Navigate to « Planning For Successful Weed Control In Corn And Beans | Main | With Low Profit Margins, Will Livestock Producers Have To Compete For Feed? »
April 14, 2009
What Potential Do You See For Corn And Soybean Prices?
USDA’s Prospective Plantings Report and Grain Stocks Report on March 31 and the April 9 USDA Supply-Demand Report both were newsworthy in their own right. But when you combine the results of the three reports, Cornbelt farmers, who have both old and new crop corn and soybeans to sell, certainly have new information to integrate into their marketing plans.
The planting intentions report indicated that corn and soybean acreage would not be expanding by any great degree. The stocks report indicated inventories were not surprisingly large and the supply-demand report indicated consumption would grow and carryover would decline for both corn and beans.
Purdue Marketing Specialist Chris Hurt, writing in his latest marketing newsletter, says the acreage report indicates the 1 million acre cutback in corn from last year “will reduce the national production potential, although yields on these acres are much lower than the national average. But, there will also be less intensive application of inputs this year that will somewhat lower yield potential on the planted acres.” As a result, Hurt is more optimistic about corn prices for 2009. “This means the prospects of overproduction in a period of weak demand have been reduced and provided a price strengthening tone for grains and soybeans. In addition, it increases the upward price movement that will occur if growing season weather should turn adverse this spring/summer, or world economic activity is not as weak as anticipated.”
Hurt does not want farmers to believe we will return to the prices of last year, because of all of the economic factors that have diluted the demand, such as a stronger dollar, a weaker global economy, slower ethanol demand, and lower prices for crude oil. But he says the combination of reports restore the possibility of higher prices, for corn and beans to levels “that come much closer to allowing producers to cover total costs in 2009 than looked possible all winter.”
Hurt’s colleague Darrel Good at the University of Illinois says in his newsletter with the increased use of corn for ethanol production and somewhat of a decline in corn use by livestock feeders, total use could still approach 12.5 billion bushels. And that means there will need to be a good growing season, “Prospects for small year ending stocks of soybeans and declining inventories of corn during the 2009-10 marketing year means that a generally favorable 2009 growing season will be needed to avoid rationing of use next year. Not much is known about growing season weather prospects at this point. The current La Nina is receding and neutral La Nina/El Nino conditions are expected for the summer months, but the correlation between those conditions and U.S. growing season weather is very low. The cool, wet start to April in some producing areas threatens to delay the start of corn planting.”
Good says that current projections for corn carryover would put stocks at 14.1% of use, which is well above the 9.4% of 2003-04. However, he says soybeans stocks would be at 5.5% of use, compared to the 4.5% in 2003-04, the least in modern history. He adds that South American soybean harvests will be smaller than last year and, “For both corn and soybeans, the timing and extent of U.S. and world economic recovery will be important in determining the strength of demand and the level of consumption.”
Good says corn and bean prices have been climbing above the prices guaranteed by revenue crop insurance products. Those levels are $4.04 for corn and $8.80 for soybeans. If you have revenue insurance, your prices are protected at those levels and below, but the span of prices between those levels and current futures prices are not protected, says Good, “That risk is about $.15 for corn and near $.45 for soybeans. With so much riding on the size of the 2009 crops, prices could well trade in a wide range over the next few months. Opportunities to price a portion of those crops at prices above those currently offered will likely be available.” He says Dec corn has already pushed up to $4.37 and new crop beans to $9.34.
Summary:
With the global economy limiting the demand for US grain, the March 31 USDA acreage and stocks reports indicates that supplies are not particularly burdensome and new crop production may not be all that large, leading to the prospect that a recovering economy could help push grain prices higher. Farmers already have the chance to price corn and beans above the guarantee levels of revenue insurance, and that potential should continue.
Posted by Stu Ellis at April 14, 2009 12:32 AM | Permalink
Comments
Homogeneous Wheat with Excitement may Support Corn and Soybean Prices
USDA follows five classes of wheat: Hard Red Winter (HRW), Hard Red Spring (HRS), Soft Red Winter (SRW), White (White wheat can be spring or winter and can be hard or soft. About 75-85% of the white wheat currently planted is soft white winter.) and Durum. Generally HRW and HRS are the bread wheats, SRW is used for crackers and cookies and Durum is the pasta wheat. White wheat is specialty wheat used when white flour or white product is desired. The three largest classes each are traded on their own exchange. The Hard Red Winter is traded on the Kansas City exchange. The Soft Red Winter is trade on the Chicago exchange. The Hard Red Spring trades on the Minneapolis exchange. Durum and White Wheat seem to be more contact or end user based. The exchanges correspond to the main area where the class of wheat is grown. HRW is grown in the west and south western part of the country. HRS is planted in the North Center States of North Dakota, Montana, Minnesota and South Dakota. SRW is raised mainly along and east of the Mississippi River.
To obtain a feel for the different classes of wheat, one needs to follow USDA’s Economic Research Service monthly Wheat Outlook report. The other USDA reports tend to lump all wheat into one (All Wheat) or two groups (Winter or Spring). This lumping tends to create an appearance that “wheat is wheat” and ends up trading that way when heavy outside participation occurs. (This may partly explain the lack of convergence cash and futures at expiration. The future market is reflecting a price of a different class of wheat which the cash market cannot support.) A case and point of USDA reporting can be seen in the latest crop progress report. The Winter Wheat Crop Condition when weighted for the 18 states showed 28% of all wheat was Very Poor or Poor, 32% Fair and 40% Good or Excellent. If one attempted to break down the condition by class one might find 32% of the HRW is Poor or Very Poor, 34% Fair and 34% Good or Excellent. The SRW might be something like 5% Very Poor or Poor, 27% Fair and 68% Good or Excellent. The SRW crop appears to be in much better condition then the HRW.
One might argue HRW has not seen a “large” price move because of the HRS can be a substitute. That may be fine in a “normal” year but over half of the HRS is grown in North Dakota which is currently under water. (All three classes of wheat have “weak” demand and over supply issues. The greatest is SRW followed by HRS and HRW. The potentially “large” ending stocks from respectfully good yields should keep prices “relatively weak” and well below last year’s prices.) If one can use the North Dakota flood of 1997 as a model for this year, than one would expect most of the ground will be planted (92%) to a crop in pretty much the same relationship as reported in the March plantings report. If that is the case then the market will not need to “buy” HRS acres this spring and we might see a mild shift to soybeans. (It should be noted the cropping patterns of North Dakota has changed since 1997. Corn is replacing barley acres and soybeans have become a major crop.) If HRW acres create “excitement” in HRS then fewer soybeans may be planted. The question then becomes will wheat trade homogenously, raising all three markets or will Chicago be left behind. If all three market rise then the basis of SRW is an “odds on favorite” to be wide again this summer. One may want to look for cash or basis opportunities for their SRW in the near future if one believes a homogenous wheat price rise will occur. (Yeah $0.82-$0.92 under at the river is tuff but where is the improvement coming from? The Gulf is $0.30-$0.37 under for August and barge rates to the gulf are currently at $0.352 per bushel. The barge rate historically will move to twice that number by summer making August basis $1.00 to $1.07 under.) If the wheat exchanges trade their wheat on its own merit, SRW looks like corn or soybeans at the gulf (meaning basis $0.30 to $0.35 over which it has not done for some time) and futures and cash converge, then short hedges might provide $0.60 to $0.70 more downside protection for SRW.
So is your wheat "classy" or not? If it is classy, exchanges trade their wheat on their own merit, SRW would be expected to move lower (given an average year from here on out) and provide pressure on corn price. A homogenous wheat market with “excitement” from HRW should support corn and soybeans price but result in continued wide SRW basis at expiration.
Posted by: Freeport, IL at April 14, 2009 9:29 PM
Post a comment
