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Volume 5, Issue 9
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“Go with the Pro!”
Inside this issue:
Market Highlights
2
Bull/Bear Bubble Charts 2
Cash Sales Targets
3
Technical Thoughts
3
Contract Opportunities
4
Bean/Corn Ratio
4
Cattle on Feed
5
Balance Sheet Update 5
Pro Coop - Your Coop 6
Pro Coop’s MISSION:
PRO-viding a serviceoriented, unified, cooperative to enhance owners
profitability.
___________________________________________________
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PRO’s motto:
P - Professional
R - Reliable
O - Outstanding
Newsletter Date: Oct 22, 2016
Logistics - As we put this 2016 crop in the bin, we recognize that we’ve been blessed again with a large
crop. Piles are starting to show up around the country and we are starting to hear of places getting plugged up,
reducing hours, record location receipts and some places struggling to stay open. It’s been a hard run the past 10
days and with no breaks in the weather to allow the commercial elevators to catch up on logistics, it creates some
challenging situations. The past 10 days our average company wide receipts have been 1 million bushels per day.
And we are only able to haul/transfer about 200k/day with our trucks. Without a break in the action, this math
doesn’t add up well over time. Don’t get me wrong - these are all good problems to have but these still have to be
addressed in the very near future. Without any rainy days to catch up, next week will bring some logistical challenges for EVERYONE. Please be patient with us as we work hard to keep all our locations open to receive grain.
Marketing - With these additional yields, we need to go back to the drawing board as we discuss the
marketing/financial aspect of this crop. Early initial cash flows have changed. Time for a relook on GROSS REVENUE PER ACRE. Based on “general marketing ideas” I would say most producers in this area are “wanting” $4.00
corn and $10.00 beans and used initial estimated yields of around 190 bpa corn and 50 bpa beans for their cash
flow projections before spring planting. $4.00 x 190 bpa = $760/acre gross revenue. $10.00 x 50 pba = $500/acre.
Let’s call these revenue numbers a “base initial assessment”. Now let’s fast forward to harvest and consider REAL
yields and current prices. I’ll use 65 bpa beans and 215 bpa corn and current cash values of $3.08 and $9.05. What
does this mean to our gross revenue per acre concept: $9.05 x 65 bpa = $588/acre gross revenue. $3.08 x 210
bpa = $662/acre gross revenue. This simple concept shows that we actually come out BETTER in beans currently!
Corn is still below our initial base assessment but looking at deferred July bids currently at $3.34 we see we are
only about a 20 cent rally away from achieving the $760/acre revenue goal.
I bring this simple concept to your attention so that we maintain our focus on the END GAME - the
actual dollars that we bring back into the operation - not just some “preferred price per bushel” number. The
average price per bushel you receive is no where near as important as the gross revenue per acre that you can
achieve. I want to make sure your focus is in the right place and I encourage you to use your real numbers for
your operation to find your gross revenue per acre goals and execute your targeted sales accordingly. Be proactive in putting in targets - these markets seem to be “here today and gone tomorrow”. Don’t miss out on opportunities because you didn’t have targets in. We all know things could go back to $2 something corn and $8 beans.
Consider “Soft” Offers - Not sure when you actually want to sell? Not sure how many bushels you
want to sell at any particular price? Consider a “soft” offer. Essentially this is a ONE bushel offer at a particular
price target. If the market gets to that price, it triggers a conversation. One of our originators, grain clerks or
location leaders will call you to discuss if you want to sell and gather the details (bushels, price, etc.). A key benefit
is the soft offer allows you not to miss out on potential opportunities while your focus is on more pressing things
such as harvest while not committing to an action that you aren’t entirely sure on. We’ll pick up the phone when
the soft offer hits and call to discuss with you. I would encourage soft offers to be placed 1-2 cents
BELOW where you think you might want to sell in order to give us time to contact you to discuss.
A Feel Good Story - Twice in the past year Local Fire Departments have been fortunate to save a life
with the use of cofferdam grain entrapment rescue tubes that were donated by Pro Cooperative to their departments. Most times grain entrapment stories end tragically but these two stories have a happy ending. We are continually reminded that we are all here for a bigger purpose. Pro’s involvement and service to its patrons AND our
local communities sometimes can tug at the very heart of why this cooperative was formed. We were one of the
first cooperatives in the nation to donate rescue tubes to local fire departments hoping that it would be money
wasted and never needing to be used. But today there are two families that we will forever be connected to Pro
Cooperative in a good way because of our commitment to our communities. See the full story at: http://
www.weareiowa.com/news/local-news/two-successful-grain-rescues-in-six-months-for-two-fire-departments. Pro
Cooperative donated three tubes, one to Manson, Ruthven and Pocahontas. All departments have trained countless hours with Professional Rescue Innovations in order to know how to use the tubes properly. They’re hard
work, in farming and firefighting, has paid off and we appreciate their efforts! It makes what we do worth it.
Page 2
Pro Report Online
Market Highlights
General Comments - Two strikes have
occurred on the DDG export front. Vietnam
has issued a statement that it will halt DDG
imports by mid-Dec from the US due to worries over beetle contamination in shipments.
On average, Vietnam is 5% of total US exports
of DDG annually. This after China threatened
to halt its 5.25 MMT DDG business it does
with the US after accusing the US of dumping
cheap DDG’s in their market reducing competition. China and Vietnam are our #1 & #3
importer of DDG respectively. In total, 6
MMT of our 12 MMT export program is in
jeopardy. The level of DDG production is
unlikely to decline though as ethanol margins
are good. The larger available supplies could
put downward pressure on DDG prices allowing for competition with soymeal as an
alternative protein source. This could ultimately keep a lid on meal prices too over the
winter. Despite a weak La Nina, South American planting conditions remain in favorable
status. History shows La Nina events have
better chances for a negative impact on Argentina’s overall production but little impact
on the Brazilian crop.
Corn - US export inspections to date show
official loadings running about 1.5 MMT over
last year. The USDA is expecting an annual
increase of 6.6 MMT. Seasonally, exports are
slow this time of year so to have a significant
part of the increase accomplished by this date
allows for export expectations to rise in future
USDA reports. In an effort to reduce its overall
glut of corn, the Chinese government is trying
several different policies: the grain reserve
program is expected to buy 440,000 thousand
metric tons of corn to support its farmers
while it suspends auctions from their state
grain reserves. China is also rumored to be
mulling over subsidizing corn prices to encourage additional end user usage. And in another
effort, China hopes to cut its corn growing
area and raise soybean planting area in a 5 year
transition plan. A reduction in planted area
doesn’t necessarily mean a reduction in production though as China continues to invest in
hybrid and yield improvements by attempting
to buy Syngenta and gain valuable trait and yield
research. Corn’s friendliest aspects are the
large fund short, quasi-friendly seasonals, and
the export program. The post-harvest farmer
holding pattern is a strange thing to label, but
certainly leans supportive if prices stay in this
range. Long term, however, corn has several
boat anchors that will prevent any significant
rally….world stocks, US stocks, and the need
to shed acres in 2017.
Soybeans - Exports have been strong as the
US has some of the cheapest beans in the world.
Loadings for the marketing year to date are running .81 MMT ahead of last year which puts the
US at 75% of its goal for the ENTIRE year with
the largest part of the program typically yet to
come. The US 2016 crop size continues to pressure the market, and I am not sure that we are
done factoring this into prices. Fund length
doesn’t help either with fund traders on the long
side of the bean market. The longer term outlook continues to show strong demand, which
will likely cause a little recovery once the supply
side has been fully traded. The most bullish side
of the bean complex is bean oil as world production of all vegetable oils continues to rise at a
slower pace than overall demand requirements.
Bull/Bear Bubble Charts Update
Review charts to the left. Very different market outlooks on corn
vs. beans. Short term situation is somewhat supportive both crops as
bin doors get locked shut and funds reduce their net short position.
Corn crop size estimates by UDSA have gotten smaller since Aug report. However, long term supply and demand picture is not pretty and
the corn market HAS to address the acreage situation. Bean outlook is
the opposite, as the 2016 production levels seem to be rising on a daily
basis. However, the longer term stuff is bullish, as we continue to see
global stocks/use levels dropping despite record production levels.
Cash Price Comparisons
Corn
Last
Week
$3.11
Oct-13 Oct-14 Oct-15
Current*
$4.41 $3.13 $3.45
$3.08
*As of Close 10/21/16
Soybeans
Last
Oct-13 Oct-14 Oct-15 Week Current*
$12.42 $9.04 $8.25
$8.85
$9.05
*As of Close 10/21/16
Volume 5, Issue 9
Page 3
Technical Thoughts - New Crop Corn
Review the Dec corn chart below - Sideways market action since last Friday. This was
kind of a punt of a week, and most chart objectives still stand. Bullish head and shoulders
projects a potential move toward the 375 area. Moving averages have crossed over, and the
funds still possess a rather large short position. Having said all of this, it still feels like it is
GRAIN MARKETING IDEAS:
the BULLS that need to prove something. All week we tested resistance, and failed….and
Fall Delivery New Crop Corn - Producunless we see some sort of move early next week, we fear the uptrend may stall out.
ers are still behind in marketing. Old crop
stocks in some cases have been carried
over. Pricing opportunities this fall have
been few and far between running mostly
below cost of production. We are however, nearly 40 cents off the lows we saw in
late August. Seeing some sales made to
generate cash. Albeit unlikely at this time
of year, we could see another small rally if
the funds want to neutralize their short
position. The likely target is $3.75 Dec
futures. Any move close to that would put
cash values around $3.30. I’d target EVERY bushels delivered to town to sell at
that price. If you want re-ownership, consider Extended Price or Minimum Price
contracts but don’t hold the physical and
pay storage. Unsure how these contracts
work? Talk to myself or one of our 4
Grain Originators (Jamie, David, Chris and
Jeff).
Technical Thoughts - New Crop Soybeans
Review the Nov bean chart below - Beans closing above the 40-day moving average
this week for the first time since mid June. Moving averages close, but not quite, to crossing over to the upside, which usually begets some fund buying. Market also testing some
moderate resistance areas, but have not been able to make new highs. Overall, this past
week was a positive week for the soybean market, and the seasonal action would argue we
have seen perhaps longer term lows….but what is uncertain is any kind of upside potential.
Bin Stored New Crop Corn - Market carries (difference between nearby bids vs.
next spring) are decent. Bin stored bushels could consider selling the carry to July
futures to capture a good historical
“return to storage” of 25 cents/bu. If Dec
futures rallies to near $3.75 should put
July futures around $4.00. Consider HTA
contracts which locks in futures but keeps
basis open. Basis improvements into the
winter/spring could turn this July delivery sale into something near $3.60-$3.75
cash. That should cash flow in most operations with the better yields.
New Crop Beans - Probably the most
intriguing of all the markets (and potentially the most explosive. Vegetable oils
are in tight supply issues causing concern
even with large US bean yields. 29 out of
the last 30 years the carryout in beans
from fall to spring has gotten smaller
causing prices to rise. So how do you
capture that market effectively without
incurring a lot of cost? Simple - sell cash
and execute an Extended or Minimum
Price contract. Even at just over $9 cash,
numbers working well in cash flows with
the exceptional yields. Actual gross revenue per acre some $50 higher now than
what was anticipated. Small sales are
warranted in this area and scale up from
here.
Go with the Pro!
Your PRO-fessional Business Partner!
Go with the Pro!
Pro Coop Grain Contract Offerings
Most market risk managers would highly encourage a “diversified” marketing plan. What does that mean? This section of the Pro Report
Online hopes to help answer that by introducing to our patrons the different types of contracts that we offer at Pro Coop, the pros and
cons, risk vs. rewards, and when or why you would use the various types of contracts. We don’t expect to answer all the Questions you
may have on these contracts - only provide some insight and hope you will give us a call to see how these may fit into your marketing plans.
If you have additional questions on these contract types, be sure to reach out to one of Pro’s 4 grain originators (Jamie O’Hearn, David
Storm, Chris Pohl, and Jeff Elbert. NOTE these are examples and subject to change. These contracts can be used in both corn and beans.
Minimum Price Contract
DEFINED: a cash (spot) contract with a long (buy) call option tied to it. This allows for market participation in any potential upside market moves after the grain has been sold.
Pros - stops storage fees, upside remains open, becomes a known risk (all you can lose is what you pay for the option), creates
immediate cash flow needs, downside price is protected through the cash sale.
Cons - options do not always perform 1:1 ratio versus the underlying futures contract, requires some management and
communication, must be done in 5000 bu increments.
NOTE: Used when a lot of uncertainty in the market but the producer can’t afford to continue to see additional market setback. Satisfies
immediate cash needs. The risk is low as the only money you can lose after the contract is initiated is the cost of the option. Option cost is
taken off of the initial contract price so no “margin” money is required. Option premiums vary based on month and strike price chosen.
Here’s how a current minimum price contract would look:
(Example - current new crop Dec futures price = $3.52 and July 2017 futures price = $3.75)
Current Cash Price = $3.08
July $4.00 call = $0.18 cents
Net Cash price after call purchased = $3.08 - .18 = $2.90
Option expiry 6/20/17
Contract fee is 2 cents/bu
In summary - You would receive $2.90/bu for your corn at fall delivery. That is the lowest possible price you could get. If the market
rallies and the premium for the call option rises, you can exit the option position at any time that the market is trading and collect that premium. Once the option position has been closed, the value of that option is entirely yours and you will receive a check for the entire premium. If the market goes down and you decide to exit the option position, you still get back whatever option premium is left upon exit. This
allows you the flexibility to still exit rather than letting it “expire worthless”. Please call for any questions you may have on this contract.
Extended Price Contract
DEFINED: a cash (spot) contract with a long (buy) futures position tied to it. This allows for market participation in any potential upside
market moves after the grain has been sold.
Pros - stops storage fees, upside remains open, penny for penny upside potential, creates immediate cash flow needs.
Cons - still have penny for penny downside risk with the long futures position, downside not protected, requires some management
and communication, must be done in 5000 bu increments.
NOTE: Used as a tool to generate cash and stop storage but still remain in the market. 100% upside potential and downside risk still exists.
Used when markets feels like a near term bottom has been placed but grain still needs to move. Satisfies immediate cash needs. Producer is
paid 80% of the initial cash price. Remaining 20% is held back for margin exposure. Here’s how an extended price contract would look currently:
(Example - current new crop Dec futures price = $3.52 and July 2017 futures price = $3.75)
Current Cash Price = $3.08 @ 80% payout = $2.46/bu paid upfront. 20% held back for margin = $0.62/bu
Buy July futures contract @ $3.75
Position expires 6/20/17
Contract fee is 2 cents/bu
In summary - You would receive $2.46/bu for your corn at fall delivery. And you also receive a “like bushel amount” of long (buy) July
futures at $3.75 on the same day. If the market rallies you receive penny for penny gains above $3.75 July when the position is liquidated
(and you receive the 20% of the initial contract price that was held back). If the market drops below $3.75 July, you lose penny for penny.
Once the position is liquidated we would subtract the loss below $3.75 from the 20% margin and pay out the remaining money after the
margin is settled. Please call for any questions you may have on this contract.
Bean/Corn Ratio - What will the US farmer plant next year?
Bean corn ratio shown to the right. This chart is clearly trending the
wrong direction, when the job is to get corn acres to switch to beans next
year. Even with a 52.5 BPA bean yield this year, the soy balance tables are
the most accommodating (ie, least ugly) for any acreage increase. Current
price trends are not accomplishing the goals. When the bean market finally
prices in the highest supply levels, the market should start to seasonally
trend higher….and this needs to be sustained while the producer debates
planting intentions this winter. Informa currently forecasting 2017 US corn
acres at 91 million acres, a 3.7% drop for 2016 but close to average seen
from 2014-2016. Informa also estimated beans at 88.5 million acres up
from last year’s 83.7 million number. Corn could afford to lose 4-5 million
acres next planting season allowing for the large carryout to shrink slightly
and allow for prices to recover some.
Go with the Pro!
Your PRO-fessional Business Partner!
Go with the Pro!
USDA Cattle on Feed
Oct 1 Cattle on feed was solidly lower on Friday’s report than what private analysts had estimated.
September placements were sharply below expectations at a RECORD LOW. And September marketing's were also slightly lower than expected. Expect a bullish futures response on Monday’s trade.
PRO COOPERATIVE
Main Office
17 3rd Ave. Northeast
Pocahontas, IA 50574
Phone: 712-335-3060
Fax: 712-335-3075
E-mail:
mschon@procooperative.
com
with your comments and
suggestions!
We’re on the Web! Visit
us at
www.procooperative.com
Marketing Year to Date Export Inspections
Charts below show YTD corn and soybean export inspections since 2007/08. Corn right at the historical high water
mark from 2007/08, and certainly WELL ahead of the past few years featuring big supplies. US corn remains the
cheapest worldwide, and is one of the only games in town for the near term. Soybean inspections are a clear record
to this point. USDA projecting the highest corn export estimate since the 07/08 year, and the highest bean exports in
history…so far, so good, but a long time until next Aug 31. And the US dollar will have a lot to say about the direction of inspections as this crop gets locked away.
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Once again we are at harvest and
there is a lot of equipment moving
between fields. Please use caution
when approaching slow moving
vehicles. Be aware of your surroundings and what is behind you
as other vehicles behind you may
make the wrong decision and decide to pass as you turn into the
field. Be aware of tall corn and
poor visibility at uncontrolled intersections. Have a safe and bountiful
harvest season!
Corn and Bean Balance Sheet Scenarios for 2017 Crop
Updated balance sheet possibilities shown below as we transition into the 2017 balance sheet becoming a critical
factor. Despite the huge US bean yields in 2016, next year’s situation still shows an acreage battle looming. The
corn balance sheet has to be addressed SOON, as unchanged acres and trend line yields actually add onto this year’s
already bloated corn carryout numbers. Corn and wheat are at a time when they have to get rid of acres somehow…and the bean balance sheet is the only one that remotely can tolerate them. It is up to the market to make
this happen…and recent action has not supported this theory. Winter acreage predictions could cause interesting
market dynamics. Stay tuned!
Go with the Pro!
Your PRO-fessional Business Partner!
Go with the Pro!
Additional Excitement in the Grain Department
Operations Manager - This past week I had the distinct pleasure of showing our new Operations Manager, Chris Kernahan
around to all of our facilities. Most of our patrons won’t see Chris as he is the “behind the scenes” get it done kind of guy
who works with our locations on facility improvements, grain quality and bin management, maintenance and fleet management
and capital projects among many other roles and responsibilities. He brings an elevated level of expertise to Pro Coop that
will allow us to make strategic decisions that have profitability, growth and customer service at its forefront. Help me in welcoming Chris - he will be a great asset to our team.
Two New Grain Originators - Effective Monday Aug 15, the Grain Origination team at Pro Coop will DOUBLE! I’m proud
to announce the addition of Chris Pohl and Jeff Elbert. Their primary focus is service to assist and educate our patrons on
effective and varying contract and risk management options for use in grain marketing. They are solely there for you. They
will assess the needs of your farming operation in regards to contracting, marketing, transportation options, market education
and policies. Most of their time will be spent on your farms and in your fields with you - being that trusted source of timely
market information that is necessary for you to make good marketing decisions.
Chris comes to use from Landus where he served as a Grain Market Advisor. He built some great customer relationships during his tenure at Landus and I’m sure he will do the same here at Pro. Chris and his family have resided in Manson for
several years and he will be staging out of the Manson office. His coverage area will mainly be around the locations of Manson,
Pioneer, Bradgate, Rutland, Gilmore City, Rolfe, Pocahontas, Plover and Havelock.
Jeff is also a local guy living in Marathon for over 30 years. He comes to us from Ag Partners where his role was
Grain Field Marketer. He already has an elevated working knowledge of various contract options and will be an asset to our
Grain Origination team as well. Jeff will have an office based in Ruthven but will be out in the country most of the time covering areas around the locations of Havelock, Plover, Ayrshire, Ruthven, Terril, Wallingford and Graettinger.
David Storm and Jamie O’Hearn are now going on 3 years employed at Pro and continue to fulfill their origination
duties as well. David has built a customer base throughout our entire territory and will continue to travel where needed.
Jamie serves dual roles as originator and as Manager of Cement Plant Futures. She is a licensed broker and assists customers
with full service brokerage of futures and options. She also works closely with me in merchandising our commercial bushels
and monitoring all of our advanced marketing grain contracts.
Help me in welcoming Jeff and Chris to an already strong grain team at Pro Cooperative!
Projects - Each year we develop a strategic plan to analyze the needs of your cooperative. This past year our focus for large
capital projects was to upgrade our Rutland facility with additional dumping, legging and storage capacity. With a new
15,000 bu/hour dump pit and leg and an additional 500k storage, this facility will have its much needed upgrade complete to
handle additional producers bushels this fall.
Some larger projects are just a necessary part of the normal wear and tear of using them. Graettinger patrons don’t have to
worry anymore about the narrow width or short length of their scale. This 80’ x 14’ 160,000 lb capacity new scale will be
commissioned the end of August and will handle any size, weight, length of equipment that is currently allowed on the road.
Rutland 15,000
As with most things in agriculture, Mother Nature gets a say in things. And she didn’t disappoint
in July when she put her fist
bu/hour
into one of our bins at Pioneer. Fortunately we were aggressive in getting bids. The bin,
catwalkdump
and conveyor are already
pit conveyor and be ready to
down and we should start to jack up the new 500k GSI bin as well as a new, faster 18,000 bu/hour
Rutland 90’
receive corn in the fall.
500,000 bu
capacity GSI
grain bin
Pioneer Bin in July
Pioneer Bin Aug 2
Pioneer Bin TODAY
Graettinger Scale