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 September, 2014

The 2013 crop year for soybeans officially ended Sept. 1, but USDA provided a dramatic postscript to the season, slashing its estimate of carryout to produce record-tight supplies.

In the USDA grain stocks report released today, the government cut its estimate of 2013 ending stocks to just 92 million bushels, the lowest raw total since 1971 and enough to take the ratio of stocks to use to just 2.6%, easily the lowest ever. While some analyst expected the government to raise its estimate of 2013 production enough to keep carryout steady at 130 million bushels, USDA instead said the crop was only 69 million bushels more than its last estimate. It increased its yield to 44 bpa, and added 384,000 harvested acres.

November futures cut morning losses after the news broke, then retreated quickly to make new session lows before finally ending into positive territory. The decline in beginning stocks for the 2014 crop year may not matter a whole lot if the new crop is as big as most expect.

Corn and wheat made new session lows after their numbers came out. USDA made only a token cut of 2 million bushels to its estimate for 2014 wheat production, with increases in hard red winter and spring wheat offsetting cuts to the size of the soft red, white winter and durum crops. Sept. 1 stocks were put at 1.914 billion bushels, suggesting feed usage in the summer quarter was less than anticipated by most in the trade.

USDA raised its forecast of ending stocks for the 2013 corn crop by 55 million bushels, likely meaning less corn was feed too as improved pasture conditions provided an alternative. Sept. 1 corn stocks were put at 1.236 billion bushels, adding to an already burdensome supply of corn expected in the year ahead.

A Minimum Price Contract (MPC) can be a useful marketing tool for producers in supply driven bear markets. These types of contracts were very popular prior to the bull market run that began in 2006. It’s very likely that we are entering a sustained period of lower prices given the massive surpluses that we have built up around the world. However, this does not mean that we will not see opportunities to price if we see some weather scares or unforeseen geopolitical events. It’s easy to sell corn at $6 or $7 and never look back because it represents such a good return. However, the challenge in a low priced environment is to eliminate the down side price risk, while maintaining some sort of upside potential during a predetermined time period. A Minimum Price Contract can accomplish both.

For example, instead of delivering corn into Delayed Price this fall, consider selling some bushels on a Minimum Price Contract. Bushels placed in DP might cost you 15c flat right up front and then a monthly rate of 3c per bushel. You have full upside price potential, but you also have full down side price risk. This is not a good risk/reward scenario. Many advisors still believe that corn could drop another 40-50c. Nobody really knows for sure if that could happen. However, we would suggest that you price a portion of those bushels by selling them today (flat price with futures reference and basis) and then attach a long call feature to provide you with upside potential if the market rallies later. A call feature gives the buyer the right to be long at a pre-determined value called the “strike price.” March corn futures are closed Monday Monday night at $3.39 right now. A March $3.40 “strike price” call feature would cost roughly16c. If the market continues to decline, the down side risk is covered because the corn was sold, but the buyer would be out the 16c investment on the call feature. However, if the market rallies above the $3.60 strike price, the buyer of the call feature would participate in the rally penny for penny (less the 16c investment) until the call feature is liquidated. The call feature used in this example expires in February, but it would still be around half the cost of DP charges out to February.

These programs can be tailored to fit different time frames out to May or even July with different costs involved. They can also be used for soybeans. It’s never a good idea to do too much of the same thing. We like a blended marketing approach that would include this type of contract. If you have any questions on these types of contracts, please give your Mercer Landmark grain originator with any questions.

By: Mike Niederman – Mercer Landmark Agronomist

With many areas starting to begin harvesting corn and soybeans now is a great time to start thinking about post-harvest weed control.  Spraying herbicides in the fall is important for controlling winter annual, biennial, and perennial weed problems because it can help prevent weed seed production.  Knowing what weeds you are dealing with and what your spring planting intentions are will help determine what kind of spray program to use in the fall.  Contact your local Mercer Landmark Agronomist for help choosing a fall herbicide program.

With corn prices well below $3.50, there’s reason to suspect corn acres will be down in 2015. That means producers shouldn’t rush themselves into marketing next year’s crop too early, two analysts say.

In a high-price world of 2008 and 2011/12, we were buying acres, putting them into production, and in the last couple of years, certainly this last year and going forward, we’ll be selling acres out,” explains Brian Roach, Roach Ag Marketing. “If I’m a lender, I’m asking my producers to look at the numbers on the corn and look at numbers on soybeans and really trying to balance that risk out. But I’m not in any hurry to do any marketing on the 2015 corn crop yet.”

Risk management will be the operative phrase as the marketplace sorts out its acreage intentions ahead of the New Year.

“The trend is down, so you could sell the trend, but I sure wouldn’t be married to any hedges or short positions in 2015,” adds Bryan Doherty, Stewart-Peterson. “Things can and do change. We’re pretty cheap, and when you’re talking about a market that’s trading at or below the cost of production, how much do you really want to sell into that?”

Admittedly, Doherty says, there is a time to take risk. For example, producers who forward-sold corn this spring will find themselves in pretty good shape.

A weather event early next year could send prices higher, so it’s important to take time now to get a plan in place. Consider the case of soybeans, Roach says.

“If you look at the bean market today, I’d say there’s absolutely no weather premium in today’s prices for South American crop,” he explains. “We can talk about a big crop, 92-million (or) 93-million acre Brazil crop. But until we actually harvest it, the market’s going to trade, and there could be some risk premium. I would expect risk premium to be in the market, say January-February, and producers ought to wait for those opportunities.”

By: Kyle Imwalle – Mercer Landmark Agronomist

Everyone knows the value of conventional fertilizer and what it does for the crops, but a lot of people forget that we can use other sources for our nutrients such as dairy, hog, and chicken manure.  If you raise any of these animals you know what the manure does for your crops and the value of the manure.  Typically dairy and hog manure are hard to come by if you don’t raise the animals yourself, but chicken litter is readily available through brokers, such as Mercer Landmark.  Chicken litter is traditionally cheaper per unit of nutrient than commercial fertilizer.

A study by Agricultural Research Service (ARS) agronomist Haile Tewolde figured the litter’s value for Nitrogen as $15.70 per pound, Phosphorus at $14.60 per pound, and Potassium at $7.10 per pound. The prices ARS used for N-P-K were, on a per pound basis $0.30, $0.27, and $0.16, respectively. ARS also figured the litter’s value as a soil conditioner as an extra $17 per ton of litter. They calculated this by balancing the price tag of the nutrients in litter with its resulting higher yields, a reflection of its soil conditioning benefits. Chicken layer manure also has 86 pounds of Calcium per ton which equals roughly $26.00 in commercial fertilizers. At the time of this post chicken litters value is anywhere from $39.00 to $53.00 depending on where the litter is coming from and how far it has to be transported.

The tables below show the average values of macro nutrients in the different types of poultry manure.

Table 1. Average Nutrient Composition of Broiler Manures
Manure Type Total
N
Ammonium
NH4+-N
Phosphorus
P2O5
Potassium
K2O
lb./ton
Fresh (no litter) 26 10 17 11
Broiler house litter1 72 11 78 46
Roaster house litter1 73 12 75 45
Breeder house litter1 31 7 54 31
Stockpiled litter1 36 8 80 34
Table 2. Average Nutrient Composition of Layer Manures
Manure Type Total
N
Ammonium
NH4+-N
Phosphorus
P2O5
Potassium
K2O
lb./ton
Fresh (no litter) 26 6 22 11
Under cage scraped1 28 14 31 20
High-rise stored2 38 18 56 30
lb./1,000 gallons
Liquid slurry3 62 42 59 37
Anaerobic lagoon sludge 26 8 92 13
lb./acre-inch
Anaerobic lagoon liquid 179 154 46 266

If you have any questions please contact your local Mercer Landmark Agronomy Sales Representative.

Well, another report party is over and it provided grain producers little to want to celebrate, at least in respect to the price outlook. Now we can begin to focus on the October figures.

Corn

Realistically, there was nothing at all outlandish in the corn report yesterday but certainly nothing positive or even something less bearish than expected like in the August figures.

The headliner is always the yield, which was 1 bushel above report estimates at 171.7.  Really a pretty insignificant difference but of course would be a new record eclipsing the current by 4.2% and they still left room for additional increases in future reports.  Yes there are record population counts and record ear counts but not record ear weights for many states were it would seem likely. Regardless, the net result was an increase of 363 million bushels of production to 14.395 billion bushels.  While a producer in areas that have experienced less than ideal conditions this year might argue with this number, it has not produced much controversy in the industry but the same cannot be said for the usage estimates.  Feed/residual was pushed up 75 million to 5.325 billion, the highest number in seven years, ethanol was bumped 50 million higher to 5.125 billion matching the record set last year and exports were boosted 25 million to 1.75 billion bushels. While economics 101 would tell us that lower price should stimulate additional demand, these assumptions could be difficult to defend.  The five-year average for feed/residual is 4.8 billion bushels, ethanol while profitable today could be facing headwinds from a growing world inventory of crude oil and the uncertainty of the mandate and exports may be hindered by the rising dollar.  The point is, with these optimistic usage numbers, additional increases in production would like add directly to the bottom line.  Speaking of which, ending stock did crest the 2 billion mark and are currently projected to be 2.002.

World ending stocks were bumped up just 2.09 MMT.  To arrive at this number Argentina was cut 3 million, China 5 million and Ukraine and the FSU 2.5 million to partially offset the increase in the US of 9.24 million, Brazil 1 million and the EU for 1.3 million.  Regardless, the figures does set a new record for raw ending stocks by 16.83 MMT and the highest stocks/usage ratio at 19.56% since the 2001/02 crop year.

As we are aware, this sent prices into new lows again yesterday but hardly what you would consider a panic wipeout.  There remains a few minor concerns about cold temperatures over the next 24 hours but in lieu of these figures, I cannot imagine we could see much of a response even if there were frost to the north and west.  For now, any short-term rallies would appear to be for the selling and those measuring targets at 3.00 that seemed so extreme when prices gapped lower back around the 4th of July, now appear realistic.

Soybeans

As with corn there was really nothing shocking in the bean estimates but neither was there anything that would suggest we have reached a low.  The most positive figure in the entire report was that for the 2013/14 crop year the USDA bumped crush and exports 5 million bushels each so we brought in 10 million less that previously thought. After a year of touch and go inventory, no one batted an eye.  Yield was increased 1.2 bushels to a record 46.6 b/p/a pushing the total production up top 3.913 billion bushels, 97 million higher than last month.  This of course falls short of some private estimates that have predicted a crop 4 billion.  While not impossible on future reports, yield would have to push up another bushel for that to turn into reality.  Total usage was boosted 42 million bushels broken down with an increase in crush of 15 million bushels to 1.77 billion, the highest number since 2007/08 and 25 million in exports to a record 1.7 billion.  Residual was increased 3 million so the net result was an increase in ending stocks of 45 million to 475 million.  This would be the largest carryout since 2006/07.

On the world accounting sheet, in addition to an increase in US production, the Argentine crop was bumped up 1 MMT and Brazil 3 MMT with the net result after adjustment for usage an increase in world ending stocks of 4.55 MMT.  This leaves us with a record 90.17 MMT in ending inventory, which eclipses the previous record set in 2010/11 by 18.45 MMT.

As with corn, beans fell into lower lows but did not witness a panic collapse to the downside and have even tried to bounce a touch this morning.   November futures have reached down to what were my initial targets at 9.80 but I suspect holding at this zone will only be temporary.  Not only are we on the cusp of full-scale harvest here but also South America will soon be moving into the field and as I reported yesterday, it would appear the plans are to increase bean acreage at the expense of corn.  Granted, that would not assure a bigger crop but without any issues, we would be staring at a bleak outlook indeed.  Prior to the report I had felt that the downside of the bean market could be limited to the 9.50 level but with growing numbers and potential for another large southern hemisphere crop, I believe I need to expand the downside potential to the 8.80/9.00 realm.

Wheat

Personally I thought the wheat market received some of the most negative information.  Imports into the US were boosted 10 million bushels moving them back to the same levels as last year and exports were cut 25 million bushels reflecting the current non-competitive position of US product which pushed ending stock up 35 million bushels to 698 million.  If correct, this number is 108 million higher than last year but still 20 million lower than the 2012/13 marketing year.  Actually, this is still the second lowest ending stocks figure since the 2008/09 marketing year as the average for the past five years has been 778 million.

The world numbers were no more encouraging.  The Australian crop was cut .5 MMT but the EU booted 3.1 MMT and Ukraine 2 MMT.  Of course we know that there is a lot of off grade wheat from those two regions, which discounts the price even more.  The Russian crop was left unchanged at 59 MMT and many private estimates have pushed projections into the 61+ MMT range so the world ending stocks could very well grow even more on successive reports.  As it turned out with the current number, carryout was bumped up 3.42 MMT to 196.38.

This boost does not quite return us to the type of world carryout number that we were living with between 2009 and 2011 that ranged between 199 and 201 MMT but the information was still enough to push us into new lows once again.  Realistically, there is little in the way of support between the current price and the lows that we posted back during in 2009 and 2010 down at the 425 level.  If the USDA finds more wheat on the October report, it would not seem unreasonable to see prices return to that range.

Marketing a crop is NOT a “team sport,” it’s entirely up to you to pull the trigger and reduce your own risk. The herd mentality tends to NOT pay big dividends! Continually talking about a USDA conspiracy does NOT pay big dividends! Remember, you build a marketing plan for the “bad years”…not the “good years.” Anybody can market $7.00 and $8.00 corn. Please do not simply stick your head in the ground and think the problem is going to take care of itself. You have to “execute.” That can mean a lot of different things for each farm operation but not doing anything, in these market climates, can be extreme.  Work on reducing risk not only for the 2014 crop but also looking out into the 2015 crop year.  Believe it or not there are still marketing strategies that you can use to protect thing going forward.  Contact your grain originator at Mercer Landmark for more information.

By: Ben Stoller- Mercer Landmark Agronomist

  1. Timing: Plant after the Hessian Fly-free date in your county, but ideally within 10 days of that date (OSU). Some fly-free dates for area counties:
    1. Paulding: September 24
    2. Van Wert: September 26
    3. Mercer: September 27
  2. Depth:
    1. Ohio State University researchers recommend planting 1.5” deep.  They contend shallow planting increases risk of low tiller numbers and high winter kill due to ‘heaving’.
    2. Purdue researchers recommend planting ¾”-1 ¼” deep.
    3. Bayer CropScience recommends no less than 1 ¼” deep.
  3. Fertility:
    1. Nitrogen: OSU recommends applying 20-30 pounds of actual Nitrogen per acre at planting to promote early tillering.  This would equate to 95-143 pounds of Ammonium Sulfate.  Apply remaining N between spring green-up and jointing (Feekes 6.0).
      1. i.      Question on how much N to apply for a specific yield goal? Use the following equation from Purdue:
        1. 1. N lbs./acre= 40+[1.75 X (yield potential-50)]
    2. Phosphorus: Soil levels should be maintained between 50-80 pounds/acre.  For soils testing less than 50 pounds/acre, apply 80-100 pounds of P2O5 (154-190 pounds of MAP, 11-52-0). 
    3. Potassium: Potassium needs are based on soil CEC (cation exchange capacity).  Maintain levels for soils in the ranges below:
      1. i.      10 meq: 200 lbs/acre
      2. ii.      20 meq: 240 lbs/acre
      3. iii.      30 meq: 280 lbs/acre
        1. i. With low soil test levels, add 100-200 pounds of K20 (170-335 pounds of Potash).
    4. Soil ph: Should range from 6.3-7.0 (OSU).

Contact your Mercer Landmark agronomist for details on our Wheat Health Program and how we can help you maximize your wheat production.

December Corn Futures: CZ blew out of its $3.58 – $3.81 (23 cent) range, a range in effect since July 21– with a vengeance yesterday. Upside technical objectives are junk – we killed it first. Remember the ‘3-Gap’ objective that I talked about awhile back. Now the objective is at $3.31.
Simply put, things are getting really ugly, really fast. The next support emerges at $3.24 1/2, which is the low of the week of June 28, 2010.

At a time of year where we would normally be expecting corn and soybean conditions to begin to decline this year’s big crop is bucking the trend.  Tuesday afternoon (delayed due to holiday) the USDA showed crop conditions improving for corn and soybeans.  With conditions improving this late in the growing season does this mean that already big crops are getting bigger?

As of the week ending August 31st the USDA is reporting corn crop conditions at 74% good to excellent.  This is a 1% increase from the previous week.  This means that at this point this is the best rated corn crop in almost 20 years.  This is reigniting the talk about super sized yields and bigger production estimates.  While we will likely have a new record national average yield and a new record production figure will it really be as big as some of the more aggressive estimates?

The very good crop conditions and the very large production expectations highlight the potential of this corn crop.  However, we may or may not realize the full potential we have out there right now.  This crop conditions report also showed that the corn crop was 8% mature at this point compared to the 5-year average of 16%.  So, there is a good percentage of the corn crop that is a bit behind and we are getting to the end of the growing season.  An early frost, or at this point even a normal frost could cut into the potential of this corn crop and limit the upside potential of the national average yield.  Most weather forecasts at this point are not looking at a catastrophic frost event, but the situation will need to be monitored closely.

For soybeans the USDA reported the crop at 72% good to excellent for the week ended August 31st.  This is a 2% increase over last week and represents historically good soybean crop conditions.  This comes at a time where, like corn, we would normally expect conditions to begin to decline.  This also comes after a week that saw a lot of talk about soybean disease, namely SDS and white mold.  Diseases are still a concern, but this 2% increase in soybean conditions may put that discussion to rest for now.

Soybeans may have benefited the most from the consistent rains most areas have received since August 1.  Late season rains may have added bushels and weight to soybean crops.  Soybeans are also not as far behind as corn is.  The USDA is reporting that 5% of the crop is dropping leaves compared to the 5-year average at 7% and last year at 3%.  This may give soybeans a better shot at getting to the finish line but there is a lot of variance in fields right now and frost may be a limiting factor to the national average soybean yield as well.  However, with soybean crops rated 72% good to excellent and a least a week or two before the first chance at a frost it seems that the soybean crop could have gotten bigger in the last few weeks.

In all big crops could be getting bigger.  The potential for corn and soybeans certainly has gotten bigger with crop conditions improving.  However, it will take a little more time to react full potential.  Weather and when and where we get the first frost of the season will have a lot to say about how close these big corn and soybean crops get to their potential.