March 25, 2016

CORN

SIDEWAYS Corn continues to take a backseat to soybeans as the funds seem content to keep their large short position in place. Next week ushers in the much anticipated Prospective Plantings and Quarterly stocks report – both slated for an 11:00 AM release on Thursday. Market participants largely agree that corn acreage will be higher this year than last, as alternative crops offer lower returns than the potential that corn provides. That idea has kept a lid on the corn market until proven otherwise. Quarterly stocks will also be released next Thursday, which measures grain in all positions as of March 1st. These reports typically provide surprises and offer a glimpse at the pace of feed demand. The outside markets have recently aided commodities, but that tune changed this week as the US dollar saw strength and crude oil tumbled late week. The terror attacks in Brussels certainly impacted the broader market as the European economy is sure to face additional headwinds. On the week, May corn added 3’0 cents to settle at $3.70’0. ETHANOL The Department of Energy’s (DOE’s) weekly ethanol report showed another good week of production with 995k barrels/day reported. That number was down slightly from the week prior, but still large enough to be in the “Top Ten” largest single production weeks of all time. In addition to solid production, ethanol stocks fell for the 2nd week in a row, now down 3% in the last 2 weeks. The drawdown in stocks has been driven by gasoline demand, which continues to run higher than the comparable time period a year ago. Spot ethanol margins remain tough despite the recent rally in crude oil. EXPORTS Weekly export sales were below expectations this week with 31.6 mbu reported. That total was well below the 6 week average of 40.8 mbu, but still above the weekly “needed” pace to hit the USDA’s 1,650 mbu export estimate. Sales have been running stronger than those of a year ago for this time, an encouraging sign for this year’s underwhelming export program. Cumulative sales to date stand at 1,215 mbu vs 1,456 mbu the year prior (-17%). In order to hit the USDA’s mark, weekly sales will need to average 18.1 mbu from now through the end of August. Export inspections hit a marketing year high this week at 39.9 mbu. The total was above the upper end of expectations and comes at a time when inspections (shipments) should be hitting their stride. Total shipments this year are now 692 mbu vs 847 mbu a year ago (-18%). In

May Corn Futures

order to hit the USDA’s target, weekly shipments will need to average just under 42 mbu each week from now through the end of August. USDA REPORTS NEXT THURSDAY The USDA will release their Prospective Plantings and Quarterly Stocks reports next Thursday. Traders expect corn acreage to be just under 90.0 mln acres, which would be up 2 mln acres from 2015. Soybean acreage is estimated to be slightly over 83.0 mln acres, up 500k acres from last year. The numbers will report expected planting estimates as of March 1st. Report time is scheduled for an 11:00 AM release. 2016 CORN New crop corn didn’t do much this week, adding 1’6 cents to settle at $3.87’2. Despite the tight trading range, it does mark the 4th straight week of higher closes for new crop corn, which should count for something. Still, December futures couldn’t quite get back to the topside of the range where producers are looking to establish some sales. $3.95’0 marks the high tick that we saw back in early February. Some traders have been discussing that in years with large carryouts, we tend to see prices peak early, so springtime for 2016/17 corn. This is when we see the most uncertainty surrounding the crop; things like early weather and its impact on acreage and early crop condition. Next week’s Planted Acreage and Quarterly Stocks reports will provide near term direction for the corn market and set the tone for trading from now through early May. The trade is expecting corn acreage to fall in just under 90 mln acres, an increase from last year. Some in the trade expect a number closer to 91 mln, which would be digested as bearish by the trade. Keep in mind that the funds continue to maintain a sizeable short, and that any bullish surprises next Thursday could trigger a short covering rally in corn. For producers looking to remove some new crop risk ahead of the numbers, our ProEdge team has done some good work on Min/Max strategies that will help you secure $4.00 futures as a worst case scenario. Put a $4.00 floor on 10% of your production and still maintain upside potential – what’s wrong with that?! Call your ProEdge Specialist for details on how to put this protection in place ahead of next Thursday! BASIS Corn basis was a touch firmer this week due to poor weather conditions and the lack of movement in the futures market. Producers have been focusing their attention on the soybean trade, with sales there satisfying any near term cash flow needs. Moving forward, basis will continue to be quite sensitive to price movement in the futures market. With recent weather halting fieldwork, area producers will have the capability to haul grain even into April. A pop in the board will certainly result in weaker basis levels. RECOMMENDATIONS With the USDA releasing some important numbers next Thursday, take stock of where you are at on old and new crop sales. We like the idea of eliminating risk in both categories ahead of the Thursday numbers. Reach out to your ProEdge rep for strategies that can work for you. We like the Min/Max using March ’17 futures to reduce new crop risk – secure some $4.00 futures for new crop ahead of the numbers!

Dec Corn Futures

SOYBEANS

TECHNICALLY STRONG Despite the stronger US Dollar, soybeans continued their March higher (pun intended) this week. Following a stronger close last Friday, the US dollar index traded higher every day this week, propelled by the terror attacks in Brussels and weaker currencies across the globe. Crude oil was weaker as a result, losing 4% alone during Thursday’s session. Additionally, US FED officials were discussing tighter monetary policy this week, a week after they kept interest rates in tact. Despite the negative outside markets, May soybeans were able to add 13’0 cents and settle at $9.10’4 – the highest weekly close since last August. Commitment of Traders data on Friday showed the managed money sector net long soybeans – more on that story below. EXPORTS Soybean export sales came in at the bottom end of expectations this week with just 15.1 mbu reported. Like corn, the recent sales pace has actually been running ahead of last year; evidence that foreign buyers have been operating in the spot market. Why book forward contracts if your price outlook is bearish? Well, that mentality has been in play for this year’s export program, resulting in slow export sales right away and better volumes later on. The better pace lately has led to cumulative sales of 1,610 mbu vs 1,780 mbu a year ago (-9.5%). For the US to hit the 1,690 mbu export target, weekly sales will need to average 3.3 mbu from now through the end of August. Editor’s Note: Recent strength in the Brazilian real vs the US Dollar might be encouraging foreign buyers to give the US another look. Prices have actually tipped in the favor of the US, which might encourage some additional sales in the coming weeks. It’s likely not a game changer, but any additional export business that the US can grab will be welcomed. Soybean inspections (shipments) were within expectations this week with 21.1 mbu reported. Total shipments to date stand at 1,501 mbu vs 1,604 mbu a year ago at this time (-6%). Shipments continue to slow in seasonal fashion, though the recent pace has provided hope that the current USDA export estimate is achievable. In order to do so, weekly shipments will need to average 8.2 mbu over the remaining 23 weeks. COMMITMENT OF TRADERS – FUNDS The most recent COT report showed the managed money sector (funds) at a net long position of 40k contracts through trading this past Tuesday. This comes as no surprise to the trade as the fund induced rally has added 60 cents to the soybean market during the month of March. The orange line to the far right shows the managed money sector being net short just a few weeks ago and currently

May Soybean Futures

net long. The corresponding dark blue line is the “commercial” portion of the market. This segment represents commercial grain business – so the elevators and processors of the world. Looking at the chart you can understand why soybean basis values have been so defensive the past few weeks. As the market rallied, end users and elevators bought a lot of soybeans which pushed their net futures position into more negative territory. So, as the funds bought back their positions, farmers were on the other side making sales. How much length can the funds add to their current position? It’s the right question – answer that and you have a good indication on where prices will go. Given that the current technical outlook just turned friendly on the recent move, we may not see the funds go back to negative territory right away. Keep an eye on the outside markets – the US dollar weakness was a big reason behind the soybean rally; it looks like that move by the greenback is running out of steam. 2016 CROP New crop soybeans had a nice week, adding 11’0 cents en route to a $9.22’6 close on Thursday. That number is the highest close since early December and puts harvest cash soybeans in the $8.40+ range depending on your local basis. The fundamentals don’t align with what we are seeing in the soybean market, but the funds have a way of doing that from time to time. One might think that soybeans are poised to trade straight back down right away, but given the friendliness of the charts and underlying technical support, soybeans might be in a position to hang around these levels for a while. The question is, how much length will the funds add in the coming weeks? Resistance lies just overhead at the December high of $9.26’4. Should we break through this and trade higher, there isn’t much for technical support that will keep soybeans from wanting to trade back down to moving average support. The 200 DMA sits at $9.05 while the 20 DMA is just below at $9.03. Expect these to provide more significant support should beans break lower. For producers looking to take advantage of the rally (and we think that’s a great idea!) we like a few things: Cash sales off the combine are close to $8.50 currently. If you like the idea of locking in a floor, the ProEdge team was securing $9.20 futures for next fall with upside to $9.60/$9.80. Also, $9.60 Triplexes were filling this week, which gives you an opportunity to price beans with a $9.60 futures price next fall. Regardless of the strategy that’s right for you, we love the idea of taking advantage of the recent strength. Call your ProEdge rep to discuss the best solution for your operation! BASIS Soybean basis continues to backpedal given the recent rally. Processors are covered up nearby, buying everything they wanted from willing farmer sellers. Let the soybean market provide a lesson to you if you are holding large quantities of unpriced or hedged corn that you intend on shipping this spring/summer. Should corn see some type of rally develop, the flat price (cash) will have difficulty rallying by the same amount, as basis will likely be softening. Reach out to your ProEdge rep for ideas on how to manage this risk! RECOMMENDATIONS Continue to make scale up sales just under areas of technical resistance. For old crop soybeans that would be $9.17 and $9.29 May futures. For new crop, $9.26 represents resistance. If you are in the camp wishing you had made sales last July when soybeans were trading just under $10.50, but didn’t because you got sucked in to thinking they would go just a bit higher, learn from that moment and sell

Nov Soybean Futures

when the funds are on your side. Incremental sales work best for us, removing risk in methodical chunks when the market provides the opportunity. Don’t fall asleep at the wheel here – be talking with your ProEdge rep about selling old crop soybeans: bushels in the elevator, on farm, or on our Extended Price contract. And don’t forget about new crop sales! $8.50 cash is right around the corner! Put an order in and take the emotion out of the decision to sell.

WEATHER

COOL DOWN The recent cool down to more normal temperatures was accompanied by precip through the CVA territory on Tuesday night. Snow totals as high as 12-15” were present in portions of northeast NE and northwest IA. Farmers looking to get an early start on spring field work will have to take a quick breather as temperatures look to be in the 40’s-50’s for the foreseeable future (outside of early next week). The map at right shows the 4” soil temperature for the Midwest. Prior to the recent cool down, soil temperatures were anywhere from 3 to 15 degrees above normal for the entire corn belt. Soil temperatures need to be 50 degrees in order for corn to germinate.

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you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are

strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the

information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.