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Archive for November, 2012

Being 9 months pregnant I am finding it very hard to get into the holiday spirit this year. Maybe its because I can no longer see my feet and struggle to put my socks on. But at any rate, in my quest to not only become less “scroogy” but to update our blog, I found these cartoons on Agriculture.com. I personally think they will hit home for a lot of farmers and their wives. The last two particularly remind me of my loving husband. Happy Holidays!

November 19, 2012

By: Sara Schafer, AgWeb.com Business and Crops Online Editor

It will be a relief for many corn farmers to turn the calendar to 2013. One of the toughest production years in history was coupled with an extremely jerky and volatile market.

So, what lies ahead for next year? Jerry Gulke, president of Gulke Group and Top Producer Columnist, and Bob Utterback, president of Utterback Marketing and Farm Journal Economist, share some insight.

#1: Will corn steal or lose acres next year?

In 2012 U.S. farmers planted 96.4 million acres of corn – the largest corn crop since 1937. But extreme drought conditions destroyed the crop’s yield potential. As of its latest Crop Production report, USDA estimates total corn production to be 10.7 billion bushels, down 13% from 2011 and the lowest U.S. corn production since 2006.

Will farmers do an acreage repeat in 2013?

“We talk about planting mixes, but in the Midwest, at least, we like to plant corn,” Gulke says. He’s says there’s a possibility of another 1 million acres being planted to corn next year, which would total nearly 100 million indented acres. Areas, such as the Dakotas, received such high corn yields this year, so Gulke believes they will definitely want to plan corn again this year. “You’re not going to bury those corn acres.”

Utterback is not so sure farmers will jump on the corn bandwagon again. He believes acreage shifts will happen in certain regions, depending on agronomic issues, such as fall moisture, crop rotations and fertilizer.

“When you look at the total number, I think we will be hard-pressed to reach the same corn acreage numbers as 2012,” he says. “The only way you’ll see it is if we have exceptionally good planting conditions in the spring or if the bean market gets hammered.”

#2: Could bad weather prevail three years in a row?

In 2011, a wet spring and scorching July trimmed crop yields, and then yields were dramatically hindered in 2012 by prolonged dry and hot conditions. It took both of these big, bad weather events for us to see extremely high prices, Utterback says.

Another excessively dry or wet season in 2013 will either support or crash prices. “The biggest mover of the market for grain is weather,” he says. “If we get good weather, the markets are going down, if we get bad weather, the markets will go up.”

Gulke says crop mixes and prices next year will all boil down to weather. A silver lining to the drought, he says, is farmers were likely not totally shaken by this year’s challenging growing year. Gulke, who farms himself, says he now knows his worst-case scenario for corn yields. “I can grow 80-bushel corn, come hell or no water. So, that tells me that my risk, if I watch my management practices, is pretty low.”

#3: Does anybody out there still want our corn?

As the drought reduced the supply side of the corn equation this summer, more and more focus was put on demand. Did the record-high prices destroy domestic and global demand?

“The demand side of the equation is really muddy,” Utterback says. “Since 2001, we’ve had a positive demand-building phase because of ethanol. But we know now that with the change in government policy, I think you could argue that the domestic growth in corn demand has peaked.”

Utterback believes ethanol demand will take on the characteristic of the feed market, in that it will become more predictable. “Obviously these demand sources can still shift, but they won’t have the year-to-year solid growth.”

#4: Will the entire world plant more corn?

“We’ve become a global market in corn,” Gulke says. “We’re not the only ones to buy corn from anymore. Now what happens in the Ukraine or Argentina are important.”

He says $8 corn in the U.S. attracted global attention and increased production. Worldwide demand is growing and other key countries are joining the U.S. in being major corn suppliers. “This isn’t all about the U.S. Corn Belt anymore,” Gulke say.

#5: Are prices on a new plateau or a cliff?

Prices peaked at all-time highs this summer, with corn surpassing $8 and soybeans topping $16. They have since settled lower, but are still at impressive levels.

“I’m not so sure if we haven’t moved to a new plateau for prices,” Gulke says. “This year, we determined what the worst case is for yields and prices. We know how bad it can get before we lose more than 10% of our demand.”

He says there isn’t a lot the industry can do with $8 corn, $16 soybeans in the long term except provide an incentive for the rest of the world to grow more. “If a global surplus evolves, we’ll find out if $4 corn or $12 soybeans are cheap or not. There isn’t another ethanol-like expansion of usage of corn lurking in the background, to consume a large expansion in the short term. The potential volatility points out the critical need to remain flexible in thinking and marketing.”

The hazard for farmers in 2013 is thinking that these high prices are the new norm. “We have fallen in love and think this is a whole new level of existence. Look at the last five years of prices; it wasn’t too long ago that we had $5 corn prices,” says Utterback. “Farmers should not convince themselves that corn markets only have one direction to go.”

November 13, 2012

Issued by Darrel Good, University of Illinois

The USDA’s November forecasts of the size of the 2012 U.S. corn and soybean crops were larger than expected, particularly for soybeans. As a result, the general downtrend in soybean prices since mid-September has accelerated, with January futures now at the lowest level since June 29.

Corn prices have moved into the lower half of the trading range that has been in place since mid-September and December futures are at the lowest level since September 28. So far, prices seem to be following the classic pattern associated with small crops -peaking early in the marketing year and then declining as the year progresses.

The futures market reflects expectations that prices will continue to decline, especially into the 2013-14 marketing year. The expected rebound in South American soybean production, Argentine corn production, and U.S. corn and soybean production in 2013 all contribute to the expectation of lower prices. If those crops are as large as generally expected, prices will be even lower than currently reflected in the futures market.

The USDA is forecasting record South American production of both crops. If planted acreage of corn in the U.S. in 2013 is at the same level as in 2012 and the U.S. average yield is near a trend value of 162.5 bushels, the crop would total 14.6 billion bushels, about 1.5 billion larger than the record crop and record consumption of the 2009-10 marketing year.

Similarly if soybean acreage is maintained at the 2012 level and the average yield is near the trend value of 43.8 bushels, the 2013 crop would reach 3.34 billion bushels, near the record levels of 2009 and 2010. A combination of record, or near record South American and U.S. crops in 2013 would likely push prices down to or below the long term averages of about $4.75 for corn and $11.00 for soybeans.

While the expectation for lower corn and soybean prices in 2013 is reasonable based on historical patterns and prospects for large crops, the timing and speed of the return to more “normal” prices will be influenced by a large number of factors. The final estimate of the size of the 2012 crops to be released on January 11, 2013 is one of those factors.

For soybeans, the pattern of 2012 yield forecasts to date, lower in September and higher in October and again in November, was experienced six other times in the previous 30 years. The yield estimate released in January following harvest in those six years was above the November forecast three times and below the forecast three times. The deviation ranged from 0.1 to 0.8 bushels. History does not provide much guidance for forming expectations this year.

For corn, the pattern of yield forecasts this year, lower in September and October and higher in November was experienced only two other times. The January yield estimate equaled the November forecast in one of those years and exceeded the November forecast by 0.7 bushels in the other. Again, history provides little guidance for forming January yield expectations this year. The bigger issue for corn production, however, may be the January estimate of acreage harvested for grain. There is a general expectation that the USDA’s large December survey may reveal fewer acres than currently forecast.

On the supply side, the progress of the South American crops will be most important for the next three months. Weather conditions are currently improving somewhat from early wet conditions in Argentina and dry conditions in central and western Brazil. Some on-going dryness is noted in southern Brazil and Paraguay. Some argue that corn production potential has already been reduced in Argentina. For the near term, markets will likely continue to reflect expectations of very large crops.

Prices will also be influenced by the on-going rate of consumption of the 2012 U.S. crops. For corn, there is some anticipation that the pace of export activity, which has been extremely slow to date, may accelerate as South American supplies dwindle and Asian customers return to the U.S. market. 

The larger issue, however, surrounds the pace of domestic feed and residual consumption. The USDA’s estimate of December 1, 2012 stocks to be released on January 11 will provide some much needed clarity to the rate of consumption in the last quarter of the 2011-12 marketing year and the first quarter of the 2012-13 marketing year.

For soybeans, the National Oilseed Processors Association estimate of the size of the October crush is expected to be released later this week. That estimate will provide insight into the pace of crush relative to the projected rate. The pace of new export sales will also be important, with some concern about cancellations of earlier purchases by some customers.

Prospects for further price declines for corn and soybean into 2013 favor pricing more of the old and new crop sooner rather than later. However, the transition to lower prices will be erratic so that timing of sales will still be important. Recent price declines, particularly for soybeans, seem to be a little excessive given the amount of production uncertainty.

The USDA released new forecasts of U.S. and world crop production as well as updated forecasts of 2012-13 marketing year consumption on November 11th. Following is a brief summary of the new forecasts and implications for corn, soybean, and wheat prices.

 Corn

 The 2012 U.S. corn crop is forecast at 10.725 billion bushels, 19 million bushels larger than the October forecast. The U.S. average corn yield is forecast at 122.3 bushels, 0.3 bushels larger than the October forecast. The production forecast for the rest of the world was a fraction higher than the October forecast, with smaller forecasts for Europe and Mexico, offset by slightly larger forecasts for Southeast Asia and Russia.

 Consumption of U.S. corn during the current marketing year is projected at 11.167 billion bushels, 17 million larger than the October forecast, reflecting an increase in the expected consumption for food and industrial purposes. However, the projection of imports was increased by 25 million bushels, to a total of 100 million bushels, so that the projection of ending stocks was increased by 28 million bushels.

 Ending stocks for both the U.S. and the world are expected to be much smaller than stocks at the beginning of the marketing year. The marketing year average farm price is now projected in a range of $6.95 to $8.25, $0.25 lower than the October projection.

 New projections differed from market expectations in several aspects. U.S. production is larger than expected, the forecast of the Argentine crop was not reduced as some thought might happen, and the projection of year ending stocks exceeds expectations. The corn market will now be influenced by the development of the South American crop, with emphasis on weather conditions in Argentina following an extremely wet October, and the ongoing rate of consumption, particularly the pace of exports.

 The Crop Production and Grain Stocks reports to be released on January 11 will be closely watched for changes in the production forecast, with some change in the forecast of harvested acreage expected, and for the revealed rate of domestic feed and residual use of corn.

 Soybeans

 The 2012 U.S. soybean crop is forecast at 2.971 billion bushels, 111 million larger than the October forecast and 80 million larger than the average trade guess. The U.S. average yield is forecast at 39.3 bushels, 1.1 bushels above the average trade guess, 1.5 bushels above the October forecast, and only 1.6 bushels below last year’s average. The average yield forecast was increased for all but seven states, with only the yield in Oklahoma reduced from that of a month ago. Outside the U.S., production forecasts were increased slightly for Bolivia and the Ukraine.

 The forecast of U.S. soybean exports was increased by 80 million bushels, the forecast of the domestic crush was increased by 20 million bushels, and the forecast of ending stocks was increased by 10 million bushels. The projection of world stocks was increased by 90 million bushels (4.3 percent). The 2012-13 marketing year average price farm is expected to be in a range of $13.90 to $15.90, $0.35 below the October forecast.

 The soybean market will now be influenced by the on-going rate of consumption, particularly the pace of exports. Some recent sales cancellations reflect the substantial price decline since early September and prospects for a large South American crop. Development of that crop will now become center stage.

Wheat

 The USDA lowered the projection of 2012-13 marketing year U.S. wheat exports by 50 million bushels in recognition of the slow export pace to date. Even though the projection of foreign wheat production was reduced by 60 million bushels, the projection of exports from the rest of the world was increased by 117 million bushels. Most of that increase is for Russia and the Ukraine. The projection of U.S. ending stocks was increased by 50 million bushels, but the projection of the marketing year average farm price was little changed from that of last month as much of the 2012 crop has already been sold. World stocks are expected to decline sharply by the end of the current marketing year.

Focus in the wheat market will continue to be on the development of the U.S. winter wheat crop, which is experiencing generally dry conditions; the outcome of the Australian crop; and the export policy in the former Soviet Union.

Price Implications

For the most part, the USDA reports were negative for crop prices–more so for soybeans and less for corn and wheat. Corn prices are expected to remain in the sideways pattern experienced over the past six weeks while old crop wheat prices are expected to be supported within the wide range experienced since mid-July. Prices for the 2013 wheat crop are expected to remain strong based on production concerns. Soybean prices are in a clear downtrend, with some chance that South American production risk is now being under-valued.

What in the world is the issue with the soy complex? January Futures Chart: After melting down Friday – SF filled the gap left over the Independence Day holiday, and completed the 61.8% Fibonacci re-trace. This is not a market that is afraid of tight supplies. This is a market that is very concerned about demand. Is the soy complex indicitave of Chinese economic issues? Or waryness over the US fiscal cliff? Time will tell, but a market that is some $3.50 ish off its highs… Not healthy. Next support falls at gap fill level of $13.88.

Corn / Soybean price ratios… All are moving sharply in the favor of corn…

December Corn: This market tried hard to rally Friday, prior to giving up and settling lower. This market can neither break free of the downsloping line drawn off the October report high, nor can it break the flat side of the pattern at 732 ¼.

Same story, different week. Wheat holds support near trading range lows, bounces and looks ready for a rally only to run out of gas before it barely gets started. Buyers are there to support the market but aren’t willing to extend themselves for a sustained rally.

 New crop wheat contracts have pushed into new contract highs as the drought lingers across the Plains and cold weather threatens before much of the crop is well established. We got our first look at winter wheat conditions this week and the picture isn’t pretty. 

At only 40% good/excellent, this marks the poorest start to the winter wheat crop in 20 years. 15% was rated poor/very poor. Establishment is well behind normal and drought conditions are well entrenched across the heart of the central Plains. As we head into winter, the struggling crop will be particularly susceptible to harsh weather – and there’s been plenty of harsh weather lately.

While crop damage hovers near the bottom of the list of problems from Hurricane Sandy, there are some concerns that have been voiced. Soft red winter wheat in the eastern Midwest could have seen some flooding damage. More importantly, however, are the unharvested corn and soybean acres that were in the path of the hurricane. Both crops are looking at very tight ending stocks and any losses could become a much larger problem down the road.

 Wheat faltered into the end of last week as a sharply higher dollar and weak energy markets pressured corn and soybeans, which ultimately drug wheat lower as well.

 Early week price action was positive as Egypt purchased 300 TMT. They bought 120 from Russia, 120 from France and 60 from Bulgaria. No surprise that France got some of the business, but Russia raised some eyebrows. Apparently the exporter isn’t too concerned about securing enough supplies for the late December delivery date. The sudden reappearance of Russia suggests they’re not too concerned about meeting November deliveries, either. 

 While it was disappointing that the US didn’t get some of the business, the market apparently was comforted by the fact that our prices were only 10 cents/bu over the nearest competitor. At least that was used as the excuse to rally. But again, the rally fizzled out before it could really get going.

 US Export sales were lighter this week at only 363 TMT. That was down from last week but still within the range of estimates. At five months into this marketing year, US sales are running about 47% of USDA’s total estimate, significantly lower than the normal 67%. US wheat prices may be nearing world prices, but we’ve got a lot of ground to make up after a sluggish start.

Harvest is gearing up in Argentina and Australia with not surprising poor reports so far. Argentina’s crop has significant disease issues from too much rain and Australia is reporting not only the poor yields from drought but also low protein – likely from frost issues early in the season. Rains have also appeared over Australian crops – too late to help and likely now a hindrance. 

 The US Ag Attache in Argentina lowered the wheat production estimate to 10.8 MMT from the previous 11.5 MMT. Current conditions suggest that number will continue to decline. 

 Until wheat can break out of this well established trading range, we’re bound to continue in this choppy type of price action. Production problems in the Southern Hemisphere suggest a rally is coming, but it may have to wait until after their harvest and they’ve sold whatever they have available.