Thursday, March 25, 2010
Defend The Current Grain Prices
As the basketball season winds down and winning teams play good defense, it makes you wonder if successful grain marketing is more offensive or defensive. Are you more successful if you are aggressive and have high goals, or are you more successful if you protect what you have and avoid selling at the lows in the market?The choice between offensive or defensive marketing is intriguing and that may be answered shortly. In his March marketing newsletter, University of Missouri marketing specialist Melvin Brees notes that USDA’s supply/demand estimates earlier this month kept corn in record territory, despite what many producers were expecting. The weathered crop was still estimated at nearly 165 bushels per acre and ending stocks were nearly 1.8 billion bushels. The USDA also kept soybean production at a record level, but carryover stocks will remain tight.
Brees quotes a market adage that “One bushel of ending stocks is bearish,” meaning that if not all of the supply is used, and then prices should be lower to clean out the bin. He says the market is not comfortable with total liquidation of stocks. But currently corn stocks are plentiful, along with wheat, and world soybean stocks are growing with the large South American crop. Brees suggests that downside risk to grain prices could continue because of the large Brazilian and Argentine crops, reduced demand for US livestock feed, lower energy prices, a stronger dollar and speculative traders liquidating their long positions. And he adds that trend line production will be more than adequate for the new crop.
Acreage for 2010 corn and soybean crops is quite speculative as we approach USDA’s Planting Intentions report next Wednesday. After all wet Cornbelt soils are creating some delays in finishing up 2009 fieldwork and getting started on 2010. Those delays, and any associated acreage shifts from corn to beans would be supportive to corn prices. He says his colleagues at FAPRI are predicting a $3.72 average corn price, which is in line with the USDA estimate of $3.60 to $3.80. The bulls and bears have corn prices ranging from $3.00 to $4.60. Brees suggests that price action be watched closely, pointing to a recovery in December corn futures, and other futures contracts are offering price levels that put cash prices within the expected cash range, which could be profitable for many farmers. The recent marketing range for 2010 corn has been limited, and Brees says a break to the downside would approach the unprofitable $2.90 level seen in November, and a break to the upside could take corn back above $4.
Similarly, soybean prices are forecast in the $8.80 to $9.10 range by many analysts and at $8.89 by FAPRI economists. Brees says a breakout of the trading range to the downside would put beans nearly the $7.50 levels, and a bullish market may carry them to $11. He says November futures have lifted cash bids to within the average range being predicted by USDA and they are well above breakeven price levels.
Brees advises farmers to not get caught having to sell at the price low, but says it is not realistic to think you are going to hit the top of the market either. You will not know the market high until it is history, but your first objective should be to avoid the market low, which is also hard to predict and cannot be confirmed until it is in the history book. He says the low will most likely occur during harvest, so any pre-harvest sales will likely get a higher price than the market low. He is also expecting market volatility in coming months and says to master than kind of marketing, one should capture prices at or near the current forecast average, which should be profitable. While prices could move down, they could also move up, and that would offer the possibility of capturing higher prices.
Defend your revenue and be ready to score with some marketing opportunities.
Summary:
Large domestic and global crops have left substantial carryover, at a time when new crops are about to be planted, creating a potential bearish market. However current prices are within the range of season average estimates, but future market volatility could take price levels both much higher and much lower. A good marketer will try to capture current prices and prices on the upswing before harvest lows expected in the fall.
Posted by Stu Ellis on 03/25 at 01:20 AM | Permalink
Comments
Posted by: Freeport, IL at March 31, 2010 8:08PM
More Excitement than what was called for!
The soybean stock estimate came in at the high end of estimates. The ones looking for lower numbers were not betting their hand. The softness of the market coming into the report showed their weakness of conviction. On a trend line basis, soybeans still look to draw down stocks from USDA’s 2009-10 projection.
The low end sees ending stock increase by 180 million bushels. Seven percent of the time stocks are expected to equal beginning stocks. Twenty five percent of the time we expect rationing to occur with the increase in use equaling beginning stocks. Ending stocks for 2010-11 seem very likely to increase with projected planted acres; near expectations.
Corn does not seem to make much sense to us. There may still be production issues. The plantings projection should draw down stocks for the 2010-11 year.