Sunday, October 14, 2018

Market Commentary for December Futures (October 12, 2018)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Previously my fundamental analysis and model price projection was at least tracking well with December futures, with some differences most likely due to the simple model and inability to account for uncertainty around trade policy.

(September Model Projections)


(October Model Projections-Update)



But after this last WASDE report my model is showing greater divergence. Things not accounted for in the model in the last few weeks include marginal improvements in trade talk, possibilities of expanded year round ethanol, and wet weather impacts delaying harvest. There are also a few word of mouth reports out there that some farmers aren't seeing the yields quite expected. Technically, by the close of trade on Friday there were some promising signals. Since my last update we've seen positive crossover in the MACD and continuing momentum there, as well as a closing price at the end of the week of 3.73 above the 20, 50, and 90 day moving averages. The close on the preceding day which was report day (October 11) at 3.69 was above both the 20 and 50 day moving average. We will have to see if this momentum continues through the week next week although the RSI is sitting over 60 indicating corn could be a bit overbought.


***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Monday, September 24, 2018

Market Commentary for December Corn Futures (9/24/18)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Fundamental Analysis

Tracking the last three WASDE reports I have taken a look at my previous model projections and the impact on December corn futures below. While there is definitely a gap (I'm persistently higher than the futures price in my projections) between my model projections and actual December futures prices around the report date, the directional trends are not far off. I would explain a large part of the difference by poor model fit to my simple model having omitted lots of fundamental variables and effects as well as any impact that the tariffs may be having on soybeans pulling down corn.




Technical Analysis

Technically, it is an understatement to say that the September 12 report was a bad day for corn markets. The increase in national average yield to 181.3 bushels per acre brought prices down. The RSI and the MACD reflecting the downward momentum.



***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 




Saturday, September 22, 2018

The Future of Ag with Bayer

"We can do over a billion simulations of crop genomes to determine the best phenotype in silica, in the computer, before we ever put a single seed in the ground," says Stern. "That gives us more opportunities to test and learn through machine learning, it saves as we're putting the seeds in the ground until later and we actually have more insight."

From:
Bayer Executives Unfurl Industry Giant's Goals For Ag

http://ccms.farmjournal.com/article/news-article/bayer-executives-unfurl-industry-giants-goals-ag

(Via AgWeb)

Sunday, July 8, 2018

Market Commentary for December Corn Futures (6JUL18)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

As of Friday most analysts are proclaiming the start of a trade war. The market's reaction was not that dramatic, and we know with regard to corn, China is not a huge player when it comes to our exports and a lot of trade expectations are likely baked in at this point. Or are they?

When we look at corn we see a continuing decline in the daily chart...although not as steep as we have seen before.

In my last post I discussed the planted acres report and price scenarios (based on my simple model) assuming USDA's projected yield of 174 acres and the slight increase in acres. And I wondered how much trade worries could explain any of the impact on prices. Given China's minimal role in exports (not to reject spillover effects from other markets) if I take my basic model and project prices based on a number of potential yield scenarios it starts to look like what we are seeing on the board and in the charts could largely be explained by big yield expectations.

Yield Stocks to Use Model Projected Price
174                 11.99% 4.14
176                 13.11% 3.94
178                 14.23% 3.76
180                 15.35% 3.61

*Corn Price = a + b (1/Stocks-Use Ratio)

Informa economics reported an expected yield estimate around 176 bushels recently. Other analysts could be making a higher guess. We did see some daytime heat and warm nighttime temps this last week as a record portion of the corn crop is silking at this time. One thing that always surprises us is how robust modern genetics and varieties enable corn to pull through almost contrary to what crop ratings say. Recall last year based on conditions, ratings, and other factors analysts were for a long time thinking about 168 bushel yields and we ended up at 177. All of these factors make a December corn price near or above $4.00 seem like a stretch at this point based on a simple model with yields anywhere north of 176.


***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Saturday, June 30, 2018

Tariffs and Market Response for CZ2018 Futures

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Take a look at the CZ2018 futures contract for the last few weeks and you'll feel you stomach drop.




WASDE June 12 / Planted Acres Report June 29 (summary)

Supply:
Planted Acreage (million acres):  88/89.1
Harvested Acreage: 80.7/81.7
Yield (Bushels/Acre): 174/174

Ending Stocks (million bushels): 1,577/1753
Ending Stocks/Total Consumption (%): 10.79%/11.99%

*Model Projected Prices: $4.41/$4.14


*Corn Price = a + b (1/Stocks-Use Ratio)

On Friday June 29 USDA released its planted acres report and increased planted and harvested acres. According to the updated balance sheets, that could have been slightly bearish (see below). This makes you ask a couple questions. 1) how much of this was already priced in and already reflected on the chart 2) how much of the price drop we have seen is due to trade and tariffs?

This is an ongoing question. It looks like whatever the impact, we're beginning to see sideways trading until something major in terms of weather upsets the above normal crop conditions ratings. How exceptional does this have to be to push back against the price headwinds we are getting from talk about tariffs? That is a hard question. Sonny Perdue and folks at USDA are working on it according to this story:

 "Our economists are using formulas and algorithms to determine the elasticity of what that trade disruption is, versus [other] market factors" - Sonny Perdue

from: https://www.morningstar.com/news/dow-jones/TDJNDN_201806269373/grain-highlights-top-stories-of-the-day.print.html 

That would be good to know from a marketing standpoint (how much can we expect weather to impact price vs. a change in the policy environment and how do we hedge against that) and a need to know if they are going to develop a scheme to compensate financial and economic losers in what many think to be an impending trade war. It is just perplexing to me that we are talking about completely changing the market environment for our food supply...including tariffs and to 'correct' those distortions with possible payments, supports, purchases etc. by government. While far from being a truly 'free' market to begin with, this seems like a clumsy step backwards.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Monday, June 18, 2018

Market Analysis June 15, 2018 (Dec 18 Corn)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

A few weeks ago I was looking at the decline in December corn futures and attributed some of the drop to scares related to potential tradewars. Trade wars aside, when you look at the balance sheet after the latest WASDE report nothing substantial changed:

WASDE Estimates for May/June

Supply:
Planted Acreage (million acres):  88/88
Harvested Acreage: 81/81
Yield (Bushels/Acre): 174/174
Beginning Stocks (million bushels):  2,182/2,182
Total Production: 14,040/14,040
Imports: 50/50
Total Supply: 16,272/16,272

Consumption:
Feed and Residual (million bushels):  5,375/5,350
Other Food, Seed, and Industrial: 7,115/7,165
Exports: 2,100/2,100
Total Consumption 14,590/14,615


Ending Stocks (million bushels): 1,682/1,577
Ending Stocks/Total Consumption (%): 11.53%/10.79%

Model Projected Prices: $4.24/$4.41

Using data pulled from past USDA reports and historical December futures prices I developed a model similar to Darrel Good and Scott Irwin predicting price as a function of stocks-to-use ratios:

price = a + b (1/Stocks-Use Ratio)

What we can see from these projections are that the changes in the balance sheet from the May to June WASDE are minimal, and if anything could be trivially bullish with an increase in the projected price. With announcements this week of tariffs by the Trump administration the specter of trade wars at least for the near term is continuing to weigh the markets.

In addition to any loss in demand related to trade, many traders (the funds?) could be also thinking about the compound impact of trade wars in addition to better than expected yields. While I would tend to discount the really great crop ratings reports that have been coming out in the last couple of weeks (because they are so early) you can't discount how resilient modern genetics have been and allowed those 'better than expected' yields the last couple years despite some expectations of yield impacts from stress. 

Ignoring any impact of trade wars on the demand side, it is easy to see what could happen to ending stocks to use and price as the yields tick up. If we were to beat last year's record yields you can really see the price pressure.

Yield Stocks to Use Price
174                  10.8% 4.41
176                  11.91%        4.16
178                  13.01%  3.95
180                  14.12% 3.78

On the technical side, this is playing out on the charts with price falling below the 200 day moving average (blue) for a number of sessions and the 20 day (red) dropping below the 50 day (black) and lots of volume behind this momentum. The MACD mirrors this with no hint of reversing.



What happens next will ultimately depend on how trade issues unfold and how the summer weather impacts pollination and grain fill. One thing to nail down will be actual planted acres to come out at the end of June. It seems like the worst of the trade issues are being priced in now, so as long as planted acres don't surprise us with unexpected increases perhaps a weather issue or trade resolution will create some price bounces as we go through the summer.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. ***** 

Tuesday, June 5, 2018

Closing Market Analysis June 5, 2018 (Dec 18 Corn)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

This makes the 5th day in a row December corn closed below the 20 day moving average. You might chalk most of this up to the uncertainty over trade talks (read Trump). I have a hunch that there is potential for recovery if this works out but others are having their doubts about when and how that might take place.

Fundamental analysis (trade wars aside) indicate solid support around $4 or higher, but if a trade war does unfold, we might adjust that lower on a fundamental basis. I think recovery (if there is no trade war) will be limited to the extent that corn demand is dampened as a result of the hit that livestock exports and demand for feed takes in all of this. Of course maybe China is leveraging Trump's rhetoric to drive down prices and then come in and buy up cheap grain. No trade war, and both Trump and China win. But that's a stretch.




***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Sunday, June 3, 2018

Flat Earth Certified Travel

From the New Yorker: Looking for Life on a Flat Earth

These people and the Non-GMO project folks really need to get together. Together they could spin a theory that global warming is impossible on a flat earth. Or have ‘Flat Earth Certified’ cruise ships that verify their course won’t go dropping off the edge of the planet. Even though there might be a scientific consensus that the earth is round, there are no independent scientific studies on what happens when actual cruise ships travel near the ‘ends’ of the earth. The precautionary principle would require cruise ships to stay closer to the shore until more studies are done. But the cruise companies probably would not be cooperative and conceal any findings or bias studies with funding. Consumers have a ‘right to know.’

Wednesday, April 25, 2018

December Corn Futures Technical Analysis (April 25, 2018)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Previously I covered a back of the envelope fundamental picture of the new crop corn market and basically concluded there was strong support around a $4.06 price and potential to go higher depending on final harvested acres and yield. By coincidence, December corn closed that same day around 4.06 and picked up another 6 cents as of this writing.

With the RSI below 70 there is indication that this isn't overbought and the MACD indicates the beginnings of a bullish crossover. Today's movement has been attributed by some to really dry conditions pressuring the Brazillian 2nd crop corn as well as reduction of Chinese tarriffs on grain sorghum.

(Chart and data produced via quantmod and quandl packages in R - See code below)


***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Tuesday, April 24, 2018

Back of Envelope 2018 Corn Balance Sheet and Price Scenarios

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

As planters start to break free of the ice I thought I would spend some time doing some quick and dirty speculating about what the balance sheet for the 2018-19 corn marketing year might look like. Below are projections based on historical data and the most recent prospective plantings report.  USDA will have its projections out in the next report on May 10.

Being adhoc I only projected off of the last three years of data for the key balance sheet items. The idea is to get a rough back of the envelope look at the implications of the major fundamental factors for the fall harvest and price environment using the projected stocks to use ratio.

U.S. Corn Balance Sheet 2018-19 
Projections 
April 24,2018

Supply:
Planted Acreage (million acres) 88
Harvested Acreage* 80.96
Yield (Bushels/Acre)* 173
Beginning Stocks (million bushels)* 1920
Total Production* 14006
Imports* 58
Total Supply 15984

Consumption:
Feed and Residual (million bushels)* 5377
Other Food, Seed, and Industrial 6844
Exports* 2039
Total Consumption 14260


Ending Stocks (million bushels): 1724
Ending Stocks/Total Consumption (%): 12.09%

*based on or derived from recent historical data - will update with better data when available

Given these assumptions, this is a pretty low stocks to use ratio relative to the last couple of years. This is assuming basically trendline yield and planting every acre as expected (which is already 2 million acres fewer than last year).

What are the major threats (bullish factors) at this point? With the historically cold april (the coldest April on record since the late 1800s) there is concern about the impact on yields. Mike Tannura  comments recently on AgWeb:

“You have to start at 1960 when analyzing the U.S. corn crop, because technology was so different prior to then that it’s hard to compare what yields might have done before 1960,” he explained. “Seven [of those 20 coldest Aprils have] occurred since 1960, and of those seven, six had below trend corn yields.”

Tannura was quick to point out that while April weather is typically not the driver of the U.S. corn crop, a cold April leads to later planting which does influence yield.

“Six out of seven times you can’t get back to trend line yields because of it,” he said.

I think it really depends on how late planting interacts with the possibility of heat stress this summer. However one thing we have seen is that with modern planters and GPS we can plant a lot of corn fast. If we get two good weeks the first or 2nd week of May in addition to modern genetics we could still get close to trendline yields unless we get some sever conditions. One thing though, is how much prep work (pre-plant herbicide and fertilizer applications) will get done properly prior to planting and how much of a rush to plant impacts this. Lets look at the impacts of some yield scenarios on implied prices (based on a basic historical regression of prices and stocks to use):

Yield Harvested Acres Stocks to Use Implied Price  Scenario
173            81                                     12.09        3.901        Average Yield Projection
175            81                                     13.32        3.778        Average Yield (2 years)
168            81                                        9.25        4.185        Lowest Yield  (3 years)

If we had significant yield reductions over last year, as low as 2015 levels, estimated stocks to use would be as low as levels seen in 2013 the first year after the 2012 drought.

However, maybe even more likely, if the cold April and late planting ultimately materializes in fewer planted or harvested acres we could see just as drastic of an impact on stocks to use.

Harvested Acreage Yield Stocks to Use  Implied Price
   81                                  173         12.09          3.901
   80                                  173         10.93          4.017
   79                                  173         9.86            4.124


What if we got a slight reduction in both yield and harvested acres?

Harvested Acreage Yield Stocks to Use Implied Price
   80                                  172                10.41           4.069

While this is very quick and dirty (its only based on 3 years of historical data from WASDE reports) its the dynamics (how much the needle moves on price with changes in yield and harvested acres) that are most interesting. This basic analysis definitely seems to provide some fundamental support for the $4.00 range of corn prices we have recently seen with the December 2018 corn contract.

Huge Caveats

So besides the crude estimates on limited data, there are some other factors to consider as well. My model relating stocks to use and price doesn't factor in a number of market factors that could bias these results. I could be underestimating price quite a bit in all of these scenarios. Also, there is a lot of talk from analysts about usage being high and rising. My average estimates on feed and residual use as well as exports could also be leading to higher levels of stock to use making my price projections too low. So in a sense, my projections while providing support for current price levels, could be relatively bearish compared to more realistic numbers. With additional updates and better projections from USDA in the coming weeks these biases should be addressed. Plus, I need to invest some time in more sophisticated price models besides the basic stocks to use regression on extremely short time horizons.

(at the time of writing December 18 corn futures was at $4.0650/bu.)

Additional Readings and References:

Weekly Outlook: Is Corn Setting Up for a Rally?
http://farmdocdaily.illinois.edu/2018/04/is-corn-setting-up-for-a-rally.html 

How Many Days Does It Take to Plant the U.S. Corn Crop?
http://farmdocdaily.illinois.edu/2018/04/how-many-days-does-it-take-to-plant-us-corn-crop.html


This Historically Cold April Might Mean Lower Yields
https://www.agweb.com/article/this-historically-cold-april-might-mean-lower-yields/


***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  


Sunday, April 15, 2018

Who says U.S. farmers aren't feeding the world?

There have been some to push back regarding the notion that U.S. farmers 'feed the world.'  However, this adds some perspective for consideration:

“Syngenta (2014) reported that the demand for grain has increased almost 90% since 1980 and that each year 2.4 billion tons of grain is consumed annually through food, fuel and feed. The four main contributing crops include soybean and maize (feed), and rice and wheat (food). In South Africa, half of the maize produced is used for animal feed, of which 70% is for poultry (Goldblatt, 2012). Furthermore, any significant rise in the demand for meat results in a similar rise in the demand for grain because one kilogram beef requires seven kilograms grain to produce, one kilogram pork requires four kilograms of grain and a kilogram of poultry requires two kilograms of grain (Syngenta, 2014). It is thus evident that agriculture is mainly demand driven and the grain industry specifically will continue to play a vital role in the global economy. The challenge will be to meet the growing demand by means of increased production.”

from: A COMPETENCY MODEL FOR DATA SCIENTISTS IN GRAIN SA YOLANDI KRUGER Field study submitted to the UFS Business School in the Faculty of Economic and Management Sciences in partial fulfilment of the requirements for the degree of MAGISTER in BUSINESS ADMINISTRATION at the University of the Free State Supervisor: Prof. M. KotzĂ© Co-supervisor: Mr J.F. de Villiers (2015)

Thursday, February 22, 2018

From the tweet stream February 22, 2018

From my economic sense blog post - The 'free-from' Nash equilibrium food marketing strategy.

A meta analysis summarizing 21 years of research related to GMO corn. Results - healthier and better yielding. 

"Results provided strong evidence that GE maize performed better than its near isogenic line: grain yield was 5.6 to 24.5% higher with lower concentrations of mycotoxins (−28.8%), fumonisin (−30.6%) and thricotecens (−36.5%)....The results support the cultivation of GE maize, mainly due to enhanced grain quality and reduction of human exposure to mycotoxins."

Beyond proof of concept - blockchain

“Before the blockchain test, it took Walmart six days, 18 hours and 26 minutes to trace the mangoes back to their original source, he said. Blockchain not only cut that time down to an unbelievable 2.2 seconds” - from https://progressivegrocer.com/grocers-embrace-blockchain-new-era-transparency 

Corn may soon be fixing its own nitrogen:

"Pivot Bio is on a mission to replace all nitrogen fertilizer with microbes that adhere to the crop’s root system and spoon-feed the crop each day. These microbes mature as the crop grows, matching the supply of nitrogen to the need of each plant."  https://medium.com/@ktemme/the-crop-microbiome-holds-the-future-of-fertilizer-68ce67d07ad 

Facial recognition for managing cattle.

If you think that is cool, check out  Image-based ex-vivo drug screening for patients.

Some research on gene drives.

Follow me at @AgEconomist 




Friday, February 2, 2018

What if they made a movie about Elinor Ostrom?

From:

Governing the Commons: The Evolution of Institutions for Collective Action. By Elinor Ostrom (HT: Cafe Hyek, Don Boudreaux)

"Predictions that individuals will not devise, precommit to, and monitor their own rules to change the structure of interdependent situations so as to obtain joint benefits are not consistent with evidence that some individuals have overcome these problems, although others have not."

i.e. sometimes people devise cooperative ways to escape from a Nash Equilibrium without resorting to taxes or regulation.

In the movie A Beautiful Mind, there is a scene where John Nash states "Smith was wrong." I wonder if they made a movie about Elinor Ostrom if there would be a scene where she could say "Nash was wrong."  Of course both statements are just terse jabs failing to capture the actual subtleties and nuances of economic theory.

Sunday, January 28, 2018

StonyField faces backlash for bad optics on fear based marketing exploiting young girls

Too bad....really really used to like that brown cow whole milk yogurt...it's like melted ice cream. Could you imagine the oil companies making a video of young girls saying climate change is a scam? Well that is essentially what StonyField has done with their add promoting their products. Then trying to back track with bad science in statements citing IARCs opinion on glyphosate. They followed that by taking harsh tones and actions in social media against the efforts of those in the agricultural and scientific communities to discuss these issues. This has created a backlash from the scientific community and a PR nightmare for StonyField.

See Stonyfield Organic Gets Taken to Task for Anti-GMO Propaganda Video

See also:

Consumers Wising up to Misleading Food Labels
Food with Integrity is Catching On

Thursday, January 11, 2018

Sensors and CRISPR driving productivity and sustainability

This edible sensor could reveal what our gut microbes are up to

“Wouldn’t it be nice if our microbiomes could serve up diet advice—some science-based assurance that our food and medicines act in harmony with our resident microbes to keep us healthy? For that to happen, scientists will need to better understand how the interaction between food and microbes affects the chemical composition of our guts.” - Science

Think of how this could be used to optimize rations in livestock!

Engineers make wearable sensors for plants, enabling measurements of water use in crops

More precise and never before possible measures of phenotype through sensors can aid genetic improvements....also "The technology could "open a new route" for a wide variety of applications, the authors wrote in their paper, including sensors for biomedical diagnostics, for checking the structural integrity of buildings, for monitoring the environment" - Science Daily

Meet the Woman Using CRISPR to Breed All-Male “Terminator Cattle”

"Van Eenennaam, in fact, got the funding for the cattle project from a U.S. Department of Agriculture program looking at the potential hazards of gene-modified organisms. The department wants ways to sterilize GM organisms, including catfish and poplar trees, so their DNA modifications don’t spread to wild relatives."

"Van Eenennaam’s long-term goal is to make beef production more efficient. Males yield more meat than females and don’t get pregnant or go into heat. She thinks the ersatz males should be about 15 percent more efficient at turning grass and grain into muscle than females."

See also:

Consumers are wising up to misleading food labels

Nice piece in the Washington Post: Savvier shoppers see through misleading food labels. Here’s how. 

"Companies advertise what’s “not” in their foods to exploit the knowledge gap that consumers have. It’s natural for a shopper to assume if a food “does not contain” something, that’s a good thing (even if they have no idea what it means). Marketers prey on consumer vulnerabilities, then charge a premium for products that never contained that “evil” ingredient in the first place."

See also: Food with Integrity is Catching On