OCTOBER 12, 2018 DECISION POWER for FARMERS

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INSIDE THIS ISSUE

Market Minute 1

Supply & Demand 2

Cash Comparisons 2

Bull/Bear Bubbles 3

Cash Targets 3

Profit Page 4

Extended Price Contract 4

Grain Storage Quality 4

Contact Info 4

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Professional

USDA report on Thursday was friendly for corn. The

market was expecting the USDA to increase yield and

they lowered it. The market is now expecting to see

further reductions in yield on future reports which

would tighten the balance sheet. This change in senti-

ment has allowed December 2018 corn futures to

break through a key resistance level of $3.70 today,

closing at $3.7375. We had been knocking on that door for two weeks and it finally

cracked open today ever so slightly. The next level of technical resistance lies at $3.90,

which creates an opportunity for farmer selling on the way up.

Dec 2019 has also broken through resistance at the $4.00 barrier setting the stage to

begin locking in sales for next year’s corn. Currently Euro Double Up Accumulators are

pricing in the neighborhood of $4.20-$4.25. As you’ll see later in the newsletter, the fun-

damentals indicate there will be a shift to more corn acres next year. Getting sales on the

books could be critical. Once the market achieves its objective of gaining additional

acres, prices could be under a bearish pressure without some kind of weather problem.

November 2018 soybeans have rallied 55 cents off the contract lows placed in Septem-

ber, yet still $2.00 off the summer high. The global supply and demand picture remains

decidedly bearish, so we rely on speculator short covering to feed rallies like we have

had recently. We still believe short covering rallies in beans are a selling opportunity as

the fundamentals remain bearish. We struggle to see the bean market moving higher

than late July levels of $9.20 in November 18 soybean futures.

With an eye toward 2019 soybeans, futures are offering significant carry to summer

months and November 2019. As of today, cash price for Oct-19 delivery remains north

of $8.30. That price may not light up your 2019 cash flow projection, but $8+ cash beans

might be the ticket to limiting losses if you need to maintain crop rotation.

H arvest is underway as we dodge rain storms throughout the territory. We

hope this newsletter finds you safely on firm footing.

The yield results we are hearing from the country are highly variable, as we ex-

pected. Every grower seems to be finding both pleasant surprises and disappoint-

ments.

Hopefully we dry out soon and we can all get back to work!

From the Pro Grain Team, we wish you a safe a bountiful harvest.

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PROactive — PROgressive — PROfessional

Cash Price Comparison Pocahontas Location

Corn

Last Year Last Month Last Week 10/12/18

$3.01 $2.95 $3.19 $3.25

Soybeans

Last Year Last Month Last Wk 10/12/18

$9.12 $7.41 $7.66 $7.64

Corn headlines should read, “Big Crop Does Not Get Big-

ger.” The latest estimate from the USDA shows the 2018

corn yield shrinking slightly from the September report.

The USDA has only raised September followed by lower-

ing October estimate twice since 2000. In 2006 and 2007

when this occurred, the USDA further reduced yield in the

Nov & Jan reports.

However, the positivity was dampened by changes to the

2017 balance sheet. The largest adjustment was a decrease

to 2017 Feed Usage. As a result, 138 million additional

bushels were carried into the 2018/19 marketing year. To-

tal Supply for 2018/19 is now roughly equal to last year.

The more exciting story is demand growth. The United

States is currently selling the cheapest corn in the world

resulting in an increase in corn exports.

Year over year, Carryout and CO/Use Ratio fall for the

third consecutive year. Tighter supplies, of course, lead to

upward price momentum. It’s worth repeating that the mar-

ket’s number one priority over winter is buy more acres

away from soybeans.

Soybean prices reacted positively to the USDA report. The

increase in soybean yield was offset by a decrease in har-

vested acres.

It’s difficult to get excited about a sustainable soybean

rally. Supply is growing versus last year and demand is flat

to lower. The net result is a Carryout twice as large as last

year and greater than 20% Stocks to Use.

Many analysts expected a reduction to Exports, however

the USDA left 2018/19 Exports unchanged. The longer

China refrains from buying US soybeans, the harder it will

be to justify holding Exports at this level.

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PROactive — PROgressive — PROfessional DECISION POWER for FARMERS

—

Corn While combines sit idle, river terminals

are busy exporting corn well ahead of

projected pace. Locally, ethanol plants

continue to grind despite negative mar-

gins.

The two biggest bubbles on the chart are

both bullish. World Stocks are shrinking

and the market’s job over the next six

months is to encourage the American

farmer to switch acres from soybeans to

corn. These will take time to develop,

which is why they are pushed out to the

Longer Term end of the chart.

Note, there is a fine line to ride, as we

want more corn acres in the U.S., but do

not want to encourage the rest of the

world to plant more corn.

We believe corn needs to rally in the

short term, but will be tempered by

farmer selling especially with harvest

resuming. Keep in mind, our two bullish

bubbles are also located in the longer

time horizon.

Soybeans

Funds are still short, which could mean a

short term really if and when they cover

that position. Soybean processors are

enjoying one of the longest lasting peri-

ods of high profitability on record. Unfor-

tunately, domestic crush capacity can’t

fully offset the lack of exports to China.

Global acres become a problem begin-

ning this winter. Brazil and Argentina are

ready to take a run at being China’s pre-

ferred supplier. The tariff situation com-

bined with a stronger US Dollar make it a

very profitable time to be a soybean

farmer in South America.

The market is expecting a 3% increase in

Brazilian acres. Brazil is currently plant-

ing soybeans now and is off to a record

fast start. We believe Brazil will plant

The bull/bear charts represent key factors in each market. A bigger bubble

represents a larger impact. Time is shown on the horizontal axis (shorter vs.

longer term) and the price impact (bearish vs. bullish) is on the vertical axis.

more soybeans with the record start,

good profitability, and China demand

pull.

Argentina suffered a drought last year

that caused production to drop roughly

16 million mt (or approx. 590 million

bu). If Argentina has a normal crop

without increasing acres or yield that

will add even more supply to World

Stocks.

Cash Corn Targets

2018: Offers at $3.40 to 3.45

2019: Offers at $3.60 to $3.70 and

scale up on rallies.

Cash Soybean Targets

2018: Offers at $7.75 to $8.00

2019: Offers starting at $8.50 and

scaling up on rallies.

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PROactive — PROgressive — PROfessional DECISION POWER for FARMERS

“I think there’s a price rally on the horizon, but I don’t want to pay storage fees

and I could really use some cash now. What are my options?”

Extended Price Contract

Farmer sells cash corn at today’s spot price and buys a futures contract. Farmer is now LONG futures and partici-

pates penny for penny with gains or losses in the futures price. Farmer also has the option to take an advance of up

to 80% of the cash price on the date they enter the contract.

Pros: stops storage fees, upside open to participate in rallies, receive cash advance.

Cons: downside still fully open, may need to inject additional margin money if futures losses occur, bushels must be

delivered.

EXAMPLE: Farmer has delivered corn to the elevator, and sells 5,000 bu against the spot bid $3.20 and enters an

Extended Price contract. The producer then buys 1 March futures contract for $3.80. Farmer takes 80% advance

equal to $2.53/bu (Spot $3.20 less .03 fee = 3.17 * 80%)

Result 1: 60 days later the market has rallied and the farmer sells the March futures contract for $4.00, a 20 cent gain

over the purchase price of $3.80. The contract is settled and paid out as follows:

20 cent gain added to $3.17 original cash price = $3.37 less 2.53 advance = $0.84/bu final payment to the farmer.

Result 2: 60 days later the market has sold off and the farmer sells the March futures contract for $3.60, a 20 cent

loss. The contract is settled and paid out as follows:

20 cent loss subtracted from $3.17 = $2.97 less 2.53 advance = $0.44/bu final payment to the farmer.

PRO

CONTACT US

HEADQUARTERS

712-335-3060

GRAIN TEAM

Geoff Peterson 515-368-3902

Jamie O’Hearn 712-240-4203

Chris Pohl 515-368-4099

Jeff Elbert 712-240-0062

Chuck Tostenson 712-240-0402

Kris Hauswirth 712-335-2097

TRUCKING

Tom Andersen 712-450-0355

Managing Quality in On Farm Storage

Keep a close eye on the quality of your stored grain this fall and

into winter. The wet growing season and harvest conditions

increases the potential for heat damage & mold growth in your

stored grain.

We have noticed cob rot damage in some of the early shipments

arriving this fall. The mold that causes cob rot can begin to

spread as temperatures warm in the spring. This reduces the

longevity of stored corn.

Be aware of both moisture and temperature as you prepare your

grain for long term storage. Core your bins for improved long

term quality.

For more detail, refer to this article from Iowa State University Extension:

https://crops.extension.iastate.edu/cropnews/2018/10/crop-quality-hurt-rains