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Heartland Daily Newsletter - Grains and Cattle

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Grains started out the night session under pressure and re-challenged early week lows on news that Iran sent ballistic missiles at 2 US military bases in the Mideast produced some early session selling in ag futures, but values recovered when it was learned that there were no US casualties. In a mid-morning press conference, US President Trump indicted that Iran appears to be standing down and that the US was ready to embrace peace. The US will impose new sanctions on Iran, but the broad US stock indexes surged to new highs while crude oil prices fell to sharp losses on the prospect of reduced tensions.

With grains technically holding early week lows, and in the case of Chicago wheat, only making a new low by a tick, chart-based buying kicked in on short covering for a mid-week recovery. Its plausible that the recovery can occur on Thursday and possibly into Friday before the 11 AM crop production report.

Fridays crop report will include US corn area for silage which over the last three years has ranged from 6.1-6.4 mil acres. The largest corn silage state is WI (0.9 ma last year) with MN/MI/PA/KS all ranging from 0.340-0.390 mil acres. Trade Friday is looking for a 0.465 mil acre decline in the US harvested corn area. Some in the trade suspect a spike in 2019 corn silage area given late planting and option afforded farmers to plant silage as a cover crop.

Wide range of opinions on whether WASDE Friday will incorporate US/PRC Phase 1 assumptions into their 2019/20 US demand forecasts. Secretary Perdue earlier this week expressed excitement for US wheat farmers. Suspect many players standing aside ahead of Jan 10 crop report given heightened uncertainty surrounding 2019 US CN/BN harvested acreage, the magnitude of PRC imports of US ag and heightened middle-east tensions.

CONAB (Brazil Ag Dept) estimated a record large Brazilian soybean crop of 122.2 MMTs, up 1.2 MMTs from their December forecast. CONAB estimated the 2020 corn crop at 98.7 MMTs, up slightly from their estimate of 98.4 MMTs last month. History argues that CONAB tends to be too conservative in January, and with normal weather, the Brazilian soybean crop could rise 2-6 MMTs and corn 2-5 MMTs.

China is officially abandoning or dramatically curtailing its corn ethanol plan to replace 10% of the fuel in China's gasoline consumption in 2020. China never built large ethanol plants that would consume as much as 40-45 MMTs of corn annually producing 140 Mil gallons. The lack of local Govt support and incentives prevented Chinas biofuel the plan from ever gathering momentum. However, the lack of domestic Chinese ethanol production could enhance the need for imports as China fights smog in the summer months. US ethanol under a Phase 1 Deal is expected to fill that need partially.

Weekly US ethanol production and stocks data were slightly bearish with rising stocks and reduced blender demand. US weekly ethanol production amounted to 312 Mil gallons vs 313 Mil in the week prior. This consumed around 108 Mil Bu of corn. US ethanol stocks grew to 944 Mil gallons, up 61 Mil gallons or 7% from last week. The stock's rise was a result of diminished blender demand. US board-based ethanol margins rest at $.05/gallon. A seasonal peak in US ethanol production has likely been scored with reduced production into spring.

GASC secured 300,000 MTs of Russian, Ukraine, and Romanian wheat in an overnight tender for late February shipment.

South American Weather: Weather leans negative with dry areas in Brazil and Argentina, confined to 15% of respective crop areas. 16-30 day forecast leans dry for S of Brazil along with E 2/3 of Argentina, although dryness there will be slower to develop following favorable mid-January rains. There is no evidence of extreme heat for either country and yield potential should continue to rise.

This Friday, traders are expecting the USDA to lower corn yields around 150 million bushels with soybean yields lowered about 38 million bushels. Nobody made adjustments on exports, but its likely corn exports will get reduced by the USDA, so the carryout doesnt seem too big of a move to the downside from 1.9 billion bushels. Its going to take an extremely bullish crop report Friday, which I dont think is possible from the USDA, to get grains to keep pushing substantially higher in January.

The classic seasonal peak in the first two weeks of the year, this is a multi-decade seasonal, is in place and likely to carry grain prices overall lower into the opening of February. Its from the February low into the second quarter that I am very optimistic grain prices, which can make a decent move to very profitable prices to finish up old crop sales. Our sales made the first trading day of the year was intended to keep checkbooks full for those that have to sell.

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The chart below you can hopefully click on your browser and make it larger, but I zoomed it out so you can see the reality of the purple line. The corn market is effectively under it again, and it will take a shock from the USDA this Friday to get it turned positive again.

First of the year highs are likely in, for now, and corn is going to struggle to get back above 388 now before drifting lower to near 370-374 into the opening of February.

Timing wise, and statistically, the next rally in corn of significance will occur from February into the second quarter.

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Beans set out to do their mid-week bounce we expected from last Friday's low of 947.4 and achieved a bounce today to 950.4. further strength could still be seen yet to near 954, but it's can be very difficult for beans to maintain closes above 950 with a beautiful crop coming out of South America very soon.

Any buying from the Chinese initially after signing the phase 1 trade deal is probably 30 days out, and likely not be very large. It's this summer that will be very opportune for China to buy US beans, especially if our acreage is up substantially.

One positive coming for soybeans is an improved basis for North Dakota, with Chinese buying coming out of the Pacific Northwest. Look for basis improvement this summer on new crop so be careful on fixing your price on spring rallies, just fix board price. The basis might be better left alone.

Resistance is 950-954 with major resistance at 960-965. Support is at 931-932. Once that let's go of the market will drift to the 910-915 area.

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2019 Hedge Recommendations

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Sold 25% of 2018 corn stocks at 429.2, with 50% having been sold at a 409 average. Total sales are now 75%.

Sold 25% new crop 2019 on December corn at 4.47. Total sales are at 40%.

Sold 15% of 2019 corn crop at 3.96 Dec corn.

New crop 2019 corn sales to 65% by purchasing the September 460 short-dated corn put on 25% production for 30 cents.


New crop sales on Minneapolis wheat were started at 571 September or 581 December for 20%.

Hedge update: Made a 25% Spring wheat sale at 557 for Dec Minn wheat per weekend and Tuesday recommendations. Sale was made on the board if basis is weak or you have exceptional wheat that could receive price improvement into the fall.


Sold 25% of 2019 production at 910 on the November contract. Total sales at 25%

New crop 2019 bean sales to 50% with the purchase of the 940 September short-dated bean puts on 25% production for $0.45.

Old crop 2018 bean sales were completed at 920 average this spring, and we added 1.14 gains from our put options in the summer of 2018 along with the 2018 market facilitation payment of $0.83 a bushel. That put our total sales value at above 11.00 on 2018production.

NOTE: All trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.

A word to the Wise

This material has been prepared by a sales or trading employee or agent o Heartland Investor Capital and is, or is in the nature of, a solicitation. This material is not a research report prepared by Heartland Investor Capital Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.



The risk of loss in trading futures and/or options is substantial and each investor and/or trader

must consider whether this is a suitable investment. Past performance, whether actual or

indicated by simulated historical tests of strategies, is not indicative of future results. Trading

advice is based on information taken from trades and statistical services and other sources that Heartland Investor Capital believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.

Copyright 2018 Heartland Investor Capital Management All rights reserved

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About the author

Eugene Graner is the founder and President of Heartland Investor Capital Management Inc. As a veteran commodity analyst, broker, and CTA that eats, sleeps, and breathes commodity futures, his priority is to bring clients the latest and most useful information of the markets along with uncannily accurate futures predictions. By balancing risk and reward, Eugene uses his proprietary trading strategies to develop the best possible trading approaches for his clients. He has 28 years of experience in the industry and his voice has been heard around the United States. He is heard on multiple radio stations throughout the day, also has been featured on CNN, Bloomberg, Wall Street Journal, and The New York Times, and is the go-to guy to for multiple TV network stations for interviews about market news weekly.
Contributing author since 1/3/2019 

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