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Market Commentary for 9/2/23

Jon Scheve with weekly market commentary made on September, 1, 2023

Usually by this time of year there is more clarity around yield potential, but the extent of possible late season heat damage is creating some uncertainty in the market. Right now, the bean market likely has more upside potential than corn, because August weather is more critical for bean development.


Final Thoughts on the 2022 Marketing Year

Corn

Over the last few weeks, I have been reviewing my 2022 crop sales to evaluate performance and see how I can improve my grain marketing strategies going forward.


At first, I was a little disappointed with the average sales of $6.42 corn futures for 2022. However, it is easy to forget that waiting until spring the previous two years had led to values between $7.50 to $8.00, and market conditions this year suggested it could happen again. The following chart shows the spot futures market the previous two years.

In early February I reviewed the post-harvest corn futures to determine my downside risk, and as one can see below, it had mostly been ranging between $6.50 and $6.85.

Then in late February as Brazil’s second corn crop was being planted, it was clear Argentina was experiencing a bad drought. Therefore, it seemed likely dry conditions would spread to Brazil too, which could have pushed a corn rally to $8. In the end though, Brazil received timely rains through the growing cycle, and the market pulled back.

I Should Have Just Sold Everything at Harvest

I heard this statement a lot this year, and for this year it would have been the right decision. However, historically selling for cash at harvest is almost never the most profitable strategy. This chart shows the cash value for corn picked up on my farm since harvest.

The highest possible cash price for the year, picked up on my farm, was $7.28. After accounting for spreads, basis, and options premiums, my final cash price was $7.04 picked up on the farm. This means I only missed the best possible cash price by 24 cents, if I was even lucky enough to sell everything on that day, which would have been hard to guess.


Corn Final Thoughts

Due to the war, very dry weather in my area, and the market being in an uncommon inverse, I did not sell any futures positions until after harvest. Since I waited, my futures sales ended up in the middle of the range for the year.


However, my grain marketing strategy optimized futures, spreads, options, and basis trades independently. This allowed me to improve my overall price significantly, and I only missed the highest possible cash price by 24 cents. Plus, it also gave me the flexibility to wait an additional eight months to see if the market would repeat the previous two years and rally to $7.50 or even $8.00. Knowing all the uncertainty and risk that I faced in 2022, I was happy with this corn outcome.


Beans

While my corn trades included four different aspects of trading, my beans only included futures and basis. I sold 75% of my beans at $15.06 on futures. The highest price between harvest and July 4th this summer was $15.55, so I was pleased with that price level. I sold the original 25% for $12.20 a year earlier, which stings a bit. However, that early sale was a risk management decision, so I can’t be too disappointed in it.


I am most happy that I was able to set my basis at +50, picked up on the farm, which was the best possible basis value for the year.


The following chart shows the cash value for beans picked up on my farm since harvest and compares the best possible price to my total average.

The 25% futures sale I made nearly a year earlier was the only reason my average cash value was not at the high of the year and ended up slightly below $15. Beans Final Thoughts I was surprised bean futures remained so strong through spring. Despite Argentina’s drought, Brazil raised a huge crop this year, and the market never seemed concerned about it. The strength of the bean market long term gives me hope that opportunities will remain going forward. And while corn prices may be concerning in this upcoming marketing year, beans may pull prices higher in 2024. Bottomline I sold my corn for above $7 and nearly got $15 for my beans. That feels like a successful year.


Jon Scheve Superior Feed Ingredients, LLC

9358 Oak Ave Waconia, MN 55387 jon@superiorfeed.com

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