Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.

Archive for July, 2012

Last week was yet another explosive week as grain prices continued their surge to higher levels.

The September contract led corn values higher this week closing $.84 higher and August soybeans closed $1.62 ¾ higher. September corn traded to new all-time highs this week for any corn contract when it made a high at 8.28 ¾ on Friday. This surpassed the previous highest trade ever when the July 2009 corn contract traded to $8.26 in the summer of 2008.

It is not surprising that the market would search out historically high levels in a year in which historically hot and dry conditions have plagued the Corn Belt. Demand destruction is clearly occurring at current price levels as ethanol production this week was reported at a two year low, while corn export demand remains largely non-existent.

One function of this market is to destroy that demand in order to protect adequate supplies of corn stocks, just as the function of the market will be to one day buy that demand back with lower values once the supplies become more comfortable.

Picking a top in the grain markets has been an act of futility over the past month and it may prove equally challenging over the next month and as be careful and don’t lose the farm in this market. When prices get hot, keep a cool head and stick to a plan. Producers should be looking at lower risk option strategies to protect this year’s inventory. At the same time they should be looking to extend 2013 hedges as December 13 corn trades near $6.50.

Not surprisingly crop insurance will have significant claims. Those of you who have revenue insurance will have some huge payouts this year. However, don’t assume these markets can’t go right back down. All it would take is putting the President in front of a press conference and have him mention putting an end to the ethanol mandate or reducing exports.

Survival tips

To survive in this “superheated” trading environment, you must follow some basic rules:

  1. Don’t speculate.
  2. Don’t think the markets can’t go down.
  3. Don’t put on marginable positions (i.e. trading futures or selling calls to pay for puts).
  4. Don’t try to pick a top.

July 13, 2012 7:13 pm

Food crisis fears as US corn soars

By Jack Farchy in London

Is the world on the brink of another food crisis?

It has become a distressingly familiar question. With the price of agricultural staples such as corn, soyabeans and wheat soaring for the third summer in five years, the prospect of another price shock is once again becoming a prominent concern for investors and politicians alike.

The debate marks a dramatic shift from just a few weeks ago, when traders were expecting bumper crops and policy makers were comforting themselves that – if nothing else – falling commodity prices would offer some relief to the troubled global economy.

But since then, scorching heat and a paucity of rain across the US has withered the country’s corn and soyabean crops, with the US Department of Agriculture this week making the largest downward revision to its estimate for a corn crop in a quarter of a century.

The US is crucial to supplying the world with food: the country is the largest exporter of corn, soyabeans and wheat, accounting for one in every three tonnes of the staple grains traded on the global market.

Prices for this year’s corn crop, deliverable in December, have jumped 44 per cent in a month, wheat has rallied 45 per cent, and soyabeans 17 per cent.

The rise in grain prices has inspired comparisons with 2007-08, when a price surge triggered a wave of food riots in more than 30 countries from Bangladesh to Haiti, and 2010, when Russia banned grain exports, setting off a price jump that some have argued helped to cause unrest across the Arab world last year.

Luke Chandler, head of agricultural commodities research at Rabobank, a leading lender to global agribusiness, says: “This certainly has the potential that we go back to a 2008 scenario.”

A sharp rise in food prices is worrying for the global economy for two reasons. Firstly, and most damagingly, it has the potential to cause social and political upheavals such as last year’s Arab spring.

But most analysts believe that this year’s price surge is not yet severe enough to bring about the overthrow of governments. While stocks of corn and soyabeans are very tight, particularly in the US, the situation is less extreme for wheat and rice, the food commodities that are staples for most of the world’s poorest people. In contrast, corn and soyabeans feed animals, produce ethanol or make cooking oil.

While corn prices are trading above their 2008 peaks, and soyabeans this week surpassed the 2008 high to hit a new record, wheat and rice prices are not yet in record territory.

While wheat prices have rallied above $8.40 a bushel – the price touched in the direct aftermath of Russia’s 2010 export ban – they remain well below the 2008 record of $13.345. Rice is trading more than 40 per cent below its 2008 high.

Abdolreza Abbassian, senior grains economist at the UN Food and Agriculture Organisation in Rome, says: “We’re not going to have another food crisis. For core food security purposes the fact that we have very good and ample rice supply is a very positive development, and wheat supply is also adequate.”

Nonetheless, the dramatic rise in grain prices in recent weeks is likely to feed through into the price of food. That could have far-reaching consequences for the global economy, by reintroducing inflation as a worry for central bankers, particularly in emerging markets where food prices account for a large share of inflation. Karen Ward, senior economist at HSBC, says: “What the world economy really needs right now is a break. Any inflationary pressure, particularly that stops the emerging world loosening policy and providing the boost to the global economy, would be a problem.”

Jeffrey Currie, head of commodities research at Goldman Sachs, points to the close link between Chinese food inflation and the price of soyabeans, of which the country is by far the largest importer.

“You really get the sense that the world is dependent on the Chinese stimulus. What drives the stimulus is the lack of inflation,” says Mr Currie.

“What is happening in the US is putting enough pressure on soyabean prices that the potential pass-through into [consumer prices] is becoming much more worrisome.”

Moreover, the low level of global inventories for some grains means that any further disruption to supplies could be devastating.

Global corn stocks are forecast by the USDA to fall to just 15 per cent of annual demand, close to a record low.

Hussein Allidina, head of commodities research at Morgan Stanley in New York, says: “I don’t think the alarm bells need to
be sounded yet. But unlike previous years, we don’t have the inventory cushion for insurance against
any further yield downgrades.”

With the prospect of a return of El Niño, the weather phenomenon that triggered droughts in Argentina and Australia, contributing to the 2007-08 crisis, later this year, the world economy will be once again beholden to the weather.

Mr Abbassian of the FAO says: “We’re back to square one of last year – you’re basically back to a hand-to-mouth situation. We have a very bumpy road ahead for the next few months.”

Sevier County, Ark.:

 Hay and pastures are green after a good rain two weeks ago, but we did not get the second cutting of hay. So far we are about half of normal production. Hot and too dry.

Prowess County, Colo.:

 We depend on mountain snow for river water to irrigate. River and canals already dry for the year and now 105° to 112° temperatures with south wind. Will bale 3 ft. tall corn next week.

Shelby County, Ill.:

Crops looking bad after 100+ for several days. Corn on lighter ground starting to give up, beans 12 inches tall lot of blooms but standing still. Look pretty good in morning but afternoon very bad.

Lucas County, Iowa:

Our south-central Iowa farm’s corn is very spotty. Some tasseling and 5 feet tall, some 3 feet tall and lower leaves are browning. Same with beans, some 12″ tall and some only 4″.

Wichita County, Kan.:

0.60″ rain since April 2. We’ve had six days straight of 110° to 114° with 20 to 30 mph wind. It’s the threshold of hell here! Small dryland corn is hanging on, but looks bad. Waist-high corn is gone. A lot of irrigated fields are starting to fire. A whole week of 100°+ to go yet, the writing is on the wall if things don’t change quick.

Dakota County, Minn.:

Our crops looked really good until we got 18″ rain and hail. The hail was about 30 miles wide and 20 miles long. Some areas hit hard. I think it did 5% damage on corn, soybeans are getting replanted in spots.

Jasper, Mo.:

Things are all being cooked most of the early corn is filling but only half of the ear the other is blank. Soybeans are still holding on right now.

Billings, Mont.:

Hot and dry! 97° today with a 25 mph wind! Ugly is what crops look like — corn rolled by noon and grain ripening way too fast. Our only savior we have is irrigation water for now! Water might get short later in the year. Be safe and have a good year to all.

Cheyenne County, Neb.:

Finished wheat harvest Saturday. Yields were nothing to talk about, however the quality was very good. First time in my memory that the combine was parked after harvest on July 1.

Stanly County, N.C.: Much corn is tasselling here now. Ten days ago it looked good, but with little or sporadic rain, it is deteriorating fast

Benson County, N.D.:

Some of us in central North Dakota are just barely hanging on because of lack of moisture. We don’t have a crop yet. Barley and wheat hurt. Corn and beans are hanging in there. We haven’t had larger than 0.6″ rain at any one time. No rain in sight.

Paulding County, Ohio:

We’ve received 0.55″ of rain since April 27 with few chances in the next 10 days. The corn crop is starting to tassel at a height of 3′-4′ and soybeans are just hanging on. With little sub-moisture going onto planting, our reserves are about depleted.

Bedford County, Pa.:

Weekend storms brought hail damage to some places, short shower to 2.5 inches of rain 10 miles away. Mid-week thunderstorms in forecast but the days are running short for adequate moisture. Think we will mow our third cut alfalfa to coax Mother Nature for some rain.

Dyer, Tenn.:

Our soybeans are hurt and rapidly deteriorating.

Plainview, Texas:

There are no words to adequately describe the impact the rain has had on our land but even more so on our souls. The cotton is really ragged up and has been through wind, hail, blowing dust, cool temps to scorching heat. I would rate the irrigated crop in our area as a 6 out of 10. The dryland crop is really struggling and I don’t expect it to make it much past the middle of July. The ground was simply too dry, too deep for the moisture we did get to stay in the root zone!

Lafayette County, Wis.:

 Put oats in on March 14, corn in on April 14, and soybeans the first week of May. Our last substantial rain was May 26. One-tenth inch is all we have got in June. First cutting of alfalfa was done by May 15 and second cutting by June 15. There will be no more haying unless we get rain. Corn and soybeans are hanging on…but just barely.

Goshen County, Wyo.:

One for the record. I have had family in this area since the late 1800s, never heard of a year so dry. Rangeland grass is nonexistent. Our county has just been approved for emergency grazing of CRP acreage. Cows will be eating last year’s growth from record rain and snowfall. Nothing is green outside of the irrigated land. Corn is anywhere from 13 leaves and great to 3 or 4 if emerged at all. We are lucky since most of our water storage systems were filled two years ago and we went into this year with full allocations. A tough year for all of us in ag.

Corn Planted Acreage Up 5 Percent from 2011 Soybean Acreage Up 1 Percent All Wheat Acreage Up 3 Percent All Cotton Acreage Down 14 Percent

Corn planted area for all purposes in 2012 is estimated at 96.4 million acres, up 5 percent from last year and represents the highest planted acreage in the United States since 1937 when an estimated 97.2 million acres were planted. Growers expect to harvest 88.9 million acres for grain, up 6 percent
from last year.

Soybean planted area for 2012 is estimated at 76.1 million acres, up 1 percent from last year and is the third highest on record. Area for harvest, at 75.3 million acres, is up 2 percent from 2011. Record high
planted acreage is estimated in New York, North Dakota, and Pennsylvania, and the planted area in South Dakota ties the previous record high.

All wheat planted area is estimated at 56.0 million acres, up 3 percent from 2011. The 2012 winter wheat planted area, at 41.8 million acres, is up 3 percent from last year and up slightly from the previous estimate. Of this total, about 30.0 million acres are Hard Red Winter, 8.3 million acres are Soft Red Winter, and 3.5 million acres are White Winter. Area planted to other spring wheat for 2012 is estimated at 12.0 million acres, down 3 percent from 2011. Of this total, about 11.4 million acres are Hard Red Spring wheat. Durum planted area for 2012 is estimated at 2.20 million acres, up 61 percent from the previous year.

Corn Stocks Down 14 Percent from June 2011 Soybean Stocks Up 8 Percent All Wheat Stocks Down 14 Percent Corn stocks in all positions on June 1, 2012 totaled 3.15 billion bushels, down 14 percent from June 1, 2011. Of the total stocks, 1.48 billion bushels are stored on farms, down 12 percent from a year earlier. Off-farm stocks, at 1.67 billion bushels, are down 16 percent from a year ago. The March – May 2012 indicated disappearance is 2.87 billion bushels, compared with 2.85 billion bushels during the same period last year.

Soybeans stored in all positions on June 1, 2012 totaled 667 million bushels, up 8 percent from June 1, 2011. On-farm stocks totaled 179 million bushels, down 18 percent from a year ago. Off-farm stocks, at 488 million bushels, are up 22 percent from a year ago. Indicated disappearance for the March – May 2012 quarter totaled 707 million bushels, up 12 percent from the same period a year earlier.

Old crop all wheat stored in all positions on June 1, 2012 totaled 743 million bushels, down 14 percent from a year ago. On-farm stocks are estimated at 112 million bushels, down 14 percent from last year. Off-farm stocks, at 631 million bushels, are down 14 percent from a year ago. The March – May 2012 indicated disappearance is 457 million bushels, down 19 percent from the same period a year earlier.