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Sunday, January 13, 2013

Managing Weather and Marketing Risk in 2013


USDA last Friday issued a wealth of information in its reports on the final estimate of the 2012 crops, the grain stocks we have on hand, how it is being used, and what will be left when the 2013 crop is ready for harvest.   But developing a marketing plan for that, in the face of uncertain weather will be a challenge.  What are those weather facts that will be so critical?

The major headline from the USDA's Supply and Demand Report was that corn was being fed to livestock at a great rate than the market anticipated. Another bullet point was that corn exports will fall below one billion bushels for the first time since the 1970’s, compared two and a half billion bushels just a few years ago.  But corn carryout at the end of August will be as low as it can get.



USDA projects season average prices for corn as $6.80 to $8.00, and $13.50 to $15 for soybeans.  We are in the low end of that range now after spending most of the marketing year so far in the upper end.


Much of the consensus among those watching the grain market is that the 2012 crop corn and soybeans will have a very tight and volatile cash market with some spot shortages and a strong basis. 


As the South American crop gets closer to harvest, November 2013 crop prices will continue to fade with the potential for lower prices than last year when the crop insurance guarantee is established in February.  While beans will be in demand, overall prices will be lower.


Weather risk

As many farmers revise their marketing plan for both the old and new crops, weather will be a critical aspect for the 2013 growing season.

Currently the El Nino-La Nina climate forces are locked in neutral. (Note the black line with the black squares and the last one firmly planted at zero.)  Neither one has any advantage over the other; and it has been that way for four consecutive months.  The authority on that for the National Oceanic and Atmospheric Administration says it is as solidly neutral as it has ever been and it will be a few months before there will be a return to either El Nino or a La Nina.


But what is neutral weather.  That is what we had after La Nina phased itself out last May and there were no significant weather fronts that moved across the country to release energy and moisture from the atmosphere.  So our weather transmission is in neutral for the foreseeable future.

Drought Monitor map of July 31, 2012

When the US Cornbelt was in the height of the drought at the end of July, El Nino teased us late in the summer and fall, and then departed. 

Drought Monitor Map from January 1, 2013

However, it provided needed moisture for the eastern half of the Cornbelt from Ohio to Illinois.  From Illinois on west, the conditions have worsened.


The drought continues according to USDA meteorologist Brad Rippey with 61% of the US in a drought category, down from the 65% in September.  But he says the region experiencing the worst drought category has expanded to 6.75% of the US, as reflected by the latest issue of the University of Nebraska Drought Monitor

Currently, drought encompasses over 2/3 of the US cattle inventory and 60% of domestic hay acreage.  The wheat crop is rated poor to very poor for 61% of OK, 49% of NE, and 31% of KS.  Rippey says the Palmer Drought Index in July was 62.1%, second only to the 79.9% in the July 1934 Dust Bowl era.


The challenge for farmers will be how weather and marketing risk is managed.  The spring guarantees for crop insurance will be set during the month of February, and crop insurance sign-up is from March 1 to March 15, if you are a first timer, or are changing your arrangements. 



While USDA reported that grain stocks will be tight, global demand is being re-focused from the US to South American supplies and US exports are expected to soon diminish in their volume.  However, the 2013 crop will soon be planted, and prices could be substantially lower than the 2012 crop with larger production anticipated.  Weather risk will have to be managed and Eastern Cornbelt farmers have had more moisture than those to the west.  Crop insurance remains an option for all, and the sign-up deadline is March 15 for spring planted row crops.


Note: Plan to attend a conference on Managing Weather and Marketing Risk in 2013 February 28 at Decatur, IL.  Details:

Posted by Stu Ellis on 01/13 at 10:31 PM | Permalink

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