has announced intentions to import an additional 1 billion bushels of feed grain. Not all of that can come from the US but a big portion of it must because there is no massive supplies anywhere else in the world. Argentina and Brazil’s corn crops are getting smaller not larger. The spike in old crop corn yesterday was due to rumors of Chinese hard red winter wheat purchases.
What To Do
If we have any threatening weather, all the ag markets are going a lot higher. If we do not, we may put the highs in before the end of June. No one knows what the weather is going to be. The only way to protect profit is to scale in sales. No matter what the market does, you are not wrong to sell at profitable levels. Everyone needs to be making sales at $4.99 Dec corn and $13 Nov beans. This is a tone change from what I have been preaching for the last few months. I have been saying sell if you need to. Now I am saying let’s get at least 25% protected. Let’s hope we are wrong and it is the cheapest we sell. Early basis is going to be strong.
Sell at least 25% of new crop corn and beans at $4.99 and $12.99 respectively!!!
Wheat is up on the rumored demand from yesterday, not from USDA’s report from today. As tight as corn is, wheat is going to go very quickly into the feed channel this year in the southeast. As the corn wheat spread has tightened up, anyone that has hedges on wheat can easily roll them to corn and sell the wheat as feed. The feed channel in the Southeast can suck down the available feed wheat and not even hardly have much of a truck line (unlike a flour mill). If you want to protect wheat right now, I would hedge on the corn board. Feed wheat basis will depend on how many mills decide to use it. If even a couple more mills decide to use wheat, it will greatly increase the competition and help feed basis.
I view the report as bullish on cotton. USDA added exports and domestic consumption. The price break has certainly lost some 2021 acres for cotton which will increase bullishness. The markets dramatic drop was due to fear of retaliation by China. There are some indications the government led effort to boycott american brands is not going as well as they may have hoped. The market reacted to the Chinese headlines with such fear due to how quickly the trade war escalated two years ago. Be patient on cotton.