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Market Update October 2017

The monthly October USDA report surprised the market with a 2.1 BPA higher yield for the U.S. national average than what analysts were estimating. According to Advance Trading Inc., there is an adage in the grain trading industry that a “big crop gets bigger.” The same however, did not ring true for soybeans as the yield came in less than expected at 49.5 BPA vs. 49.8 BPA estimated and 49.9 BPA in the September report — which rallied SX17 futures 27 cents and left the industry wondering what the USDA would do in the November report as harvest really has just begun to heavily progress across the Midwest.

ATI suggests that uncertainty within the market can be turned into opportunity by implementing a disciplined risk management strategy. Other current market news provided by ATI can be found below and is important to take into consideration when strategizing to combat an uncertain market.

  • Trust the market: prices are cheap right now during harvest relatively speaking and the CME is paying farmers to carry most commodities to a later date. For example, CZ17/CN18 spread is at a 29c carry and SX17/SN18 is at a 37c carry — futures are telling us they want the commodity “tomorrow” but that doesn’t mean prices can’t go lower yet! Use storage, but don’t forget that the USDA and even world balance sheets are telling us there are plenty of corn, beans, and wheat to go around this year.
  • Rice harvest in the U.S. is 91 percent complete.
  • Rice futures prices are expected to remain sensitive to potential developments that surface from the ongoing NAFTA discussions in Washington, D.C.
  • Through Oct. 13, the 2017 crop insurance harvest price for December 2017 corn futures has averaged $3.4953.
  • Through Oct. 13, the 2017 crop insurance harvest price for November 2017 soybean futures has averaged $9.7015.
  • Mid-October corn export sales are coming in strong, but many experts believe the USDA is overshooting exports as the U.S. continues to remain uncompetitive compared to South America and the large corn crop we saw grown down there this past year.
  • Mid-October soybean export sales show increasing demand with China being the biggest buyer, and hopefully this demand continues to ramp up into winter.
  • Weather indicates that mid-October will be a huge harvest week for the Midwest region in corn & soybeans as we are currently 28 percent harvested on corn (47 percent average at this time) and 49 percent harvested on soybeans (60 percent average).
  • Barge freight was high due to hurricane issues, soybean harvest, and low water levels but has since become stable with plenty of barges in the system. This is what drove basis down early this marketing year and again has since stabilized.
  • Soybean market strength is timely for producers with peak harvest expected. South America is expected to grow another large soybean and potentially corn crop that they are planting now, so despite lower prices, continue to take advantage of rallies and low volatility (options are cheaper than most year) to manage your portfolio.

ATI further explains with the market continuing to shift and with a larger 2017-18 corn/bean crop, this type of uncertainty could make it very challenging for producers to succeed without a risk management plan in place.

Having a trusted partner and resource can help you create and implement your strategy for your operation. Be sure to stay in touch with your Big River manager or merchandiser as the market continues to unfold.

 

SOURCE: ADVANCE TRADING INC., October 2017; www.advance-trading.com.