A Billion Bushel Report
What’s Happened…
On August 12, the USDA released the World Agricultural Supply and Demand Estimates (WASDE). The report contained many surprises, including a significant increase in corn acreage as well as yield. Planted acres increased by 2.1 million to 97.3 million acres. Yield increased from 181 bushels per acre to an eye-popping record 188.8 bushels per acre. Production rose from 15.705 billion to 16.742 billion, over a billion bushels. Demand also improved, with increases noted to feed usage (plus 250 million), ethanol (plus 100 million) and exports (plus 200 million). The net of all these numbers was an increase in projected carryout from 1.660 billion to 2.117 billion bushels.
Why this is Important…
In a year where the crop is highly rated and high yield expected, the USDA crop estimate projections (based off of survey and satellite imagery) surprised even the friendliest supporters of higher yields. Yet, December corn futures didn’t have a strong reaction, losing 13-1/4 cents for the session, a rather small price change compared to a large 457 million bushel increase to ending stocks. A rule of thumb suggests a change of 100 million has meaning to the supply and demand picture. In the next session, December gained 2.75 cents and finished steady – the second day after the report was released.
Either one of two potential scenarios is developing. 1) The market either doesn’t believe yield is that high (a record by 9 bushels per acre); 2) since prices are already low, farmer and speculative selling interest is drying up. For corn end users, this may be an important sign that corn prices, despite big projected increases in supply, may not get much cheaper. A second message is that farmers may not need to be in a rush to sell.
What can you do about it?
Despite the lack of strong negative price reactions, producers should expect a record crop and limited price rallies. Set reasonable price targets to sell bushels you can’t store. If you would rather use put options, consider puts in deferred futures contracts to establish a price floor for a longer time period and capture market carry (cost of holding grain). Buyers should consider securing inventory through cash contracts or use call options to establish a price ceiling. If prices drop, plan to continue buying to build a lower price average. Whether buyer or seller, marketing never takes a rest.
Find out what works for you…
Work with a professional to find the strategy or strategies that are best suited for your operation. Communication is important. Ask critical questions and garner a full comprehension of consequences and potential rewards before executing. The idea is to make good decisions for the operation and less emotionally–charged responses to market moves, which are always dynamic.
About the Author: With the wisdom of 30 years at Total Farm Marketing and a following across the Grain Belt, the Grain Belt, Bryan Doherty is deeply passionate about his clients, their success, and long-term, fruitful relationships. As a senior market advisor and vice president of brokerage solutions, Doherty lives and breathes farm marketing. He has an in-depth understanding of the tools and markets, listens, and communicates with intent and clarity to ensure clients are comfortable with the decisions.
The data contained herein is believed to be drawn from reliable sources but cannot be guaranteed. Individuals acting on this information are responsible for their own actions. Commodity trading may not be suitable for all recipients of this report. Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Examples of seasonal price moves or extreme market conditions are not meant to imply that such moves or conditions are common occurrences or likely to occur. Futures prices have already factored in the seasonal aspects of supply and demand. No representation is being made that scenario planning, strategy or discipline will guarantee success or profits. Any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to Total Farm Marketing. Total Farm Marketing and TFM refer to Stewart-Peterson Group Inc., Stewart-Peterson Inc., and SP Risk Services LLC. Stewart-Peterson Group Inc. is registered with the Commodity Futures Trading Commission (CFTC) as an introducing broker and is a member of National Futures Association. SP Risk Services, LLC is an insurance agency and an equal opportunity provider. Stewart-Peterson Inc. is a publishing company. A customer may have relationships with all three companies. SP Risk Services LLC and Stewart-Peterson Inc. are wholly owned by Stewart-Peterson Group Inc. unless otherwise noted, services referenced are services of Stewart-Peterson Group Inc. Presented for solicitation.
Author
Bryan Doherty