MGEX has productive March

MGEX reported March 2019 as the third-best March in MGEX history with a total volume of 163,316 contracts traded. Total electronic volume for March was 144,487 contracts. Options volume was reported at 2,840 contracts. As of market close on Friday, March 29, open interest was reported at 66,948 contracts, which is 8 percent higher than of February 2019.

Little hope for damaged bushels

There’s nothing the U.S. government can do about the millions of bushels of damaged crops here under current laws or disaster-aid programs, U.S. Agriculture Under Secretary Bill Northey told a Reuters reporter.

The USDA has no mechanism to compensate farmers for damaged crops in storage, Northey said, a problem never before seen on this scale. That’s in part because U.S. farmers have never stored so much of their harvests, after years of oversupplied markets, low prices and the latest blow of lost sales from the U.S. trade war with China – previously their biggest buyer of soybean exports.

The USDA last year made $12 billion in aid available to farmers who suffered trade-war losses, without needing Congressional approval. The agency has separate programs that partially cover losses from cattle killed in natural disasters, compensate farmers who cannot plant crops due to weather, and help them remove debris left in fields after floods.

Farm stress and bankruptcies on the rise

A report from the Minneapolis Federal Reserve Bank shows farm stress and bankruptcies have increased in the upper Midwest. The Federal Reserve ninth district reported 103 chapter 12 bankruptcies in 2018, compared to 79 the previous year. Farmers in the region continue to face low prices for commodities and high production costs. In particular, dairy farmers are experiencing challenging times, with overproduction and low prices. Total costs for inputs like seed, fertilizer, pesticides, fuel and electricity have risen by 50 percent since 2006 for Minnesota farmers.

Corn analysis

Corn closed the week $.05 1/4 higher. Last week, private exporters did not announce any export sales.

U.S. corn exports, for the week ended 3/28/19, were strong at 49.6 million bushels, easily besting market expectations and rising from the previous week’s 39.2 million bushels. Corn exports exceeded the average “needed” shipment pace of roughly 42.5 million bushels/week in order to reach the USDA’s 2.375 billion bushel export projection for the first time in 10 weeks, but were still below last year’s same-week exports of 56.9 million bushels.

U.S. ethanol production, for the week ended 3/29/19, posted the first increase in four weeks to 999k barrels/day (294 million gallons/week) from 975k bpd (287 mil gal/week) the week prior, it was still a solid 3.8 percent below last year’s same-week production of 1.038 million bpd, reflecting the 7th consecutive week of production below year ago levels.

U.S. ethanol stocks slipped last week to 1.008 billion gallons (23.992 million barrels) from 1.027 billion gallons (24.448 million barrels) the week prior, but were still 7.0 percent (66 million gallons) above last year’s same-week stocks of 942 million gallons and maintained record levels on a same-week basis being above 2017’s 996 million gallons.

Midwest U.S. producers will begin to seeding corn acres by mid-April and weather will become very important to pricing by May. If the month of April is wet and hampers producers planting efforts, look for December corn to rally in an effort to entice producers to plant corn later, rather than switch acres to soybeans.

Strategy and outlook

Producers should use options to re-own and manage risk. Weather related rallies are selling opportunities.

Soybeans analysis

Soybeans closed the week $.14 3/4 higher. Last week, private exporters announced sale of 828,000 mts of U.S. soybeans to China.

U.S. soybean exports last week of 26.9 million bushels were within market expectations but were down from the previous week’s 31.6 million bushels and were below the average needed export pace of 31.3 million bushels/week in order to reach the USDA’s 1.875 billion bushel project, the first time that has occurred in 12 weeks.

The average needed pace reflects a 27 percent increase from last year’s 24.6 million bushel/week average. The quarterly stocks report and world ending stocks ensure the world has an adequate supply of soybeans and the market is not signaling to producers to increase seeded acres in 2019. However, a planting season that is slowed by heavy rains, will encourage farmers to switch plantings of corn over to soybeans, the last thing the soybean market needs.

Strategy and outlook

Producers should use options to re-own and manage risk. Weather related rallies are selling opportunities.

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.