We don’t know the answer to that nor does anyone else. Marketing is a game of odds, and the odds have started to shift a little more in favor of the bulls. e only thing we know for sure in this market is that decision-making between now and October is going to be much more difficult than it has been in the last couple of years. Corn and soybean prices are going to be very choppy and most likely trendless, making for some very emotional decisions. e primary reason for evaluating the decision-making in corn and soybeans right now is because of some very mixed signals that the market is now giving. Up until this week we have been aggressively on the bear side since the fall of 2012. But as is always the case, everyone needs to be looking over their shoulder as to where the surprises might come from. Consider the following. BULLISH ARGUMENTS Here are some reasons we are somewhat concerned about continuing to aggressively press the bear side in these markets: 1. On Monday of this past week corn futures went into new contract lows and then had absolutely no follow through to the downside, rallying to resistance levels as the week came to an end. 2. New-crop soybean futures also went into new contract lows on Monday and then proceeded to post a weekly key reversal up. 3. Soybean meal is being aggressively bull-spread, and broke through all price resistance, confirming what looks to be a bottom. 4. e primary reason behind the price strength is wet weather which is causing transportation problems (barges) and hurting yields in low-lying areas, although it will help yields on lighter soils and higher ground. is may also well result in some areas not even getting planted. BEARISH ARGUMENTS 1. ere is still a near record large amount of old-crop corn and soybeans yet to be priced. 2. Very little new crop has been priced. 3. Fundamentals overall are still bearish—but also well known. 4. Markets are unforgiving to those who miss major price moves—and the majority of producers have missed the biggest bear market in history, that started in the fall of 2012. History would indicate that it is unlikely that a market is going to give any substantial rally as we near the end of the marketing season to bail this group out. ese are just a few of the major bullish and bearish arguments right now. e monthly corn and soybean charts on the following page show a little bit of history and also some guidance as to what could possibly happen. First, take a look at the corn chart. e horizontal lines divide corn prices into the lower, middle, and the upper one-third of the price range since 1988. With a low of $1.75 in 2000 and a high of $8.32 in 2012, it is obvious the market spends very little time in the top one-third June 19, 2015 CORN AND SOYBEAN PRICES—MAKING A BOTTOM? “An investment in knowledge pays the best interest.” —Benjamin Franklin IN OR OUT e most difficult decision in marketing is not knowing when to get in a hedge, but when to get out. Just like an investor in the stock market, everyone is anxious to buy but fearful of selling. Why that is the case we do not know, but it is human nature to have difficulty getting out of markets. We hope this week’s commentary is not confusing. Bottom line, these markets could be at a turning point. So far our aggresive hedging in corn and soybeans for 2014-15 and 2015-16 has worked out very well. If the market is indeed making a bottom, we can take profits on soybean hedge positions and be content on corn hedge positions, having locked in prices well above current price levels. ere is an old saying “Some minds are like concrete—all mixed up and permanently set.” We do not want to fall into that trap and want to stay flexible. Stay tuned. Next week is our second “skip week” of the year, and we will not publish e Brock Report. We will be back on July 3. Brock Report “Skip Week”
Transcript
We don’t know the answer to that nor does anyone else. Marketing is a game of odds, and the odds have started to shift a little more in favor of the bulls. The only thing we know for sure in this market is that decision-making between now and October is going to be much more difficult than it has been in the last couple of years. Corn and soybean prices are going to be very choppy and most likely trendless, making for some very emotional decisions.
The primary reason for evaluating the decision-making in corn and soybeans right now is because of some very mixed signals that the market is now giving. Up until this week we have been aggressively on the bear side since the fall of 2012. But as is always the case, everyone needs to be looking over their shoulder as to where the surprises might come from. Consider the following.
BULLISH ARGUMENTSHere are some reasons we are somewhat
concerned about continuing to aggressively press the bear side in these markets:
1. On Monday of this past week corn futures went into new contract lows and then had absolutely no follow through to the downside, rallying to resistance levels as the week came to an end.
2. New-crop soybean futures also went into new contract lows on Monday and then proceeded to post a weekly key reversal up.
3. Soybean meal is being aggressively bull-spread, and broke through all price
resistance, confirming what looks to be a bottom.
4. The primary reason behind the price strength is wet weather which is causing transportation problems (barges) and hurting yields in low-lying areas, although it will help yields on lighter soils and higher ground. This may also well result in some areas not even getting planted.
BEARISH ARGUMENTS1. There is still a near record large amount
of old-crop corn and soybeans yet to be priced.
2. Very little new crop has been priced.3. Fundamentals overall are still
bearish—but also well known.4. Markets are unforgiving to those who
miss major price moves—and the majority of producers have missed the biggest bear market in history, that started in the fall of 2012. History would indicate that it is unlikely that a market is going to give any substantial rally as we near the end of the marketing season to bail this group out.
These are just a few of the major bullish and bearish arguments right now. The monthly corn and soybean charts on the following page show a little bit of history and also some guidance as to what could possibly happen. First, take a look at the corn chart. The horizontal lines divide corn prices into the lower, middle, and the upper one-third of the price range since 1988. With a low of $1.75 in 2000 and a high of $8.32 in 2012, it is obvious the market spends very little time in the top one-third
June 19, 2015
CORN AND SOYBEAN PRICES—MAKING A BOTTOM?
“An investment in knowledge pays the best interest.” —Benjamin Franklin
IN O
R O
UT
The most difficult decision in marketing is not knowing when to get in a hedge, but when to get out. Just like an investor in the stock market, everyone is anxious to buy but fearful of selling. Why that is the case we do not know, but it is human nature to have difficulty getting out of markets.
We hope this week’s commentary is not confusing. Bottom line, these markets could be at a turning point. So far our aggresive hedging in corn and soybeans for 2014-15 and 2015-16 has worked out very well. If the market is indeed making a bottom, we can take profits on soybean hedge positions and be content on corn hedge positions, having locked in prices well above current price levels.
There is an old saying “Some minds are like concrete—all mixed up and permanently set.” We do not want to fall into that trap and want to stay flexible. Stay tuned.
Next week is our second “skip week” of the year, and we will not publish The Brock Report. We will be back on July 3.
Brock Report “Skip Week”
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and actually the majority of the time in the bottom one-third.
The dividing line between the lower and middle one-third is $3.94. Nearby July corn futures are currently at $3.58. The dashed horizontal line is the key support in this market which happens to be the major resistance areas of the highs that were established from 1990-1992 and again in 2002-2004. It would appear unlikely that the market will take those lows out. The key observation in this chart, however, is that all major spikes to the upside have been caused by weather rallies, and after these spike tops occur, base-building takes a long time. Tops are sharp and narrow and bottoms are long and flat and this one still does not have a confirmed bottom. Even if this market is making a bottom now, the most one could hope for is a sideways trading range that would last for several months if not a few years.
Now turn your attention to the soybean chart. The dividing line between the bottom and middle one-third is $8.56. As in corn, soybeans do not spend a lot of time in the top one-third but they do spend a considerable amount of time in the middle one-third of the range. The fundamentals at this point in time are concerning in that with a normal yield this is a market that could well average $8.00 or lower. From a technical point of view, note that many of the lows that occurred over the last 20
years were at $7.50. We’re not saying that is the target, but as a technician, if weather improves this market, it has a decent chance of going to that level.
MARKET STRATEGYAs we’ve said many many times
marketing comes down to three things:1. What to do.2. How much to do.3. How to do it.Marketing decisions need to be made
when the market dictates it is time to make a decision—not when the money is needed to pay bills. Best decisions in marketing are always made by avoiding putting oneself in a box that forces a decision to be made. There are only two months left in the 2014/15 marketing year, which clearly means there are 14 months left in the 2015/16 marketing year. We always approach a market with the idea that we have 24 months in which to make a decision.
So here’s where we are. In old-crop corn we are 100% priced at an average price of $4.69. We’re not worried about that one. In the new crop we are 80% priced at $4.27. Of that, however, only 20% is forward contracted and 60% is short in December and March futures.
This is another year where point number three has become very important—how to
do it. The selection of marketing tools in-creases a producer’s flexibility dramatically. We are now at a stage where if this market actually is making a bottom and technical confirmation is given (hasn’t happened yet) we can easily lift the hedges which are still very profitable, put the money in the bank and sit and watch this market go up. That is our current plan for both the 2015/16 crop and the 2016/17 crop where hedges are on for 30% of the crop. Just as wait-ing for a market to tell you when to sell, at some point this one will tell us when to buy. It hasn’t happened yet—although by this writing you can tell we are somewhat concerned and ready to make a decision if the signal is given.
For soybeans, the 2014/15 crop is sold at an average price of $11.86. With the market currently at about $9.50 in the cash market, this is another one we’re not too concerned about. In the new crop, hedgers are 80% priced with 10% in the cash market and 70% short November futures. We are also 50% hedged in November ’16 futures for the 2016/17 crop. We would admit this has been quite aggressive.
Overly aggressive some might say—but so far it has paid off in big dividends. With a weekly reversal up in soybeans this week, we are on the verge of putting much of the profits from these hedges in the bank. It is hardly ever a good idea to ignore strong technical signals.
The U.S. grain/soybean export picture remains mixed. The two things that probably stand out most are continued strong old-crop soybean ex-ports and dismal wheat exports. Few cancellations of U.S. soybean sales have materialized, despite a record South American crop.
U.S. soybean export sales commitments for 2014/15 are 102% of USDA’ s export forecast. Actual shipments have reached 96% of that tar-get with more than 11 weeks left in the marketing year. Shipments have averaged nearly 10.8 million bushels per week over the past month, so they seem to be on pace to surpass USDA’s forecast. The bad news is still in the advance export com-mitments for next marketing year, which are less than 50% of what they were last year at this point. USDA currently projects only a modest 2% drop in U.S. soybean exports for 2015/16.
Wheat export sales and shipments have been weak for several months amid stiff world compe-tition. It’s very early in the new marketing year, but export sales commitments for 2015/16 are nearly 27% behind a year earlier, while USDA is fore-casting 8% rise in exports. If this situation does not change in the next couple of months, USDA will have to start lowering its export forecast.
Corn export sales have fallen a bit behind the seasonal pace needed to hit USDA’s current ex-port target. Likewise, export shipments, are only 73% of the 2014/15 export forecast of 1.825 bil-lion bushels. The 5-year average is for exports to be 78% of final exports by this point, so shipments will have to finish the year strongly if exports are to meet USDA’s forecast.
FUNDAMENTALSCOMMENTARY
2015 Decisions Summer Seminar SeriesMon; June 22nd Bloomington, IL Tues; June 23rd Lafayette, IN Wed; June 24th Grand Island, NE Thurs; June 25th Ames, IA
2015 Commodity ClassroomThurs - Fri; August 6th-7th Milwaukee, WI
Call 800-558-3431 or visit www.brockreport.com
SAVE THE DATE!
400
600
800
1,000
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Soybean Export Commitments USDA Target1,810
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Corn Export Commitments USDA Target1,825
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2014/15
5-year average
Wheat Export Commitments USDA Target
925
2015/16
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Soybean Export Commitments
Corn Export Commitments
Wheat Export Commitments
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deliveries down 5.3%, while phosphate deliveries fell by 19.1% and potash deliveries were down by 17.9%, ANDA reported. Brazilian analysts expect sales to pick up in the third quarter, but not enough to offset the poor first-half performance. In general, fertilizer use is seen falling at least 5%.
Lower crop prices, a weaker Brazilian real, and tighter credit availability have helped keep producers cautious buyers of inputs so far this year. Credit tightness was largely due to the late announcement of the government’s agricultural spending program. While that program provided an increase in funding, higher input prices will limit the impact. The cost of imported inputs is up substantially mainly due to the weak real.
It’s not just fertilizer sales that are lagging. Overall crop input sales, which are usually nearing completion this time of the year, have only reached 60% to 70% of the expected volume, the vice president of the National Association of Agricultural Input Distributors (Andav), Roberto Motta Segundo told Reuters News Service. With sales lagging so badly, there is concern that a rush of late input purchases/shipments ahead of planting season could cause a logistical bottleneck.
WORLD NEWS ANALYSIS
RUSSIA SET TO EXTEND EMBARGORussia is set to extend its embargo by another six months
to the end of January 2016 on a wide range of European Union agricultural products after EU member states agreed on Wednesday to extend economic sanctions against that country over the Ukraine crisis. EU foreign ministers will formalize the sanctions extension agreement next week.
However, Moscow is unlikely to go further if the EU extends sanctions as expected, Russian economy minister Alexei Ulyukayev said Thursday. “We’ll just keep the status quo: the embargo on produce introduced in response to the sanctions regime — of course, it’s a symmetrical measure,” Ulyukayev told RIA Novosti state news agency. We suspect Russia will have a different response, though, if the West escalates economic sanctions. The United States and European governments have reportedly readied a new round of sanctions targeting Russia’s energy and financial sectors in order to help them respond quickly if Russian-backed militants push deeper into Ukraine.
CHINA TO BUILD GRAIN STORAGEChina’s central government has announced plans to upgrade
grain storage facilities nationwide in an effort to ensure food security. “Safety of the country’s grain supply faces severe challenges,” according to a granaries construction plan for 2015-2020 published on June 15 by the National Development and Reform Commission and Finance Ministry. A lack of storage space threatens the quality of massive grain stockpiles that have built up amid Beijing’s pursuit of self-sufficiency in grains.
A serious lack of grain silos and drying facilities at some existing granaries are causing huge wastage of grains every year, said government bodies in the document published on the central government website. According to Reuters News Service, the plan calls for China to upgrade all of its outdated silos and eliminate open-air storage by 2020. The plan also calls for building storage facilities for 50 million metric tons of grain by the end of 2015.
BRAZIL FERTILIZER USE SEEN DOWNBrazilian corn and soybean producers are generally not expected
to cut back on plantings in 2015, but they are expected to cut fertilizer use for the first time since 2009 as they try to limit production costs. That could potentially hurt yields. This spring we reported Brazilian fertilizer sales were lagging last year and they have only fallen further behind since.
Domestic fertilizer sales during May were down 21.4% from a year earlier, with total sales for the first five months of 2015 down 12.0%, according to the Brazilian Fertilizer Distributors Association (ANDA). Total nutrient (NPK) fertilizer deliveries for January-May were down 14.3% from 2014 with nitrogen
WORLD WEATHER HOTSPOTSThe weather near-term outlook is improving for the U.S.
Corn Belt with conditions expected to be drier and warmer in late June. Rains that associated with remnants of Tropical Storm Bill that swept through the lower Midwest late this week provided a welcome boost to soil moisture in many areas.
Most of the Midwest will have ample soil moisture at the end of June, providing a good cushion in the case of any July dry spell, but there is no threat of hot, dry weather in current forecasts. The NOAA 30-day climate outlook for July favors below-normal temperatures in the western Corn Belt and above-normal rainfall in the western/central Corn Belt.
Canada’s Prairie Provinces remain in need of rain with wheat, barley and oats there under stress. However, recent rainfall was helpful in easing weeks of dryness and the situation is expected to improve with more frequent rain over the next two weeks, according to World Weather Inc.
After a slow start, India’s monsoon season has picked up with rains exceeding normal levels this week. Through June 18, monsoon rains were 10% above normal, mainly due to excess rains over central India, the southeastern coast and parts of the Northeast. India’s Meteorogical Department said on Thursday the monsoon will likely remain strong through the end of June, but it forecasts July rains at 92% of the long-term average.
ASSESSING SOY ACREAGE DROPThe relentless rainfall across parts of the Corn Belt over the past
few weeks has likely taken a bite out of soybean acreage, but don’t expect that to be reflected June 30 when USDA releases its June acreage report. The data for the report is gathered in early June, at which point many growers, even in water-logged Missouri, were still counting on a window in which to plant.
That window hasn’t materialized for parts of Missouri and surrounding states, but this does not mean soybean plantings this year will be below the USDA’s March Planting Intentions survey estimate of 84.6 million. We thought that number was too low at the time, as our own survey indicated a much bigger jump in soybean acres. Acres that may have been lost the past several weeks may thus be offset.
Excessive moisture has become a significant concern for the overall production outlook, but history shows that while low-lying areas suffer, ample rainfall benefits higher ground. Excluding cataclysmic events such as the 1993 floods, a bigger danger is hot, dry weather. The National Weather Service issued its one-month outlook on Thursday and as the charts below show, temperatures are expected at or below normal throughout the Midwest with precipitation at or above normal.
USDA’s June 30 release will also include the June 1 quarterly stocks report.
TRANSFAT BAN, INDUSTRY RESPONSE The Obama administration this week moved to ban transfats,
an ingredient used in doughnuts, french fries and other products. The FDA declared transfats unsafe for the first time, and set a 2018 deadline for the food industry to remove them. The transfats come from partially hydrogenated oil and are considered a cause of “bad” cholesterol and heart disease.
Efforts to phase out transfats have been ongoing for years. McDonalds stopped using them in 2007, the same year that New York City banned them. Food companies such as Cargill have been preparing for a broader ban. Cargill issued a fact sheet this week touting that it has alternatives. “It’s something that we’ve been working on for a long time,” a Cargill official said in a statement. “We are prepared to help food makers meet the new
requirements.”The soybean industry is also hoping to capitalize on the FDA’s decision, as it develops high oleic soybeans. The American Soybean Association said after the FDA announcement that the three year grace period for the food industry is needed to give the industry time to “get the high oleic
trait integrated into soybean varieties and approved in overseas markets so we can produce what the
industry demands.” The soy industry has been concerned that forcing the change immediately would have pushed food
manufacturers to other alternatives, such as palm oil.
CLUES ON BIRD FLU SPREAD The rapid spread of bird flu this spring, which confounded and alarmed researchers, was likely caused by a variety of factors, including sloppy cleanup practices, USDA said in a report this week. USDA believes the virus was initially transmitted to commercial poultry flocks by wild birds. After that, however, there were a number of problems in the response.
USDA’s investigation of 80 poultry farms found cases in which equipment and employees were moved freely between infected and uninfected sites without proper cleaning, and cases of rodents and small wild birds in poultry houses. It also found a relationship between sustained high winds in a given area and new cases five days later, indicating the virus can be transmitted through the air.
NATIONAL NEWS ANALYSIS
A
A
A
B
B
One-Month Temperature Probability OutlookValid for July 2015 (made June 18)
One-Month Precipitation Probability OutlookValid for July 2015 (made June 18)
EC means equal chances A means above normal B means below normal
Commitments of TradersFutures and Options Combined, as of June 9, 2015
CommercialsPrice
Contracts
Large Specs
Source:CFTC
Price(dotted line, left scale)
VOLUME
OPEN INTEREST
CORN
U.S. SUPPLY & DEMAND
DECEMBER 2015 High: 6.00
9/19/12Low: 3.62 1/2
6/15/15
COMMENTARYThe market had some pretty wild
swings this past week as a result of heavy rains in the southern Mid-west. No doubt there was some dam-age done and some acres will not get planted but the old saying “rain makes grain” will probably overshadow all the negatives.
Technically the trend remains down and certainly no bottom has yet been confirmed. A substantial amount of old-crop corn still has to be priced and very little new crop has been priced—the overshadowing negative factors.Cash-only Marketers’ Strategy: Old-crop was priced long ago as well as 40% of the new crop. Hedgers’ Strategy: Old-crop has been sold out for a long time. In the new crop 20% is sold in the cash mar-ket and 60% hedged with short De-cember 2015 and March 2016 futures.For the 2016/17 crop, 20% is hedged in December futures and another 10% is priced with long December $4.20 puts/short (2) December $5.00 calls establishing a floor of $4.20.
Wet weather has certainly damaged fields in a few areas of the Midwest and has interrupted grain transporation on rivers. Nevertheless this is most likely a temporary problem and two months from now we will likely look back at this week’s rally as a catch up selling opportunity.
As pointed out in the lead story, however, technically this was a very strong week. We don’t ever want to ignore technical signals since many times they give market change indicators prior to the fundamentals occurring. We expect some very erratic price activity over the next few weeks. Cash-only Marketer’s Strategy: Old-crop sales were finished long ago as well as 50% of the new crop priced. Hedgers’ Strategy: Old-crop was sold out long ago and 80% of this year’s crop was priced going into this week with 10% in the cash market and 70% hedged in November futures. We took profits on half of the November futures position mid-week. We are still 50% hedged on the November ‘16 crop. Sit tight for now.
Resistance
NOVEMBER 2016High: 12.50
12/6/12Low: 9.05 1/2
6/15/15
2014
0.951.701.75
0.906.807.40
0.915.305.50
1.039.409.50
1.055.105.50
0.889.409.60
1.044.654.70
1.052.102.10
1.07 4.6 4.8
0.904.905.65
1.004.705.40
1.003.903.90
1.011.952.15
1.113.253.3586
(85)
90(92)
93(90)
93(93)
57(85)
96(96)
97(94)
99(93)
93(96)
42(79)
91(98)
97(91)
95(91)
96(93)
97(90)
U.S.2015: 87%5-yr ave: 90%
Soybean Planting Progress as of June 14th
The U.S. soybean crop was 87% planted as of June 14th vs. 91% last year and 90% 5-year average. Missouri planting progress is still 37 points behind normal, Kansas is 28 percentage points be-hind, and Nebraska is now just 7 percentage points behind normal.
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WEATHER
MANAGEMENT INSIDE BROCK
Research is an emphasis in most schools and it’s a way some-one new to farming can make up for experience. Some lessons have to be learned the hard way, yet studying past or hypo-thetical situations can provide a lot of guidance. High schools and colleges are more frequently using graphing calculators and requiring internet research. For example, I use the internet for data on agronomy and market trends to make up for the his-torical knowledge of the older generation.
There’s more information to choose from, and although it can be overwhelming, it feels like second nature to use. The next generation will be even better at research because people are learning new technology at an increasingly young age. Good research improves decision making skills–it offers evidence that a particular course of action is justified. There is less margin for error these days and those that make a decision, even an edu-cated guess, will come out ahead in the long run.
Overall, I think the biggest hurdle for younger farmers is the job position in which many farmers are placed. It’s common to see a 40-year-old farmer still in a farm-hand position with a parent managing. The young farmer will struggle to focus on business and marketing when distracted by day-to-day farm tasks. It can be done, but the young farmer won’t be able to market efficiently until placed in a position with more flexibil-ity and time. Nor can they market effectively in a situation in which the primary manager is quick to second guess decisions.
It’s harder to find a place in farming these days, but the young farmer has both more potential and a more conservative ap-proach than often given credit for. We are more aggressive sometimes in order to stay in the game, but we are doing it from an educated plan (hopefully). Younger farmers may not have the experience or fear of the older marketers, but we have other advantages, and if we are to succeed then we’ve got to use them.
YOUNG FARMERS HAVE CHALLENGES, ADVANTAGES Katie Hancock
Marketing Consultant
There’s no doubt the next generation of farmers has its hurdles. Young and new farmers are fighting for positions in older, man-aged businesses, and the opportunities to make money aren’t as good as they’ve been in recent years.
The most recent U.S. Census of Agriculture includes alarming information: Only 6% of principal farm operators are under age 35. What does this say to me? It says young farmers will have to fight for their right to farm, to break down barriers by find-ing ways to be successful in areas where their elders may not be quite as comfortable, particularly in marketing. Young farmers are finding new ways to market, and to inform their decision-making. If you look closely, there are promising signs. Here are some trends that potentially benefit younger farmers:
Young farmers are more open minded to try new things. I can’t tell you how many times I’ve seen the older owners of a business become suspicious of new opportunities to market the crop. In my work as a consultant, I see a strong attitude of “we didn’t need it then and don’t now.” Maybe they don’t. But many young farmers are seeing the benefit of new tools and want to use them given the opportunity.
Futures and options, or simply forward contracting locally, are examples of tools young farmers want to use more frequently. The younger farmer’s need for risk management to even out fluc-tuations in cash flow from one year to the next is paramount, but may be met by skepticism from older partners due to a combi-nation of unfamiliarity and past bad experiences. Combine this with the capital needs of a robust hedging program, and the gen-erally weaker balance sheets of beginning farmers, and it’s not hard to see the dilemmas and conflicts that can ensue.
Spreadsheets, while common, have been underutilized. Whereas my dad always kept his marketing plan and decisions in his head, I see more young farmers planning and tracking their decisions with spreadsheet-based programs. One big advantage of this tool is its utility as a teaching tool for successors, lenders, spouses etc. to justify and evaluate performance. The marketer on the farm almost always has to deal with second-guessing from family members, so having an up-to-date, organized system for decision making and its evaluation builds confidence and can diffuse conflicts.
at the retail level offers an incentive for FlexFuel motorists to fill with E85 instead of E10 are Illinois, Minnesota and North Dakota.
EPA: HEARINGS ON RFSEPA didn’t please anyone with its recent
revised proposal for the Renew-able Fuel Standard obliga-tions through 2016, and an official took some lumps in a Washington hearing that prompted the agen-cy’s first public comments on the proposal.
Janet McCabe, an assistant administrator with EPA, told a Senate subcommittee meeting that the new targets are “ambitious but respon-sible.” She added that EPA is already look-ing into the possibility that it will have to revise biofuel mandates for 2017 and be-yond. That would seem to be a very likely scenario. Based on recent history, don’t ex-pect any significant revisions to the 2017 mandate until after the November 2016 presidential election at the earliest.
EPA will take its show on the road next week, holding a public hearing on its pro-posal in Kansas City, Kan. on June 25. The EPA will take comments and may ask clarifying questions at the hearing, but won’t answer questions posed. EPA has set the deadline for public comments on the
rule for July 27.
Iowa’s Congres-sional delegation wants to know why its state is being bypassed. It sent a joint letter to the EPA urging the agency to hold a hearing in the heart of ethanol country. Iowa accounts for about 25% of U.S. ethanol output.
RFS PLAN PROMPTS IM-PORTS FROM BRAZIL A seeming winner in the EPA’s revised
RFS proposal was the biodiesel industry, as evidenced by soybean oil futures’ rally in the wake of the new target. However
there are already some unintended consequences that could mute
that impact.
The new proposal bol-stered the price of Renew-able Identification Num-bers (RINs) for “advanced
biofuels,” a group that in-cludes not only biodiesel but
sugar-based ethanol. RINs for advanced biofuels surged to a premi-
um of about 30 cents against corn-based ethanol RINs, the widest gap in two years.
For oil traders, this has created an arbi-trage opportunity. By importing Brazilian sugar-based ethanol and blending it, they can collect the higher-priced RINs for ad-vanced biofuel. So far, importers, including Morgan Stanley, have bought as much as 10.6 million gallons according to Reuters.
BIOMASS STRUGGLESSuccess stories for alternative energy
feedstocks besides corn remain very limit-ed, and a biomass power plant in Wiscon-sin is the latest project to disappoint (thus far). A $306 million WE Energies plant in Wausau that opened in November 2013 has run much less frequently than expected, the Milwaukee Journal Sentinel said. The plant didn’t run at all from De-cember through late May of this year.
The utility said the recent shutdown was to allow for maintenance on the fa-cility before warrant expiration. But there have been other problems as well, includ-ing bitter cold in early 2014 that froze the supplies of wood waste needed to feed the plant. The utility also blamed low natural gas prices, which have also upended coal-fired power plants.
ETHANOL OUTPUT, GAS DEMAND SLIP
Weekly ethanol output was down slightly but still quite strong at 980,000 barrels per day in the week ended June 12. That is down 12,000 barrels per day from last week’s record-tying 992,000, but still way up from 887,000 barrels/day just six weeks ago. Stockpiles rose 472,000 to 20.72 million, up 16% from 17.85 million a year ago.
Margins have improved this spring and gasoline demand has surged, although gas demand slipped this week and was accompanied by a surprising build in stockpiles. EIA reported gasoline product supplied to the market at 9.176 million barrels per day the week ended June 12, down from 9.6 million the prior week and also down from 9.258 million a year ago in the same week. However the four-week average is up 3.8% from last year.
As the chart below shows, gasoline’s premium to ethanol in the futures market has swelled recently and is at its highest level since November. This theoretically encourages more ethanol use, particularly in the form of E85. However the spread is not historically wide at about 65 cents. At times over the past several years it has gotten as high as $1.10.
Based on prices listed on E85Prices.com, the only states where the price differential
Since January, a chart of wheat prices looks more like an EKG than it does a trend of anything. This market has been extremely erratic and to expect any change in the near-term would be wishful thinking.
The fundamentals remain negative but at $5.00 per bushel, we want to be cautious about being too bearish. If the market was at $7 this would be an easy decision, but at $5.00 making major selling decisions is difficult. However, we expect an increase in wheat acres and more wheat with double-crop soybeans in the coming year, which will likely depress the prices of both commodities.
Cash-only Marketers’ Strategy: We are at 70% sold on this year’s crop. Sit tight.
Hedgers’ Strategy: Sales on this year’s crop are at 70%. We are also short July ‘16 futures on 20% of next year’s.
COMMENTARY
Year Begins June 1 13/14 14/15 Proj 15/16 Proj 14/15 15/16
Rice futures posted bullish rever-sals on Monday but saw little follow-through, and ended the week essen-tially flat amid lackluster demand. The July contract is well above the contract low of $9.25 set last month, but it shows no inclination yet to re-test the $10 level after hitting resis-tance there a couple weeks ago.
The U.S. crop outlook is generally favorable, although Texas coastal ar-eas were hammered by rains in the past week. The national good/excel-lent rating increased one point to 69% as of June 14, and the rating in Arkansas climbed two points to 65%. The rice-growing areas of that state have seen very favorable conditions lately, with ample but not excessive rains. World prices remain soft, as Thai cash prices hit their lowest level in 7 1/2 years this week. U.S. export sales remain weak.
Strategy: Hedgers and cash-only sellers are now 80% sold on 2014 production in the cash market, after we sold an additional 10% this week. They are carrying all risk in the cash market for the 2015 crop.
COMMENTARYNEARBY CONTRACT
DEFERRED CONTRACT
RSI
WEEKLY CONTINUOUS
14-DAY RSI
RICE
U.S. SUPPLY & DEMAND
SEPTEMBER 2015
Contract Size: 2,000 cwtDaily Limit: $1.10/cwt
Resistance
Support
JULY 2015
High: 12.50 12/12/14
Low: 9.535/13/15
Resistance
BrokenResistance
High: 12.915 12/19/14
Low: 9.255/13/15
Year Beginning Stocks Production Consumption Ending
StocksStocks/Use
Ratio
2008/09 80.99 449.30 437.7 92.64 21.2%
2009/10 92.64 440.58 438.3 94.88 21.6%
2010/11 94.88 450.64 445.4 100.15 22.5%
2011/12 100.15 467.67 461.0 106.86 23.2%
2012/13 106.86 472.68 468.9 110.64 23.6%
2013/14 110.64 478.19 481.5 107.33 22.3%
2014/15 107.33 476.13 484.78 98.68 20.4%Change from May 0.01 0.44 0.18 0.27 0.0%
2015/16 98.68 481.74 488.99 91.44 18.7%Change from May 0.3 -0.4 0.0 -0.1 0.0%
* Values in million metric tons; bold numbers are USDA projections.
Cotton trade was choppy and ul-timately lower this week thanks to a big selloff on Friday. The market had dropped sharply on Monday only to rebound strongly Tuesday. Futures appear to be leaning lower and the July/Dec spread has been bearish, but ultimately a sideways pattern re-mains firmly in place. For the past 11 months, front-month cotton has trad-ed a range of 57.05 to 71.49, and for the past four months that range has been narrower, with prices gravitating to the 65-cent level.
Fundamentally the trade is trying to make sense of a Texas crop that is benefitting from abundant moisture and has strong potential, but which is also late and could be on reduced acres. Last week’s announcement by China that it will unleash some of its stockpile hangs over the market, but Chinese imports this year have actu-ally been better than projected.
Strategy: The 2014 crop is 100% sold for cash-only marketers and hedgers. For 2015, all producers should have 20% sold in the cash mar-ket and hedgers are now short 20% in Dec. futures after a sale this week.
Support
Year Beginning Stocks Production Consumption Ending
StocksStocks/Use
Ratio
2008/09 62.37 108.30 108.5 62.18 57.3%
2009/10 62.18 103.36 118.3 47.20 39.9%
2010/11 47.20 117.55 114.0 50.71 44.5%
2011/12 50.71 127.46 104.3 73.85 70.8%
2012/13 73.85 123.63 106.9 90.54 84.7%
2013/14 90.54 120.43 108.4 102.53 94.5%
2014/15 102.53 118.86 111.38 110.01 98.8%Change from May 0.09 -0.42 -0.07 -0.25 -0.2%
2015/16 110.01 111.32 115.25 106.08 92.0%Change from May -0.2 0.1 0.0 -0.2 -0.2%
* Values in million 480-pound bales; bold numbers are USDA projections.
WORLD SUPPLY & DEMAND
Resistance
Resistance
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9-DAY RSI
Lean hog futures started and ended the week on very negative notes, with some price consolidation taking place in between. Demand concerns and technically-driven selling sunk front-end futures as wholesale pork prices buckled under the weight of contin-ued large supplies with many retailers wrapping up purchases for July 4 fea-tures. Back-end futures felt pressure from expectations of herd expansion.
Oct. futures suffered the most technical damage, falling to a new contract low on Friday amid expectations for record 4th quarter hog supplies. Technically, this opens the risk that Oct. hogs could fall to the $56-$57 range. Aug. hogs held their contract low at $73.55, but that support may be only temporary. A test of $70 may be in the works.
The market is awash in hogs. This week’s estimated slaughter was up 13.5% from last year. Futures may be extremely choppy next week as trad-ers get positioned ahead of the June 28 Hogs and Pigs report. Oversold mar-ket conditions may spur short covering. The USDA report itself should further confirm the hog industry has recovered from last year’s PEDV outbreak.
If March-May breeding efficiency was up as much as the previous quarter and producers followed through on far-rowing intentions, we could see a record spring pig crop about 8.6% larger than a year ago. This report may show lim-ited herd expansion as many producers saw negative returns between February and April. Good May returns may have producers expanding again though.
Hedgers’ Strategy: Hedgers sold Feb. futures this week to hedge 25% of Q1 marketings and remain short Aug. and Oct. futures on 25% of Q3 and Q4 marketings.
COMMENTARY
AUGUST 2015
High: 98.25 11/24/14
Low: 73.453/24/15
HOGS
High: 95.35 11/24/14
Low: 73.553/24/15
OCTOBER 2015
FEBRUARY 2016
High: 92.50 5/5/14
Low: 64.0756/19/15
Daily Limit: 3¢/lb.Contract Size: 40,000 lbs.
JULY 2015
High: 77.10 11/25/14
Low: 64.0253/19/15
BrokenSupport
325350375400425450475500525550
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2015 2014 5-year average
2015 ytd: +6.7% vs. 2014
Million lbs
Source: USDA AMS
2014
WEEKLY PORK PRODUCTION, FEDERALLY INSPECTED, MIL LBS
Live cattle futures sold off most of the week under pressure from weak cash sales, technical selling and antici-pation of seasonal beef market weak-ness before rebounding on Friday. Expectations for USDA to peg May feedlot placements more than 8% be-low a year earlier helped spur the Fri-day rebound.
Technically, live cattle futures were in trouble heading into Friday’s ses-sion with most-active August futures having broken the uptrend off of their major February price low on Thursday. However there was no follow-through and the market moved back above that trend line, leaving the near-term chart picture uncertain. Key support for Aug. futures is now at $148.50-$149.25. A close below $148.50 would look very negative on the weekly live cattle futures continuation chart.
As of midday Friday, very little trade had taken place in Plains cash markets this week. The live cattle sales that did occur were $2-$4 lower than last week at $150. Beef prices firmed through-out the week with the choice cutout up $3.81 for the week ended Thursday, but there is anticipation prices will weaken once retailers finish buying for July 4 feature needs. Third quar-ter competition from pork and poultry will be very stiff and concerns about export demand linger.
Friday’s USDA report was also ex-pected to peg May feedlot marketings more than 8% below a year earlier. Marketings have remained slow in June with this week’s slaughter 10.6% below a year earlier, even though the June 1 feedlot inventory was thought to have been 0.9% above a year earlier.Hedgers’ Strategy: Live cattle hedg-ers sold Oct. live cattle futures on 25% of Q4 marketings on Thursday. Feeder cattle sellers remain short Aug. feeder futures against 25% of Q3 sales.
COMMENTARY
WEEKLY CONTINUOUS
CATTLE
DECEMBER 2015
High: 159.40 12/2/14
Low: 130.503/2/14
High: 160.15 11/21/14
Low: 142.002/24/15
LIVE CATTLE AUGUST 2015
OCTOBER 2015High: 160.40
11/2/14 Low: 137.50
5/1/14
FEEDER CATTLE AUGUST 2015
Daily Limit: 4.5¢/lb Contract Size: 50,000 lbs.
High: 237.95 10/9/14
Low: 196.6752/25/15
OCTOBER 2015 High: 235.00
12/2/14 Low: 195.00
2/24/15
Brokensupport
Daily Limit: 3¢/lb Contract Size: 40,000 lbs.
Support
Brokensupport
Support
Brokensupport
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FEED/INPUTS
Feeds: Soybean meal futures surged this week on strong domestic demand and concerns about the U.S. soy crop. Nearby futures climbed to their highest level in 2 1/2 months and various contracts are now poised to post bullish reversals higher on the monthly charts. Fundamentally the market’s upside should be limited.Technically the market is telling buyers it is time to be considering purchases, but we are not yet ready to make a formal recommendation.
By contrast, the cash prices for distiller dried grains tumbled for the second consecutive week. The market has been in a tailspin since speculation emerged that China was cancelling purchases of U.S. DDGs for later in the year. Prices fell in the most recent week by $10 to $20 in the eastern Corn Belt and $7 to $15 in the west.
Fertilizers: The trend in fertilizer prices remains generally flat, as it has been for months. Potash demand from wholesalers and dealers is very weak domestically. Ammonia prices are flat as sales are slow, and weak de-mand is also weighing on phosphate.
Fuels: Crude oil was essentially flat on the week, underpinned by a reduc-tion in stockpiles, although that was offset by a surprising build in gaso-line stocks. Technically the market continues to hug the $60 level, and fundamentally we see little reason for a significant rally in the energy com-plex. Saudi Arabia, which has already maintained production in a fight for market share, may ramp up output even more in the weeks ahead.
As a result of the FOMC’s June policy statement, a September interest rate hike looks increasingly unlikely. The Fed downgraded its economic forecast for 2015, and increased its expectations for the 4th quarter unemployment rate. Their estimates for 2015 GDP were revised lower to 1.8-2.0%, and the pro-jected unemployment rate was increased to 5.2-5.3% (from 5.0-5.2% previously). More importantly, Fed Chair Janet Yellen stressed that the trajectory of rate increases would be gradual once they begin.
The U.S. dollar index fell to a 4-week low the day after the Fed’s dovish statement. Fifteen years after the bursting of the dot-com bubble, the NASDAQ Composite index finally posted a fresh record high. The Russell 2000 Small Cap index also posted a re-cord high. The S&P 500 gained over 1% for the week, just shy of its record, and market internals improved. 10-year Treasury bond yields fell 10 basis points, re-treating further from last week’s 9-month high.
U.S. Industrial Production fell 0.2% in May, mark-ing the 6th month of zero or negative growth in the nation’s manufacturing, mining, and utilities output.
The Greek banking/debt/political crisis intensified. The IMF chief warned there would be “no grace peri-od” beyond the June 30 deadline, while the Greek PM accused the IMF of “criminal responsibility” for his country’s dire situation and the ECB of “asphyxiat-ing” his country. The Greek banking system faces total collapse unless the ECB continues its Emergency Li-quidity Assistance program as depositors rush to pull out cash. Eurozone leaders will hold an emergency summit on Monday.
U.S. DOLLAR INDEX
Support
E-MINI S&P 500JUNE 2015
1
5
24
3
Five wave sell signal
10-YEAR U.S. TREASURY NOTE YIELD
Charts on this page updated at 1 p.m., before the market close.
2015 Total Profit (Loss) as of 6/18/15 $3,369 $6062014 Total Profit: $17,316No recommendations since last Brock Report through 6/18/156/15/15: Sold 3 December 2015 corn @ $3.64 to open6/18/15: Exited 1/2 of September soybean option spread6/18/15: Bought 1 September E-mini S&P 500 @ 2114.75 to exitThere is a risk of losses as well as profits when trading futures and options. Position size is based on account size of $60,000. Profit/(loss) does not include brokerage commissions.
SPECULATIVE POSITIONS
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Ag reports include monthly Cold Storage on Monday, and Quarterly Hogs and Pigs on Friday. Economic reports include Durable Goods Orders for May on Tuesday, final 1st quarter GDP on Wednesday, and Personal Income and Outlays for May on Thursday. Manufacturing sector reports will be released from the Richmond Fed on Tuesday, and from the Kansas City Fed on Thursday. The following week, June 1 Grain Stocks and annual Crop Acreage will be released on June 30.
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