Heartland Weekend Newsletter - Corn and Livestock

Commentary

This Monday afternoons planting progress report is going to be scrutinized heavily with resulting trade in the Monday night session. Planting progress is thought to be in the 89-92% range. Anything under 90% is going to be bullish, as logistically planting corn past today is going to become almost non-existent. Reporters for the USDA are being asked to inquire from producers if they do plan to continue trying this week. Any corn that is continued to be planted this week that is included in acreage, again pulls downwardly on the national yield even more than that which is planted June 1-15.

The soybean guesses for planting progress are put at 80-83% and given the fact that planting of the beans keeps you eligible for the MFP, they will likely plant beans until July 1. Its not about yield as much it is capturing the check for MFP which is anticipated to be high.

Moving forward, it will continue to always be about corn, and what the preventive plant acreage will be along with the crop condition scores that are maintained going forward. Soybeans and wheat have been and will continue to be a proxy to corn.

Essentially corn has gone up over a dollar, and you can plot that alongside of soybeans and July Chicago wheat for equal price movement to the upside. Wheat and soybeans are not rising on their normal ratios to corn, theyre literally moving up plotted on a weekly basis almost penny for penny. The rising tide floats all ships affect stays in motion with corn being the protein that prices all protein in the world for grains.

Fridays breakout trade and the rain prospects for the Eastern corn belt that continues to struggle, should continue to lift corn on the breakout trade from last week. The upside target on the weekly charts does show measuring objectives to the 5.00-5.20 range. This pricing area is exceedingly important if it can even be achieved as sales for those that have a crop planted need to be aggressively pursued and we will have futures and options strategies Tuesday-Wednesday to capitalize on opportunities as its likely we should be able to achieve those ranges.

Wheat and soybeans are along for the ride and need to be aggressively sold as well on further strength. Essentially, we are in a timing window that opens now and carries through July 8 for a major high. Rallies need to be incrementally sold until a high is found, averaging up all the way. Because when this supply pinch has even the hint of being calculated for final yield, there is no demand to physically buy these grains at the valuations we have and are creating on the way up. World available supplies will basically take our market away worse than it already is, and the market will then be in search of any domestic needs that have either satisfied forward pricing now or will wait for the crop later.

The HRW wheat yields for Oklahoma, Texas and Kansas are considered better-than-expected. Some early reported yields are record large. The question of quality cannot be assessed this time, but we have a commercial grain system that specializes in discounts to the farmer for diseased crops, blends it (for profit) an in turn, sells it off into the export market. HRW wheat is very close to and will likely go for less than corn prices at the board, and it can happen. It happened in 2012, 1986 and again in 1976. This takes some of the top side off corn, but at least creates a higher value for the wheat crop which wouldve been absolutely in the tank had it not been for the corn rally.

Another thing we will be watching is to start pricing 2020 and 2021 corn. US acreage for corn next year will likely explode to near 100 million acres. A Chinese trade deal will be necessary, and with elections next year, it is anticipated a trade deal to be knocked out in the next 12 months. But we still must take advantage of any new crop 2020 and 2021 values that are extended from where they are presently. 450 will be major resistance on those chart years as well, and if corn makes a run on 2019 values to $5.00, that should pull us higher to the 440-440 range on the further years out range to lock in hedges.

A timing window for a high opens up now, and supply crunch years suggest by July 8 an ultimate high can be in. In years past, it seems like July 15 is the tipping point when prices start moving lower. In the flood year of 1993, prices collapsed after July 19 and never bottomed until November. Weve only scratched the surface with new crop sales and will now look to become more aggressive on further strength.

We are still carrying 25% of our 2018 corn having sold 75% of 2018 supplies at a 422 average. Our old crop sales on beans, as we have showed with our previous calculations, we had sold for $11 plus on 100%. We are 40% sold on new crop corn and 25% of new crop beans with only a start of 20% for new crop spring wheat. The next two weeks we will becoming more aggressive.

The beginning of the end is starting for this rally. Will be looking for clues for spiking top action. Just 30 days ago the pricing opportunities for farming in 2019 was quite depressing. Dont fall asleep now on the happy feeling of prices, because theyre not going to stay much beyond mid-July.

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Corn

Corn officially broke out last week with two successive closes above contract highs the past two weeks and solidly above multi-year resistance for the July contract in the 445 range.

Upside target objectives on the weekly chart is 478 (.786 Fibonacci retracement of the 2015 high at 522) , then 493-502 and 518-522 (the 2015 high). It will take carry out guesses of sub 1 billion bushels to get corn to challenge the 2015 highs.

Preventive plant of 8 million acres or more on corn should do it but we will not actually get hard data till August. Its perceptions that will score the high now through the opening of July.

Keep in mind, the world has no shortage of feed grains, there is plenty to source around the world, it will become a domestic pinch for US prices, as our exports will fall continually on further advances in price.

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Beans

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Wheat

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Cattle

Last week I stated: "Over the past two weeks, the mentality of the cattle market is as bearish as the bullish attitude that was prevalent back in March. Nobody thought cattle prices could go down in March, and now pretty much the same thing can be said nobody thinks cattle prices can rally."

Even with hog prices again giving away premiums that were put into place back in March-April on hoped-for pork exports, the live cattle market is gouging out support range that have anticipated that would've originally held at 104.00, but the worst downside is 101.00.

Feeder cattle are again absorbing and worrying about elevated corn prices, and this could still get spot feeder cattle back down to the 129-130 range. Alternative sources on feeding calves with the blending of wheat and other protein, will help support prices from a complete collapse, as there is not a shortage of all feed grains.

We are neutral cattle prices now, with August cattle likely finding major support on any challenges of the 101.00-102.00 range. Feeder cattle also have major support on the continuation charts in the 129.00-131.00 range.

The hogs had built in an excessive premium in April waiting on Chinese pork buying due to what is well known reduced supplies, but with nothing happening, and US hog supplies record large, to date, there has been no significant increases in export demand to offset the present expansion. Optimism for large Chinese demand is now on hold, and record supplies have been driving the cash market lower for the past three weeks.

Feeder calf hedges were recommended back when we were challenging the 160.00 range can now be lifted on challenges of the 129.00-131.00 range. If you are utilizing put options, you can roll down your strike price. Meaning exit deep in the money options and purchase lower in the money puts that carry minimal premium. This captures excess equity that's been gained on the collapse, and keeps it out of risk of being given back.

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2019 Hedge Recommendations

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Corn

Sold 25% of 2018 corn stocks at 429.2, with 50% having been sold at a 409 average. Total sales are now 75%.

Sold 25% new crop 2019 on December corn at 4.47. Total sales are at 40%.

Sold 15% of 2019 corn crop at 3.96 Dec corn.

Wheat

Watch for upcoming alerts

Beans

Sold 25% of 2019 production at 910 on the November contract. Total sales at 25%


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