CORN. March 3, May Corn Futures

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1 CORN OUTSIDE WEEK HIGHER May corn futures recorded an outside week higher this week, making lower lows and higher highs than the previous week and closing higher than last week s high of $ That is a friendly chart signal to technical traders as the market found support and quickly responded with a higher close on the week. Ethanol was a big headliner this week as newswires discussed a new executive order that would move the point of compliance obligation from the refiner to the blender more on that story below. Cash grain values remain subdued despite the stronger board values as basis values reflect a full pipeline. On the week, May futures added 10 0 cents to settle at $ (chart courtesy of Barchart.com) May Corn Futures March 3, 2017 ETHANOL On Tuesday this week, newswires reported that the White House was set to deliver an executive order, moving the Renewable Fuel Standard s compliance obligation from refiners to blenders in exchange for E15 blends to be made available year round. The Renewable Fuels Association (RFA) indicated that the directive from the White House was not negotiable. The statement came out following reports from Bloomberg late Monday that Trump advisor Carl Icahn and the RFA had put the deal in front of the White House which would move the point of obligation downstream to fuel blenders. RFA has long opposed such a move, but would be willing to go forward with it if E15 was allowed to be sold year round. Additionally, conversations indicated that a biodiesel tax credit would be reinstated for producers in the US, a move that would result in higher domestic production of the biofuel. The grains and oilseeds reacted very positively to the headlines with the idea that higher ethanol and biodiesel production would favor corn and soybean oil, respectively. The White House later denied the rumors and chalked it up as Fake News. Editor s Note: From what we ve gathered, many in the ethanol industry would be opposed to such a move by the RFA as the refiners are required to comply with the RFS by blending ethanol into the fuel supply. Renewable Identification Numbers (RINs) are ethanol credits that can be purchased in lieu of actually blending the biofuel into conventional gasoline. The cost of the RINs or compliance is a bur in Carl Icahn s saddle, as he is involved in the refining business. Ethanol production was unchanged from the previous week at 1,034k barrels/day. That figure is 4.8% higher than the same week a year ago and continues to support a healthy demand number on the USDA s balance sheet. Production from here forward would actually need to decline by 1.1% each week in order to hit the USDA s 5,350 mbu ethanol estimate. Given the sustained level of production, we would expect the USDA to bump their ethanol demand estimate in next week s S&D report. On the stocks side, levels continue to grow, up 18 mln gallons (+1.9%) to 970 mln. Those levels sit just below the all-time record high of 979 mln gallons. The USDA s January Grain Crushings report was issued this week as well showing mbu of corn was used during the month of January, up from mbu a year ago (+7.3%).

2 EXPORTS Corn export sales were the lowest in 7 weeks this past week with 27.3 mbu reported. Cumulative sales remain a healthy 57% ahead of a year ago, though that percentage continues to shrink. Last year s export sales starting picking up at this time and remained strong through year end, so further erosion between this year s lead and last year s pace is expected going forward. Cumulative sales stand at 1,709 mbu with the USDA forecasting 2,225 mbu of exports in 16/17. In order to hit that mark, weekly sales will need to average 22 mbu from now through the end of August. Corn shipments for the week ending 2/23/17 were strong at 57.5 mbu. The total was above market expectations and part of a strong 4 week stretch in which shipments have averaged 49.3 mbu. In order to hit the USDA s estimate, weekly shipments will need to average 42 mbu from now through the end of August. This pace is similar to what the US has done in recent years, though there is some concern about the viability of the number considering Argentina is expected to export more corn this year with Brazilian corn also expected to be available around June. NEW CROP CORN December corn made new highs on the ethanol news this past Tuesday, topping out at $ before settling back. Money remains interested in the corn market, paring their net long position by 11k contracts for the week ending 2/28. Overall, a supportive tone remains in new crop corn with risk season very much in front of us. Producers are in good position to lock in margins before planting season by utilizing simple contracts like HTA s or even cash forward sales. Our ProEdge team has been working with producers on Min/Max scenarios, securing $4.00 futures as a worst-case December Corn Futures scenario while still providing upside. If you are in the camp that you hate to let new crop corn go at current values but can t stomach the thought of leaving 100% of your production unprotected, this contract is a perfect fit. Lock in a worst-case with $4.00 Dec futures and provide yourself some upside if the market rallies. If you haven t started selling new crop corn yet, this contract is a no brainer. It translates to $3.75 cash corn out of your bin next year as a worst-case what a deal! One of the most important pieces of a successful marketing plan is capturing margin when the market presents the opportunity you have a lot of bushels to sell: let some of them go at a profit! BASIS Corn basis remained defensive this past week as grain buyers rolled bids from the March to May futures. Farmer selling wasn t super active as flat prices failed to make new highs. Rail freight remains expensive which is a major factor in the weak values we are seeing. Weather complications on the west coast and in the Dakotas have slowed the execution of rail corn and pushed the price of freight higher. This has pushed more rail corn into the domestic truck market, creating the weak values that you see today. Good weather should keep grain moving during March we wouldn t expect values to show much strength in the coming weeks.

3 RECOMMENDATIONS No changes from a week ago. If you need to move corn before you plant, see if basis can t improve before doing so, or take advantage of free price later at select CVA facilities. Producers who can pencil a profit at +$3.75 cash corn for new crop should be paying attention to new crop opportunities up here. I know this market feels friendly, but how dumb would we feel if we let $4.00 futures escape us without selling anything? You d sell $4.00 spot futures today if they were available, right? So why not sell the deferred months when presented with something similar? Don t get too cute here; stick to a very simple principle: lock in profits when the market offers you the opportunity to do so. Reach out to your ProEdge rep to place orders for old or new crop sales the volatility this past week is a great example of how quickly these markets can move and also disappear! SOYBEANS SUPPORT Soybeans quickly found support last week before trading higher and adding 13 2 cents to settle at $ Tuesday s trade saw similar excitement that was experienced in corn when headlines discussing a producer tax credit on biodiesel excited the soybean oil trade. Fundamental news remained relatively light outside of that as traders prep for another round of S&D revisions this coming week. The deeper the USDA goes into the 16/17 marketing year the more likely the 420 mbu carryout that is currently being forecasted looks to be correct. Exports aren t wowing anybody right now and crush doesn t look to deviate from what is already known. The March 31 st Planting Intentions report is the next major objective for soybeans with acreage expansion on the mind of the trade. May Soybean Futures INFORMA Informa updated their production estimates this past week. They pegged Brazilian bean production at mmt, up from mmt the month prior. They made a big move in their Brazilian corn estimate, taking it from 80.0 mmt a month ago to 91.0 mmt this month. EXPORTS Soybean export sales were reported at 15.7 mbu this week, with the USDA also revising last week s total lower in doing so it helped inflate this week s numbers. Cumulative sales of 1,929 mbu are 24% above last year s pace, though that lead is expected to shrink moving forward. Sales will need to average a little over 6 mbu/week in order to hit the USDA s 2,050 mbu export estimate. Soybean export inspections were reported at 25.9 mbu this week, continuing the trend of slowing shipments. The figure was below expectations and brings cumulative inspections to 1,594 mbu, now up just 12% from last year s pace. Soybean shipments will need to average 16.5 mbu/week in order to hit the USDA s target. Editor s Note: With South American soybean production forecasted to be record large, the prospects for US exports to hold up are starting to waiver. The pace required

4 to hit the USDA s mark isn t much below last year s pace, and remember, that happened only after Argentina ran into excessive moisture issues at harvest. The USDA s 420 mbu carryout looks accurate this year after several years of being too high during the winter months. CROP INSURANCE PRICES FINALIZED Official crop insurance base prices were finalized this week. Corn is at $3.96/bu vs $3.86 a year ago. Soybeans were finalized at $10.19/bu vs $8.85 in Comparing the soybean to corn ratios between the two years shows us that producers will be in better position to plant soybeans than they were a year ago. The 2016 insurance price ratio was 2.29 with this year s coming in at NEW CROP SOYBEANS November soybeans rebounded this week, adding 15 0 cents and settling at $ Tuesday s high volume day benefited commodities across the board, with soybean getting a boost from friendly biodiesel tax credit conversations. Fundamentals outside of that remain questionable, as South American crop estimates continue to grow, bringing to question the 2 nd half of the US s 16/17 export program. The 420 mbu carryout currently being estimated by the USDA feels real this year, with soybean basis levels and board spreads providing some evidence. This translates to the American producer in a few ways: 1) the S&D Nov Soybean Futures likely doesn t get any friendlier for 16/17 and 2) the harvest export program may get off to a slow start in 17/18. Harvest basis for the 17/18 crop likely doesn t have to work too hard to keep soybeans moving, so cash sales make sense for any new crop sales taking place (vs outright hedges). With the crop insurance base prices finalized, it looks like soybeans are in the driver s seat to secure some additional acres. Make sure you are taking advantage of our current price structure by making new crop sales on what you are comfortable with. You d hate to let $9.00+ cash sales slip away on the majority of your production. Reach out to a member of the ProEdge team to place orders before you get busy in the field! BASIS Soybean basis feels like it wants to firm some as farmer selling has been pretty quiet. Flat prices haven t made any new highs in recent weeks which is a contributing factor there as well. Producers with hedged old crop beans might find a good spot to let go of some cash inventory should basis firm some before planting. Big premiums in basis values likely don t surface this year given the carryout. RECOMMENDATIONS A week ago we talked about soybeans having an opportunity to rally should we find some support on the charts. The market looks poised to do just that after moving higher a week ago. Producers should view this as another selling opportunity if you re still holding out on old or new crop sales. Fundamentals tell us that soybeans remain overpriced and given South America s crop and the conversation surrounding US acres, soybeans feel like they have a correction coming. Use the price strength to get to a level you are comfortable with on new crop sales!

5 WEATHER IN LIKE A LAMB The beginning of March is starting off on the warm side with temperatures forecasted to touch 70 degrees on Sunday and Monday. The temps will be accompanied by windy conditions with mph forecasted and gusts as high as the mid 40 s. The balance of next week looks amazing with temps in the 60 s and sunny skies throughout. Precipitation chances show back up late in the week with rain/snow chances starting Friday night through Saturday. The map at right shows that forecast, with heavier amounts staying east of the Missouri river. Beautiful weather won t create any hurdles for grain movement, so expect basis to remain heavy. As temperatures warm up, please monitor grain quality for any stored bushels at home. Precip Forecast: Next Fri - Sunday Risk Disclosure -The risk of loss in trading commodities can be substantial and past performance is not necessarily indicative of future results. Therefore, you should carefully consider whether such trading is suitable for you or your organization in light of your financial condition. Any examples given are strictly hypothetical and no representation is being made that any person will or is likely to achieve profits or losses similar to those examples. Neither the information, nor any opinion expressed shall be construed as an offer to buy or sell any futures or options on futures contracts.