The new U.S. tax law is poised to drive more control over the nation’s grain supply to farmer-owned cooperatives, provoking concern among ethanol producers and privately run grain handlers that they could be squeezed out of the competition to buy crops.
Until now, the cooperatives, private companies and publicly traded firms had a more even opportunity to handle the grain supply used in everything from loaves of bread in supermarkets to livestock feed. The changes mean massive grain traders such as Archer Daniels Midland Co, Bunge Ltd. and Cargill Inc. could find it difficult to source corn, soybeans and wheat. The perceived threat to these companies stems from a provision included in the final stages of the law’s passage in December. It gives farmers such a big tax deduction for selling their produce to agricultural cooperatives that private firms fear their grains supply will dry up.
Corn closed the week four cents lower. Last week, private exporters sales totaling 422,100 mts of corn to an unknown destination.
Weekly export sales of corn showed a total of 17.2 mb (437,700 mt) with all for the 2017-2018 marketing year. This put total marketing year sales at 1.067 bb, 25 percent less than the previous marketing year. Weekly ethanol production was reported at 996,000 barrels per day while stocks were reported at 22.7 million barrels. Last week’s production was reported at 1.032 million barrels per day, stocks were reported at 22.6 million barrels.
We have seen a decrease in ethanol production 4 of the last 5 weeks. In the January 12 reports, the USDA increased slightly corn yield to 176.6 bpa from 175.4 bpa previously and increased production to 14.604 bb from 14.578 bb prior. They also lowered harvested area to 82.7 million acres from 83.119 million acres, a small surprise to the trade. U.S. corn carryout was increased to 2.447 bb from 2.437 bb in December due to the production increase and 15 mb lower exports. US December 1 quarterly stocks were reported at 12.516 bb, higher than December report of 12.386 bb and the average trade estimates 12.431 billion bushels.
As prices rally during the winter months, producers look to sell the carry and lock in basis as it narrows. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.
Soybeans closed the week $.07 1/4 lower. Last week, private exporters announced sale of 524,000 mts of beans to an unknown destination and 120,000 mts of soybeans to Egypt.
Weekly export sales of soybeans showed a total of 22.6 mb (616,400 mt) with 22.3 mb (607,400 mt) for the 2017-2018 marketing year. This put total marketing year sales at 1.523 bb, 14 percent less than the previous marketing year. In the January 12 USDA report, the USDA lowered soybean yield and production to 4.392 billion bushels from 4.425 bb and yield to 49.1 bushels per acre from 49.5 bpa, while leaving harvested acres practically unchanged at 89.5 million acres. Despite the production decrease, ending stocks increased to 470 mb from 445 mb the prior month as U.S. soybean exports were cut 65 million bushels. U,S, quarterly stocks as of December 1 were increased to 3.157 bb vs. 31.79 bb last year. The market focus should now turn solely to production in Argentina and Brazil. The market has factored in large crop so any threatening weather will send prices soaring.
Strategy and outlook
Producers should have made sales as prices rallied into resistance. Selling inventory on rallies and replacing ownership with option strategies not only decreases risk, but also allows producers to free up equity and generates cash flow.
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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