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Profit Watch Commentary – Nov. 8, 2013

Whew! The report is out of the way. And, more importantly, it was a great ending to a loooong week. December corn closed 6 cents higher at $4.2675, and posted a key reversal in the process. January soybeans settled nearly 30 cents higher at $12.96. December wheat was 3 cents lower and finished the day near $6.50. For the week, December corn gained a mere penny, January soybean netted 44 cents and Chicago wheat fell 18 cents.

We were happy with today’s rally, but we are thinking the boys on Wall Street are feeling even better. The DOW finished up 168 points to close at a record 15,762 points. It is the 5th straight weekly gain for both the DOW and S&P 500.  The Labor Dept reported that we added about twice as many jobs in October as Wall Street expected. Some analysts felt the jobs numbers were shaky (or will be revised later), but they were obviously overruled. In addition, the labor participation rate dropped to 62.8%, the lowest since March 1978. Logic would suggest that fewer workers is a bad thing. We would be wrong. Another 720,000 people dropped out of the workforce this month and Wall Street goes wild. Hello? Is anyone paying attention?  We wouldn’t make such a big deal about the rally on Wall Street, but it impacts agriculture. The “positive” jobs number (if that is what you want to call it) is the reason the dollar rallied. A strong dollar makes our commodities more expensive to the world. Big supplies require big demand to keep balances in check. That could be a problem, if the dollar keeps marching higher.

Well, Uncle Sam was all about “big” today. According to the USDA, we have both BIG crops and BIG demand. In a nutshell, yields were near the trade’s expectations, but the acreage decreased more than anticipated. The USDA also increased demand more than the trade expected, thereby resulting in a smaller carryout.
Mind you, the carryout is still very large for corn at 1.887 bln bushels versus last year’s carryout of 824 million. The excitement today was that the carryout wasn’t over 2 billion. The soybean carryout is a different story. After last year’s drought, we were left with 141 million bushels of soybeans at the end of August. Today, the USDA is projecting a carryout of 170 million. Demand is that good. Prices will have to ration demand, at least until South America’s crop is made. Trader’s that were once demand-doubters have found religion.

This crop year is one for the record books. 16 states either tied or broke their previous corn yield record. Seven states posted new record soybean yields. We have a record supply of corn to be stored this Fall. We established a record plant population in corn and a new record pod weight in soybeans. Notice that all of the records are on the supply side of the equation. Although current demand is not breaking any records, it has snapped back faster than most thought possible after last year’s high prices.  There was a lot of information in today’s report, and we will try not to bore you with too many details.


The USDA increased the corn yield from 155.3 bpa in September to 160.4. The planted and harvested acres were lowered near 2 million. Given that adjustment, the production came in just slightly under 14 billion at 13.989 billion. On the demand side, feed usage increased 100 mln, exports up 175 mln and ethanol steady. Exports are nearly double last year, and it was the largest Sep-Nov move in 22 years. The USDA increased yields in Illinois +15, Iowa +7, Indiana +9 and Nebraska +5. Yields were up on average 3.2 bpa in the WCB and 8.7 bpa in the ECB. Record yields for all ECB states except Wisconsin. IL and WI were right at record, IN 3 bushels above old record. Planted corn acres were down 880,000 in the WCB, with harvested acres down 870,000. More specifically, every state was lower except South Dakota. Heavy hitters such as Iowa was down 400,000 acres and Minnesota dropped 100,000. The USDA lowered planted acres in the ECB 600,000 and harvested acres 530,000. Acreage was also lowered in the Midsouth and East/Southeast states. Record yields reported in every state but Texas and South Carolina.

The USDA increased yield 1.8 bpa to 43 bpa. Acreage was lowered 700,000. Evidently the special survey the USDA took in late summer caught most of the acreage revisions. Total production was slightly under the average trade guess at 3.258 billion. The USDA was somewhat aggressive on demand to the surprise of many. Uncle Sam increased crush 30 mbu and exports 80 million. Carryout increased 20 million from September to 170 million, in line with the trade estimate.
The USDA left soybean production unchanged for Brazil and Argentina. However, if realized, those two countries would combine for 141.5 MMT in production versus 130.7 this past year. More competition. The USDA increased yields by 2 bushels in Iowa and Indiana, +3 in Illinois and +5 in both Nebraska and South Dakota. Ohio tied its record yield. Most of the record yields were in the Midsouth and E/Southeast states. Acreage fell 300,000 in the WCB. Of note, Iowa dropped 200,000 acres with North Dakota adding 250,000. The ECB acres were lowered 200,000. Historically, if the USDA increases yield from the September to November reports, they also increase yield from the November to January reports. That isn’t what you wanted to hear, but it is reality. It is also a reason to hold onto the Put position for a bit longer. Technically, prices finished on a strong note. The funds are holding a near record short position in corn, and a large long position in soybeans. We could get some more mileage out of this report next week. It appears $4.40 December is a target, and $13 -13.50 January soybeans. We will most likely suggest sales at these levels. We will also start pushing 2014 a bit more aggressively.

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Profit Watch Commentary – Nov. 1, 2013

Prices finished the week off on a poor note. Soybeans and wheat took the worst beating this week.November soybeans lost 34 cents and December wheat fell 23 cents.  December corn fell 12.75 cents lower, but it has been in a funk for some time.  Today, December futures carved out a fresh low of $4.2575. The fundsare holding onto a record short in corn, so perhaps we are nearing the bottom.  If you want some good news, get off LaSalle street and head over to Wall Street.  The DOW was up 70 points today and closed at 15,616. Unbelievable.

The S&P is also going up like gangbusters. The dollar has also taken off, but that isn’t good news for ag.  A stronger dollar makes our goods more expensive to buy. We are not surprised to see prices drift lower this harvest. Producers, in general, are pleasantly surprised with yields this year.  Evidently the cooler temps played a much greater (and beneficial) role in production versus the lack of moisture.  We should have a decent handle on bean yields as harvest is nearly complete.  Traders are guessing bean harvest will be 85-90% complete by Monday.  Corn harvest is probably 70-75% complete. The weather forecast is a mixed bag, so harvest pace will likely be slow going forward. The USDA will release production estimates next Friday. The market is more anxious than usual about next week’s report.  In the meantime, we will be entertained by private guesses.

Today, two well-recognized firms released their estimates.  Their estimates exceeded USDA’s September estimates in both corn and soybeans. Larger estimates were one of the reasons prices fell today. Ironically, Informa and FC Stone published identical corn yields of 161.2 bpa.  Informa has factored in record corn yields for IN/OH/MI.  FC Stone expects the same records with IL added to the list. On average, Informa and Stone increased the Iowa yield 3 bpa, Minnesota +1.5 bpa and Nebraska +6 bpa. In the last 33 years, the USDA has increased yield estimates from September to November 61% of the time.  The largest increase came in the record breaking years of 1994 and 2004. (See below for a summary of estimates.) Thus, the odds are HIGH that yield will increase.  How much the USDA will offset yield with an acreage revision will be key.  Informa bumped their soybean estimate significantly to 43.3 bpa.  FC Stone also put out a healthy 42.8 bpa estimate.  Wow. Late plantings didn’t mean a thing? Informa thinks Ohio will set a new record this year.  FC Stone thinks IL, OH and MI will set new records.  The odds of the USDA increasing bean yields from Sep to Nov is 55% in the past 33 years.  Once again, what will the USDA change in acreage versus yield?

Corn                Informa    FC Stone    USDA
November yld est     161.2      161.2      ???
November prodn est  14.223     14.367      ???
Prior yld est        158.8      158.7     155.3
Prior prodn est     14.010     14.150    13.843
November yld est      43.3       42.8      ???
November prodn est   3.298      3.270      ???
Prior yld est         41.7       41.4      41.2
Prior prodn est      3.176      3.163     3.149
Crop Insurance Prices (Unofficial)
Corn     $ 4.39     $ 5.65 Spring
Soybeans $12.87     $12.87 Spring

Have a Great Weekend.

CBOT  Closes                  Today    Wkly Chg      Yearly Highs

Dec 13 Corn          $ 4.27 1/4     –  1          –  12 3/4    $ 6.05
May 14 Corn        $ 4.37 1/2     –  1 3/4   –  14 1/2     $ 6.14
Jul 14 Corn          $ 4.52 1/4     –  2          –  16            $ 6.21Dec 14
Corn                     $ 4.66 3/4     –  2 3/4   –  16           $ 5.87 3/4
Dec 15 Corn        $ 4.82 3/4     –  1 1/2   –  13 1/2     $ 5.68 3/4
Nov 13 Beans     $12.66          – 14 1/4    –  34           $14.09 1/2
Jan 14 Beans     $12.51 1/2     – 14 3/4   –  42           $14.06
Mar 14 Beans    $12.37          – 13 1/4     –  35           $13.77 3/4
Jul 14 Beans      $12.24 1/2     – 10 1/4   –  25 1/4   $13.50 3/4
Nov 14 Beans    $11.45 3/4     – 12 1/2   –  19 1/4    $13.15
Nov 15 Beans    $11.41 3/4     – 10 1/4   –  20           $12.71 1/2
Dec 13 Wheat    $ 6.67 3/4     +    1/4   –  23           $ 8.34 1/2
Mar 14 Wheat    $ 6.79 3/4     +    1/4   –  22           $ 8.45
Jul 14 Wheat     $ 6.84 3/4     +  1 1/4   –  16 3/4    $ 8.22 1/4

KCBT Closes

Dec 13 Wheat   $ 7.33 1/2     –  7         –  25 1/2    $ 8.90
Mar 14 Wheat   $ 7.36            –  6 1/4   –  23           $ 8.90 1/2
Jul 14 Wheat    $ 7.22 3/4     –    1/4   –  14 1/4    $ 8.39

MPLS Close

Dec 13 Wheat   $ 7.25 1/2     –  4 3/4   –  19 1/2   $ 9.03 1/4
Mar 14 Wheat  $ 7.37            –  4            –  18         $ 9.06 1/2
Jul 14 Wheat    $ 7.48 1/2    –  1 3/4   –  16            $ 8.90

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Financial Planning

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Invest in Farmland using your IRA

If you are looking for a strategy to diversify your retirement funds consider farmland – a proven investment that compares favorably with equities with the benefits of cash flow, as well as, capital appreciation.  Generally, earnings in an IRA account are exempt from taxes – except in the case of debt-financed rental property and also operations that are classified as a trade or business activity.  Careful planning is needed but including real estate, especially farmland, in your retirement portfolio is gaining in popularity.

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Short-Dated New Crop Options

A new, cost-effective alternative to traditional options, short-dated new crop options expire much earlier, resulting in premiums that are lower because of the reduced time value.  The three contract months are May, July, and September with corn options using the underlying December contract and soybean options using the underlying November contract.  Perhaps one of the biggest benefits to using these new options is the ability to trade high impact events, such as USDA reports or a dramatic change in the weather outlook.

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