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Tidbits, SA Rains, Hedge & Stocks, Markets & Rain Days Update 1/3/23

We apologize for yesterday's email stating the price changes of the outside markets. Certainly some of you had a near heart attack when we reported the markets were trading when you thought they were not. You were correct, they were not trading. Crude oil started trading last evening and the ag commodities will open at 8:30 AM Central Time this morning. A lack of attention to detail is a vice, especially in our business as a service to you. Again, we apologize.


Be at war with your vices, at peace with your neighbors, and let every new year find you a better man. Benjamin Franklin

 

Highlights


The European weather model updated yesterday afternoon does not include any rain in Argentina for the next 10 days.


Each day, we report the number of days rain is expected for the next ten days for various locations in key crop areas of the world. The South American weather is the focus of the market this time of year. The beans in Brazil are grown in two different weather zones; 85% of Brazil’s beans are grown in the northern part where a La Niña episode brings above normal rainfall and, with it, slightly above normal yields while 15% of Brazil’s beans are grown in the southern state of Rio Grande do Sul, located east of Argentina’s crop land where a La Niña episode brings drought to both areas as well as Paraguay located north of Argentina and south of Central Brazil.


As a rule of thumb, Brazil produces 150 million mts of soybeans, Argentina 50 million mts and Paraguay grows 10 million mts and is the world’s #5 soybean exporter.


Last year was the second year in Brazil’s history of bean production that the soybean production was less than the previous year. That was due to dry weather in the south which expanded, to an extent north while a drought in Argentina was quite harmful.


Each of the six ten-day summaries below includes three areas located in the northern part of Brazil’s crop area and one area in Southern Brazil and two in Argentina.


The purpose of this summary is to show you what last year’s weather was compared to this year’s weather to provide you with a basis for evaluating what this year’s bean crop might be compared to last year’s bean crop. The 85% of Brazil’s bean crop is made (or lost) between December 15th and January 31st. The crop in the south is made (or lost) between January 10th to March 31st.


Last year, Brazil produced 127.0 million mt; USDA is at 152 for this year. We certainly do not see substantially more rain has fallen this year than last.

Last year, Argentina produced 43.90 million mt; USDA is at 49.5 for this year.

Last year, Paraguay produced 4.2 million mt; USDA is at 10.0 for this year.

 

Tidbits


A hedge is when one takes an opposite position in two markets so the loss in one market is offset by a gain in the second market. A hedge reduces financial risk. If you do not know what the two markets are in the grain business go to:

Grain merchandisers sell futures when they buy cash grain and buy futures when they sell cash grain. Yes, when Cargill buys your corn, Cargill sells corn futures. If corn goes down 43 cents the next week, Cargill loses 43 cents of value with the cash corn in their storage bin, but gains in the futures market the same 43 cents if the basis is steady, which cannot be hedged.

A farmer with corn in the bin or corn in the field is long the cash market. If you have not sold your 2023 corn, you are at risk for loss of income if the price of corn goes down and stays down. You are also in position to gain substantially if the price of corn rises, as it usually does from October to June.

Many of you and/or your spouse have an investment account in which you own stocks. It may be an IRA, 401K, SEP, or simply a speculative investment account. That pile of stocks needs to be treated like corn in the bin. The value of stocks goes up and the value goes down, just like corn, beans, wheat, etc.

If there has never been a day that you thought there was a high probability that the stock market would decline, you have not been paying attention. The first five weeks of the covid scare, the S&P 500 stock index lost 35% of its value. Crude oil plunged to a minus $44 a barrel. Yes, oil producers were paying $44 a barrel to motivate other people to take their oil! The decline in crude oil is a pretty good indicator the economy is not doing so well.

All of us could have hedged our stock portfolio by selling S&P 500 futures contracts. If we could have just caught half of the decline with a hedge, the hedge gain would have been 17%. That is about double what the stock market’s average annual gain!

The stock market moves are heavily influenced by the tax consequences, spring weather, and the fear of a repeat of the October crash of 1929. Take a look at the following chart with the average percentage change in the S&P 500 Index for each calendar month for the past 72 years. Note the New Year brings optimism, the winter blues hit in February, spring weather cheers everyone up in March and April and September brings caution of the 1929 repeat. Accountants say the end of the year gains are the result of investors evening up their positions to match capital gains to offset capital losses. We kind of think politicians buying votes with taxpayer money has a lot to do with high stocks late in the year.

That chart is remarkably similar to the seasonal trend of corn and beans!

If you want to increase your income, you need to do some things you never did before and there are other things you can do to increase income than farming more ground.

Biggest commodity price increase in 2022 all the way down to the biggest price decline:


 

Market Data


This morning:

Crude oil is at $80.75, up $0.49

The dollar index is at 103.91, up 0.39

July palm oil is at 4,091 MYR, up 17. The contract high was made September, 1st at 4,365 MYR. Palm oil owns 36% and soybean oil owns 28% world market share.

July cotton is at $85.06, up $2.16 per cwt. The contract high was made September, 1st at $101.64 per cwt. Cotton competes with soybeans and corn for acres.

July natural gas is at $3.907, down 0.250. The contract high was made September, 6th at $5.938. Natural gas is the primary cost to manufacture nitrogen fertilizer.

July ULSD is at $2.9055 per gallon, down 0.0065. The contract high was made November, 4th at $3.1450. ULSD stands for Ultra Low Sulfur Diesel.

March Dow Futures is at 33,394, up 109. The lifetime high is 36,832 on January 5th, 2022.


 

Rain Days Update


The 6 to 10 day forecast updated every day at: https://www.cpc.ncep.noaa.gov/products/predictions/610day/

Explanation of Rain Days


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