Monday, January 18, 2010
What Is Your Marketing Plan For New Crop Corn And Beans?
If you have sold any of your 2010 crop, you are in the minority. Despite opportunities for profitable marketing of corn and soybeans, most farmers have passed up those chances for two reasons. They did not want to risk selling something they would not be able to produce and they did not want to pass up the opportunity at higher prices, if those prices should happen to occur. Marketing club leaders, commodity marketing advisors, and Extension educators around the Cornbelt all wonder why that is, despite a dose of price weakness with last week’s USDA 2009 Crop Report.What is your marketing plan for new crop corn and beans? We are not going to sit here waiting for a volunteer, but the comment section below would welcome your input.
Marketing Specialist Melvin Brees at the University of Missouri writes in his latest newsletter that 2010 will likely present the risk management challenges that were seen in 2009. He says in the past two weeks, March corn has ranged 57 cents in price and March beans have ranged over $1 per bushel. Brees is concerned about the uncertainty that is shaking the market:
1) Energy prices have a great impact on ethanol values and ethanol consumes about one-third of the corn crop. Oil prices have added to the price of ethanol, but has also added to the volatility of the market.
2) Economic conditions remain weak, and that means less demand. Some believe the economy is recovering, but there is uncertainty on both sides.
3) The lower value of the dollar means stronger export demand, but the uncertainty of the economy and the fluctuating dollar means more volatility.
4) Speculators and fund traders have been both blamed and credited for the direction of commodity markets and volatility.
5) World grain supplies vary, depending on the grain, but Chinese demand and global economic pressures add to the uncertainty.
6) 2010 acreage may not be spurred by “bidding for acres” since the corn carryout is large and global soybean supplies are growing.
7) Weather will be critical this spring, since fall fieldwork was delayed and the market will be sensitive to whether the crop is planted in a timely manner.
8) Politics will control biodiesel credits, climate change legislation, and may create more uncertainties.
Brees says the USDA’s last crop report made grain storage more risky, particularly if it was unpriced. He said the price decline following the report triggered many technical sell signals, but he says, “futures prices in most cases still result in profitable cash bids that are within or near the USDA’s projected price ranges. Downside risk should be recognized before rejecting adding to sales, especially if a large percentage of the 2009 crop is still in storage.” And Brees rhetorically asks about your marketing plans for the new crop. He says new crop corn and bean futures both offer profits. He says corn may recover some of the recent losses, but bean prices will be burdened by the large South American crop that is looming. He says volatile markets create risks, but provide opportunities, and he says 2010 is beginning with volatility.
Stephen Johnson, Farm Management Specialist at Iowa State agrees. In his recent newsletter Johnson says there are many considerations for selling the new crop, which has a $4.52 price objective for corn and a $10.60 price objective for beans, both of which have been recent high prices for new crop delivery contract s. He says those objectives, since they are tops, will form some level of resistance which could be retested when the spring months bring on concerns about the crop getting off to a good start. And he adds that the large South American bean crop and lack of commitment to 2010 acreage could be a benefit if a producer is flexible enough to change crop rotation.
So how do you go about finalizing a marketing plan for your 2010 crop? Johnson says:
1) Select a marketing tool that will commit bushels of grain and can be used in concert with revenue crop insurance products. And he says the use of futures contracts requires margin money.
2) If you are using a futures hedge, your basis remains open, since the futures price does not lock in the cash price.
3) A cash contract at the elevator will either cover futures and basis, or will require you to take action to close the contract at some point by finalizing the open part of the contract.
4) Hedge to arrive contracts will cover the futures, but your basis remains open. Fees for an HTA contract might cover interest on margin money paid on your behalf, and since it might be deducted at the outset, it becomes a guarantee that you will deliver the grain.
5) Basis contracts lock in the basis, which is advantageous if it is unusually narrow, and keeps open the futures value portion of the contract. It must be closed prior to grain delivery.
6) Spread your risk with the use of multiple pre-harvest marketing contract strategies, but do not commit more bushels than what your APH yield is, multiplied by your level of crop insurance.
Summary:
With current market volatility and uncertainty in the market because of numerous outside influences, having a marketing plan for 2010 corn and soybeans may be mandatory. Corn prices have moved more than a half dollar in the past two weeks and bean prices have moved more than $1, and are being pushed by such issues as currency values, global economic malaise, and many others. Determining a good marketing window and a means of achieving that goal, should be a winter priority, since grain prices remain within the window of profitability.
Posted by Stu Ellis on 01/18 at 01:25 AM | Permalink
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Posted by: Jib at January 19, 2010 12:12AM
Spinning a Little Bull among Squirrels
One that moves the market lower during the winter month should not be called bears. It is winter, bears should be hibernating. We prefer to call them squirrels. We admit the USDA’s numbers has us quite squirrelly as well. So to keep from going totally nuts, we will look for a little bullish spin for the 2010-11 marketing year.
The USDA’s numbers are truly squirrelly. The larger ending stocks for corn and soybean along with a large decline in winter wheat acres provide more than enough reason to join the squirrels. In states that grow corn and soybeans, there is almost 5 million acres less winter wheat (hard red and soft red) planted. Those same states had a little over 2 million acres of CRP expire this past summer. The lower winter wheat number should mean less double cropped soybeans. The number of acres changes by a fairly large amount each year depending upon summer planting conditions. We estimate about 1.4 million less double cropped acres next year. The math then has around 5.6 million additional acres are available to be planted this spring. Not all of those acres have to go into corn or soybeans. The “high” price of corn, soybeans and wheat has pulled acres from many other crops over the last several years. Should corn and soybean prices stay low enough during this critical planning period, some of those acres may find homes in other crops. (Some of these other crops also prefer warmer seed beds from later planting which maybe an additional attraction with less tillage completed this fall.) Most of these “substitute” crops will compete; too some degree, with corn and soybeans for feed, protein and/or oil use. This drawback needs to be accounted for but not included in this discussion.
Should no increase in “substitute” crops occur, we expect 5.6 million additional acres of corn and soybeans will be planted this spring. Both crops will have the same chance of seeing a reduction in ending stock should 90.4 million acres be planted to corn and 79.2 million acres to soybeans (use at 2009-10 levels). These planted acres have a 32% chance of seeing yields that will be low enough to reduce ending stocks. The same planted acres are expected to have a 50% - 50% chance of a reducing ending stock should corn use increase 0.8% to 13.2 billion bushels and soybeans increase 4.6% to 3.41 billion bushels (maybe a little larger task for soybean given to large expected South American crop).
Planted Acres with equal chance (between Corn & Sb.) of Reducing Ending Stock by Yield Reduction (Use same as 2009-10)
5.60——4.60——3.60——2.60——-1.60——0.60 Increase in C & Sb. PA
90.4——90.3——90.2——90.0——-89.8——89.5 Corn PA
79.2——78.3——77.5——76.7——-75.8——75.1 Sb. PA
32%——-36%——38%——44%——48%——53% Chance (Corn or Sb.)
Use Needed for 50% -50% of Declining Ending Stocks End 2010-11 (Acres Above)
13.20—13.19—-13.17—-13.14—-13.11—-13.06 Corn Use billion bu.
100.80.70.60.30.1%-99.7% Corn % 2009-10
3.41——3.37——3.34——3.31——3.27——-3.24 Sb. Use billion bu.
104.63.42.41.30.1%-99.2% Sb. % 2009-10
So a little acre switching away from corn and soybean, a little unfriendly weather and/or a little increase in use, prices just may firm. The squirrels will have a “right” to continue to go for their nuts till the Prospective Plantings report scheduled for release on March 31, 2010. That report should quiet the squirrel or awake a true bear if the March 10, 2010 production report did not do the job.
Jib aka Gibberish