Marketing

[ECIN]

(Guide to Podcasting on farmdoc here) Play Now: MP3 (in page player) Download:MP3 (right click to 'save as')Subscribe: RSS/iTunes XML January 22, 2013 EARLY FOCUS ON THE PROSPECTIVE SIZE OF THE 2013 U.S. CORN CROP The drought reduced U.S. corn crop of 2012 suggested that corn prices might behave in a pattern generally described as “short crops have long tails.”  The phrase depicts the expectation of rapidly rising prices that peak near harvest time, decline in an unspecified pattern over the next several months, and  return to pre-drought levels as early as the following marketing year.  The decline in prices is expected as a result of a slowdown in consumption and a return to normal production. Corn prices this year have generally followed the expected short-crop pattern as the expected consumption and supply responses continue to unfold.  The pace of consumption of U.S. corn so far in the 2012-13 marketing year has been slower than that of last year.  However, the slowdown has been modest and has come primarily in the export market and in the production of ethanol rather than in the domestic feed market as earlier expected.  The rapid pace of domestic feed and residual use of corn revealed on January 11 breathed some life back into old crop corn prices even though the pace of exports and domestic processing remain low.  In addition to a slowdown in consumption of U.S. corn, the USDA projects another large corn harvest in Brazil in 2013 and a rebound in production in Argentina following the drought reduced harvest of 2012.  While likely large, the size of those crops is yet to be determined and recent dryness in some areas has raised some yield concerns. Some of the elements that contribute to the price decline following a short crop are clearly occurring. The final element, and likely the most important element, of the expected price decline is the size of the 2013 corn crop. The question is whether production will fully rebound from the extremely low level of 2012 as it has following other droughts over the past 50 years.  Production prospects begin with expectations for planted acreage.  Planted acreage totaled 97.15 million acres in 2012, 5.219 million more than planted in 2011 and 3.628 million more than the recent peak in 2007.  For the most part, analysts are reporting expectations of even larger acreage in 2013.  Those expectations appear to be near 99 million acres.  The increase would come from an overall increase in row crop acreage as some land has come out of the Conservation Reserve Program and from reductions in the acreage of less competitive crops. Planted acreage of 99 million would point to acreage harvested for grain near 91.5 million acres under non-drought conditions.  That would be an increase of just over four million acres from acreage harvested in 2012 when more than the usual amount of acreage was harvested for silage and abandoned.  Such acreage would point to prospects for an extremely large crop in 2013.   Early season acreage expectations, however, are often not a good forecast of actual acreage.  Last year, for example, The USDA’s March Prospective Plantings report indicated intentions to plant 95.864 million acres of corn, nearly 1.4 million more than the average trade guess.  Actual planted acreage exceeded early expectations by the trade by nearly 2.7 million acres. The other consideration in forming production expectations is obviously expectations for   the U.S. average yield.  Most base their early yield expectations on an analysis of trend yield.  Trend yield analysis, however, is not straight-forward.  First, average yields over any time period reflect both changing technology and variations in weather conditions.   A calculation of the true technological trend in average yields requires that yield observations be “corrected” for annual variations in weather conditions.  Such correction requires the application of models that separately account for the yield impact of technology and weather.  A failure to do so can result in a biased estimate of trend.  Following three consecutive years of low corn yields, a trend calculation that does not adjust for variations in weather conditions will understate trend yield for 2013.  A second issue surrounding trend yield calculations is the length of the time period used to calculate the trend.  Different periods result in different trend calculations.  We continue to think that 1960 through 2012 is the correct time period for calculating the 2013 trend yield. A second consideration for some in forming early yield expectations is the state of soil moisture going into the planting season.  However, as learned again last year, the yield implications of those conditions are dwarfed by the impact of growing season weather.  While current drought conditions are of concern, those conditions alone do not provide much information about 2013 yield prospects. While prices for the 2013 corn crop are currently about $0.70 below the peak reached in September 2012, they are well above the level that would be expected if the 2013 crop reached its full potential.   Next month, the USDA will release projections for the U.S. farm sector for the next 10 years.  There will be a lot of interest in the 2013 corn acreage and yield projections contained in that report. Issued by Darrel Good Agricultural Economist University of Illinois

So What is Darrle Saying here ?   That really nobody has a clue ? because of weather -- S.A. Production ?

Useage here ? Ethanol useage ? 

Or maybe - I'll tell after the season is over , lol

[Faust100F]

ECI - Hope Darrel keeps his day job, because he does't know jack about what is going on out here in the real world.  So he wants toknow what yields will be if the rains do not come, how about 50 bu. average in Iowa!   Who really gives a rats ass about a 10 year comic book projection by USDA?  When was the last time they were right.?  Well ECI, you had better run right down to the elevator and contract 13,14,15 corn production because we are having 99 million acres of corn planted.  I have seldom read an article with so may "weasel words" ( you know CYA) in a report from someone who draws a paycheck, and has no skin in the game.   Pass the popcorn and get me another Corona.   Adios Amigos. 

[semndairyguy]

You know all guys paying money, big or small, why don't you just write those checks out to me! I mean c'mon here. I can tell you the exact same thing these guys are telling you. If it rains corn will be $4.50, if it doesn't rain it will be $10.50 or more. What's so hard to figure out about that? What a racket these guys have. But then again, I'm to cheap to even be in the cheap seats with faust, I'm outside looking in the window! Hey John throw me a half empty popcorn box and a keystone light.

[roarintiger1]

"10 year comic book prediction by the USDA."         That pretty well sums it up.     I'm not sure why everyone takes their stuff seriously.    Maybe they need to shorten the latest trendline yields using the last three years. 

[c-x-1]

ECIN, are you just trying to point out the insanity of this article? If so, that's loud and clear!!

  { A calculation of the true technological trend in average yields requires that yield observations be “corrected” for annual variations in weather conditions.  Such correction requires the application of models that separately account for the yield impact of technology and weather.  A failure to do so can result in a biased estimate of trend.  Following three consecutive years of low corn yields, a trend calculation that does not adjust for variations in weather conditions will understate trend yield for 2013.} - quote from article.

 stab at unraveling this idea? He's purporting there is real world VALUE in calculating hypothetical trend that is IMPOSSIBLE to calculate (because the world hasn't invented a 97 million acre climate controlled facility) to run such an experiment...........the insanity of this idea reaches a whole new level of profoundness when he says a failure to take the real world out of the equation CAN result in a bias (i suppose he means -TOO biased to the {actual, real world trend]

    finally, this 4 line idea takes a THIRD twist to yet a deeper level of insanity when it says effectively - if we consider the actual, real world conditions BESIDES TECHNOLOGY  trend yield is mis-stated. WOW, THIS IS GETTING GOOD -NO PUN HERE FELLAS.

let me tell you something: in the real world when running a research project or scientific experiment and one REMOVES certain or ALL (but 1) variables - that is called manipulation of data or processes to obtain a false or otherwise pre-intended "special interest result." 

-----aahhaa those "experts" can be particularly crafty at their attempts to clutter and SPIN the mind, EY.  Got TO REALLY  watch out for the ones with a bunch of letters or en (titles) ments after the name.

    I don't have to repeat the quote or thread that recently pointed out the 10 yr. trend in the REAL world is down. (MT)

c-x-1

[Jim Meade / Iowa City]

Pretty clear and pretty fair summation, it seems to me.  The article explains where we are, why and helps us understand what decisions we have to make for marketing and risk management in 2013.  

Some key points:

"The question is whether production will fully rebound from the extremely low level of 2012 as it has following other droughts over the past 50 years."

Most times, the year after a drought rebounds to normal production.  We all know big acres are expected.  So - does that mean we may have a bumper or even record crop?  

"Most base their early yield expectations on an analysis of trend yield. "  Then he goes on to warn that because of the way they are calculated, trend lines will likely be low if they are not adjusted.

He points out, "A second consideration for some in forming early yield expectations is the state of soil moisture going into the planting season. "  And goes on to warn that last year is an example of where sub soil moisture was not as big a factor as in-season rainfall (I don't agree with his conclusions on this point).

I think his point in the aritcle is:  "While prices for the 2013 corn crop are currently about $0.70 below the peak reached in September 2012, they are well above the level that would be expected if the 2013 crop reached its full potential."

To summarize:

1.  Most analysts expect a lot of acres to be planted (he shows how they have been wrong in the past).

2.  Because of the way trend lines are calculated, they may be artifically low (even more production than expected would mean even lower prices)

3.  He says most years after a drought the crop bounces back.

His bottom line is that while grain price is lower than last summer, it may be a lot higher now than if predictions come to pass.

The question for each of you (us) is:

Will the large number of acres be planted?

Will the drought of 2012 carry over or act like it usually does and recover?

Will the production reflect a realistic trend line or an artificially lower one?

What will prices be if the weather recovers, the acres are planted and the realistic trend line is followed?  If you believe the possibilities will be realized, what do you do about it now while the prices are high?  Will you forward contract now?

2013 corn production could indeed be as he warns.  If production is low, some would say that instead of a big price rise we will see more demand destruction and corn may not go much about $7.50.  They claim buyers would go to Brazil, ethanol would reduce (and the RFS might be dropped), livestock would liquidate again/more.  If y ou think we'll have a bad production year but the prices won't rise much, then what?  Buy max insurance?  Plant soybeans?

I think his article makes us think about what we expect and gives us fair warning that we need to make some decisions soon if we believe certain ways because they opportunity may not be there later.

[ECIN]

Good Sunday Morning !

First off -- Thanks c-x-1 and Jim - enjoyed reading both of your posts on this -- One article - two different takes , This may sound wishy - washy , but have to agree with both of your posts , Why ? I think you both are picking up what Darrel was saying .

c-x-1 , The part you posted about trend , and to adjust for weather -- Was Darrel just saying here , hey guys there is no way in he11 to figure this out ? How many years do you use ? How do you figure the weather in ? And so on .

Jim -  You said that Darrel is giving us the info , on all the IF'S and to help make a decision , right ? Well that's true , but how do you figure that out , when there is no good way to figure trend or yield or summer weather , what the dollor will do , will there be a war ?

I do think one thing that Darrel missed was what about all the extra acres ? Some from CRP ( thats some high powered ground ) some from fringe area's ? What will that do to trend ? or yield ?

Bumper crop -- very much dought it ! Record crop ? very well could be .

It seems to me that farming has changed , it's not which crop to raise any more  , but which crop to farm the insurance company for = what has the best pay out .

Hey ! that may be a great way  to figure planted acres !!!! just call the insurance company and see what pay's the best !  LOL

[noreaster]

Yack!

Repeat..

Better known as regurgitation....

[JCCWIS]

Jim : Really like your analysis of  DG's outlook..... I read it threw 3 times and was always saying to myself..... well , it could go like this and on the other hand....maybe not !!! You summed it up in away that makes sense to me. In the end will still have to wait and see how it all turns out !!!  Thanks   John

[too close for comfort]

I agree Jim, seems like a pretty good analisis by some one that won't profit financialy by the market moving on what he says and trying to sell me protection against it.