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BRIAN HOOPS

By Staff | Sep 11, 2015

Farm incomes

U.S. farm incomes will drop by more than half from their peak two years ago, according to U.S. Department of Agriculture estimates issued that signal deeper pain for sellers of agricultural equipment and land.

The USDA projected farm incomes this year will drop 36 percent from 2014 to $58.3 billion due to declining crop and livestock prices.

The forecast is down 20 percent from the USDA’s February estimate of $73.6 billion. If realized, the decline would bring farm incomes to their lowest level since 2002 when adjusted for inflation, according to the USDA.

Income will be down about 53 percent from a record high of $123.7 billion in 2013, when crop supplies were tighter.

“The data confirms the deteriorating fundamentals in the farm economy,” JP Morgan analyst Ann Duignan said in a note. Corn futures have lost about 30 percent on the Chicago Board of Trade over the past two years following bumper harvests, while soybean futures are down about 37 percent.

Deere & Co, the largest maker of farm equipment, last week reported that third-quarter profit tumbled 40 percent on weak demand for agricultural equipment and gave a bleaker forecast for fourth-quarter sales.

MCEX record

MGEX, has recorded its highest monthly volume ever, reporting a total volume of 266,043 from August. This breaks the previous monthly record set back in June.

The new high shatters the previous August-best, set in 2007, by 23 percent.

Electronic volume from the month was also the best ever during August and the 2nd-best all-time, finishing at 226,089 contracts traded.

The Exchange has now set three consecutive monthly volume bests for June, July, and August.

Daily volume was consistently high during August, with 17 of the 21 trade dates recording a total volume of more than 10,000 contracts traded.

Calendar year volume now stands at 1,588,094 with four months remaining.

16.3 million

PRNewswire CME Group, announced that August volume averaged 16.3 million contracts per day, up 25 percent from August 2014, and included average daily volume of 23 million contracts during the last week of the month, the highest weekly average ever.

Total volume was more than 341 million contracts, of which a record 89 percent was traded electronically. Options volume in August averaged 3 million contracts per day, up 27 percent versus August 2014, with electronic options growing 37 percent over the same period to a record 57 percent electronic.

CME Group agricultural commodities volume averaged 1.3 million contracts per day, up 25 percent from August 2014. CME Group energy volume averaged 2.1 million contracts per day in August 2015, up 46 percent compared with the prior-year period.

Energy options traded 50 percent electronic for the first time ever, led by WTI options, which averaged a record 138,000 contracts per day on CME Globex.

CME Group metals volume averaged 381,000 contracts per day, up 36 percent compared with the prior August.

CORN ANALYSIS

Corn closed the week 11.75 cents higher.

Last week, private exporters did not report any private export sales.

Weekly export sales showed corn sales were 17.3 million bushels for new crop corn. New crop sales are 40 percent behind last year’s sales pace.

In the weekly crop progress and conditions report, USDA reported 92 percent of the corn in the dough stage, corn dented totaled 60% versus the 5-year average of 60% and 9% is mature.

The good to excellent category ratings lost 1 percent from last week to 68 percent versuss 74 percent g/e last year.

Minnesota’s crop is rated 88 percent g/e, while the crop in Illinois is rated 55 percent g/e, Iowa is rated 81 percent, Nebraska 77 percent and Indiana is 47 percent.

Harvest is 50 percent complete in Texas, while only 2 percent has been harvested in Missouri.

The USDA was scheduled to provide traders with the next glimpse of market information today with the latest supply/demand data.

The trade is looking for the USDA to slightly increase its production figure due to good early harvest data.

The USDA should be conservative with its estimate as it will most likely wait until more yield data prior to making a major adjustment to its crop estimates.

From the demand side, look for the USDA to leave ethanol and feed usage unchanged, while slightly decreasing exports.

This will create slightly larger ending stocks for corn, which are already burdensome.

Corn prices should slide lower into harvest, barring a surprise announcement from the USDA. Harvest data will determine the long term direction for the corn market.

If prices begin to firm, watch the downtrend lines on the daily charts for a technical breakout as that will be a buy point for the fund traders.

Strategy and outlook: Producers are:

  • 100 percent sold of the 2014/15 crop.
  • 50 percent sold of 2015 production and own December puts on balance of production.
  • Exiting puts if December hits $3.35.
  • 20 percent sold of 2016 crop.

SOYBEANS ANALYSIS

Soybeans closed the week 19.75 cents lower.

Last week, private exporters announced sales totaling 898,400 metric tons of soybeans to an unknown destination and 110,000 mt of soybeans to China.

Weekly export sales of new crop soybeans were 54.1 mb, a marketing year high for the second consecutive week.

The weekly crop progress report showed 9 percent of the crop is dropping leaves nationally, slightly ahead of the average of 7 percent.

The condition of the crop was left unchanged from last week at 63 percent g/e versus 72 percent last year.

Iowa is rated 76 percent g/e, Minnesota 79 percent, Nebraska 74 percent, while Illinois is 53 percent and Indiana is 47 percent.

The USDA was scheduled to provide traders with the next glimpse of market information today with the latest supply/demand data.

The trade will be looking for the USDA to slightly increase its production figure due to excellent growing conditions during the month of August.

The USDA should be conservative with its estimate as it will most likely wait until yield data comes in prior to making a major adjustment to its crop estimates.

From the demand side, look for the USDA to leave crush mill usage unchanged, while slightly increasing exports.

This will create slightly larger ending stocks for soybeans. Soybean prices could dip ahead of the report.

Barring a major surprise, look for rallies to be sold by traders.

Strategy and outlook: Producers are:

  • 100 percent sold of 2014/15 production.
  • 50 percent sold of 2015/16 production and own November puts on balance of production.
  • Exiting puts when November hits $8.35.
  • 20 percent sold of 2016 November.

This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.

Brian Hoops can be reached at (605) 660-1155.

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