The Record’s Ag Report
What will the markets do in 2013? What are some of the factors that will contribute to the prices? What numbers should we look forward to on grain commodities? How can agriculture producers maximize profits in this volatile market?
At the North Central Farmers Elevator (NCFE) grain marketing meeting at the Amvets Hall in Hague on Wed., March 13, NCFE Grain Marketing Manager Craig Haugaard shared his outlook with area farmers.
“It is our goal in the grain department to work with you in creating a marketing plan that will meet your specific needs,” Haugaard said.
Haugaard offered some fundamentals for producers to focus on when thinking about marketing. He said it is important to take away the emotional part of marketing and discussed ideas on how to get off the “emotional roller coaster.”
“Ask yourself why you are sitting on that grain,” he suggested.
Haugaard said it is human nature to look for news that confirms what you want the market to do. In many cases, this causes us to hang on to our grain longer than we should, and as a result, we ride an emotional roller coaster as we go through the greed-hopefear cycle of marketing.
Factors that producers need to pay attention to are fundamentals of supply and demand as well as seasonal trends and technical trading indicators.
Haugaard said something that is unusual this year is that we have imported more corn than we have in the past. Corn was imported from Brazil, which is now the number one corn exporter in the world, a distinction formerly held by the U.S. Russia and the Ukraine are starting to ramp up their corn production, too.
USDA is projecting 825 million bushels of corn exports for 2013-14. That would figure to exporting 9.8 million bushels per week. The average export sales for the past 10 weeks have been about 8 million bushels.
“For the year 2013-14 from a historical perspective, we may be incredibly low on corn exports,” Haugaard said.
USDA is projecting 4.5 billion bushels used in ethanol production this year. The U.S. is currently running at 81 percent of capacity. With farmers holding on to their corn, this may push the basis into the summer months.
USDA is projecting 4.55 billion bushels of corn will be used as animal feed this year. With reduced distillers dried grain (DDG) availability, we may see the amount of corn used as animal feed end up being higher than the current projection.
In February, the USDA Agricultural Outlook Forum, predicted 91.9 million corn acres with yields at 163.6 bushels per acre for 2013. Haugaard is doubtful the bushels will be that high with the continuing impacts of the drought in the U.S. He feels 145 to 150 bushels per acre is more likely.
Regarding the technical marketing, there are indicators to pay attention to in deciding when to “pull the trigger.”
Haugaard said through the months of April through June there is a seasonal tendency for the markets to go up.
“There are a lot of unknowns that seem to push the market up that time of the year,” he said. “We are seasonally moving into the area when it is a good marketing time.”
Haugaard pointed out in the years from 2003 through 2012 the price of December futures on May 1 has been higher than the price of December futures on October 1 80 percent of the time. He also discussed resistance levels in the May corn futures and stated $7.22 is a level that could provide a great deal of resistance.
On the soybean market, Haugaard said there have not been any big changes. There has been a huge demand from China as one out of every four bushels of beans grown in the U.S. are exported to that nation. USDA is projecting that will increase in 2013. The reason for the increase in soybean exports to China is because of their improving economy. They are consuming more pork, and the demand for soybean feed for their pigs has increased.
Haugaard suggested right now may be a good time to sell soybeans.
He talked about both the soybean futures market and the soybean basis being inverted, and said based on that, producers may want to consider selling. It also looks like 2013-14 will offer volatility on the soybean market and with that will come good opportunities for those who capture it.
Along with the soybean market, the wheat market has also not seen a lot of changes. Exports are running close to what USDA projected. In the past 10 weeks, the average export has been 17.1 million bushels.
Haugaard said the U.S. is competitive in the world’s wheat market. Russia is looking at dropping their import tariff, and Brazil appears to be in the market for wheat. There is an increased competition in the world market from countries such as India. India is now number two in wheat exports in the world.
Haugaard also said the drought in Texas and Kansas, and the possibility of reduced yields next year in that area, could impact the wheat market. Recently, we have seen soft red winter wheat move from the eastern Corn Belt into feedlots which may ultimately result in a lower carry-out.
“Usually, seasonally, the month of March for the wheat market is good, but that has not been the case this year,” Haugaard said. “$8.25 May futures might be as an aggressive price to look for in the short term.”
Haugaard also discussed other influences that heavily impact the market.
“The strength and weakness of the dollar has much to do with competitiveness in the market,” he said. “Keep an eye on what happens in Washington, D.C.”
Another item to track is the relationship to crude oil prices. In the past few years, there has been an 80 percent correlation between corn prices and crude oil prices.
“If we see a spike in the crude oil market, we may also see a spike in corn prices,” Haugaard said.
NCFE Grain Merchandiser Kyle Bowman reviewed several types of marketing contracts that are available to producers.
With the Offer Contract, also referred to as “open order” or “price target,” a producer offers a certain amount of grain to the elevator to be sold for a particular delivery period at a certain price.
“For example, today’s corn price in Hague is $6.86,” Bowman said. “A producer would call us and say he wants to sell 5,000 bushels of corn for March delivery at $6.90. We would take that as an offer and if the price got to $6.90, we would generate a purchase contract for the producer, and he would be obligated to deliver the grain.”
The producer can also place an offer contract for a futures price or a basis price, and it does not have to be the flat price.
A Priced Purchase Contract is a priced contract for a particular delivery period. Both the futures and the basis are locked in, as well as the delivery period.
A Futures Fixed Contract is when only the futures price is locked in. The basis and delivery period are still open to be set at a later date.
A Basis Fixed Contract is a contract where the basis and the delivery period are set, and futures will be set at a later date.
A Priced Later Contract, also referred to as Delayed Price or DP, grain is delivered to the elevator, and the price is not set until a later date.