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07-02-2014 07:56 AM - edited 07-02-2014 09:55 AM
That is the question I put to a few folks in the industry, while I sat (electronically) with them and discussed the outlook for the corn and soybean markets. Here's what they said. I would be interested in hearing what you think too.
Mike North, First Capitol Ag Senior Risk Advisor:
"Given what we know today, the simple answer to your question is “Down”. The reality, however, is that many things must happen between now and harvest for that to be fully realized…pollination in corn, flowering and pod setting in beans, frost potential, crop dry down, etc. If all of these events were to go off without issue, we can assume from the balance sheet projections and historical price behavior where the market may try to reach. Presently, the ending stocks number in corn and soybeans can be estimated to be approximately 1.75-2 billion bushels for corn and 350-480 million bushels for soybeans using yesterday’s acreage number and current trend line yields. Weighing these numbers against projected demand provides us with stocks-to-use ratios of 13-15% in corn and 10-14% in soybeans. The last time these ratios were this high was in 2008/09 for corn (recall that this is the marketing year which begins Sept 1 and runs through Aug 31, so it came well after the $8 corn price and spent more time nearer to $3/bu) and 2006/07 for soybeans when the average price paid to producers was $6.30/bu – yes, this is a soybean price! Granted, lower prices will likely attract greater demand, so that these ratios can be slimmed as well. However, these ratios suggest prices that are near $3.50 in corn and $9 in soybeans. Making mild adjustments to accommodate greater demand raises our price objective, but to levels that are still lower than current offerings. If the many events named earlier do not go perfectly, and yields don’t pencil out as currently suggested, then all of this is for not. The summer will be interesting as we continue to peel each layer of the onion away in search of the final yield and harvest price. Let’s hope that neither brings us tears."
Jack Scoville, PRICE Futures Group, senior grain analyst
"On the longer term, I think beans will lose to corn and wheat now. I am not a real big bear on corn, we are cheap enough given what we know. We can rally back to 450 or higher in the near term, like this month, then push on down to 400 I guess. But, farmers will not want to see that cheap so I doubt we can do much more than that kind of range. I do not think China will be the big bean buyer like last year as the government is now moving to end the use of beans as collateral for loans against other projects. Plus, they so overbought this year that it must be costing them a lot of money. So, I expect them to be big, but not like last year. Lots of 1000 talk out there in beans for a harvest low and it can’t be ruled out. As I NOTED ABOVE, I AM TRYING TO BUY WHEAT, BUT WHEAT WILL DEPEND ON THE eu AND Russia and Ukraine and pricing from that part of the world as much as anything."
Helen Pound, KCG Futures Sr. Market Specialist:
"USDA's Reports indicated more grain supplies than anticipated and indicate that futures spreads may ease. On the other hand, the drop in futures prices is likely to have a bullish impact on basis levels and board spreads. All in all, expect continued volatility."
07-02-2014 08:32 AM
Personally don't care at this point.
The combination of '12,'13 and '14 sales got me to 50% of APH sold. Missed enough of a bounce to take it to 75%, which is my pre-harvest limit.
My guess is lower but I don't feel like selling in the hole.
Best guess is that with the above average crop we're expecting here that prices won't go into revenue insurance claim territory.
50% of APH is maybe 40% of expected crop sold. Helps projected revenue by about $75/acre, maybe, which is nice, but by no means a home run unless prices pick up or the crop is huge.
Haven't bothered to really parse the "shallow losses" thingy.
07-02-2014 08:41 AM - edited 07-02-2014 08:45 AM
How do you feel about the idea of storing this new crop and waiting out the lower prices. I talked, yesterday, with a few Iowa farmers about this, and they gave the old line of, "Well, you can only pay storage for so long before it doesn't make sense to do so."
But, is there any other choice, if at harvest, the market is not at an acceptable level? Actually, the answer to that question may involve buying puts right now. That way, if the prices do drop from here, you sell for less cash, but make it up on the puts.
Conversely, if the market rises, for whatever reason, well you lose out on the put gain, but you get to sell at a higher cash price. Do you consider that a fair risk management protection strategy?Any thoughts?
07-02-2014 09:15 AM
07-02-2014 09:23 AM
BUY wheat.....I was told by everyone we
Were awash in wheat.....and which wheat
Did they want to buy?
A bit different than corn or beans.
The other fellow might do a storage hedge,
look out in the futures to find the carry.
07-02-2014 09:52 AM
Have a question here for you PRO's - But I always thought that the usda reports were working on info a month old ( the time thats past ) to put it togather -- Then heres the qusetion - if this info is old news then , what about the PP acres of corn ? And could beans acres go up more ? To me - this report is the high on acres for corn , I'm I all wet ? Another question - IF bean acres replaced corn in the Northern states - I look at this as They missed the boat on corn ( time ) and then tried to plant beans in them - then to me - theres a dang good chance they missed the boat on the optumn time to plant them too = loss bpa - .
BTW - On side dress delay here - The storm that got Iowa - just clipped us the other night - But I dove 3 miles south to do a custom job yesterday - a 60 - loaded up and went 1 round - corn was laying every which way and I was doing more bad than good - So shut down , will try this afternoon and see if it's straighten up any , what a mess !
07-02-2014 10:08 AM
Hey, Mike, I just saw this from Gary Schnitkey over in Illinois. Ouch:
Prices used in making projections...are $4.20 per bushel for corn and $10.75 per bushel for soybeans. These projections were made prior to the release of USDA's Acreage and Grain Stocks report released on June 30th. These reports contained information that was bearish for crop prices (see here for more detail). Hence, the projected prices may be too high, suggesting that returns contained in the projections are too optimistic.
Lower projected prices will lower income projections. Take for example, a $4.00 corn price, $.20 per bushel lower than the $4.20 price used in Table 1. In this case, farmer return would equal -$87 per acre, $39 per acre lower than the -$48 projection at $4.20 corn price. Higher yields would increase return. To have a farmer return equal to $0 per acre, yield would have to be 217 bushels per acre at a $4.00 per bushel corn price.
07-02-2014 10:10 AM
ECI funny you mention corn layind down. We had a little go down on Tuesday am as a freont pushed through with a whoppin .05", mostly in the tree lined corners where the wind got funneled down.
I also questioned the reporting delay, was thinking the USDA numbers are at least 20 days old. There hasn't been much talk of PP on the forums but the drowned out spots in the rain belt are growing every day. Bet we see some drone flight pictures of that soon.