Grain Prices and Brazil - Monday, 25 November 2013

Grain prices are a bit of a shock to our systems now that we have become accustomed to much higher prices over the past several years, so now what do we do?  There are still limited advisors that believe that upcoming reports will uncover the fact that the overall bushels harvested in 2013 aren’t nearly as big as what have been previously reported and the grain market will recover moving us higher once again.  Then there are the rest (or majority) of the market analysts that hold little hope for another bull market for several months, if even then.  Based on the numbers given to us earlier this month, the United States has approximately a 2 billion bushel carry-over, the last time we saw a 2 billion bushel carryout was 2004 and the average farm price for those bushels that year was $2.04!  There’s an old saying that big crops have long tails….the tail being the big yields that could affect prices well into the next growing season.  This tail could continue to grow if producers refuse to sell grain stored in their bins in hopes of bigger prices down the road. 

Basis has remained strong in most areas but is it enough to compensate for the dropping futures price?  On June 30, 2010 the USDA lost 300 million bushels of corn and the market closed up the limit.  With the massive carryover we are faced with this year, some analysts feel the Funds won’t care until we lose at a minimum of 1 billion bushels!  It’s believed that trend line corn yields in 2014 will push basis levels to $.50 under or more by next fall. 

 

Ethanol production continues to be quite profitable and because of that many plants have ramped up production.  Whatever the EPA’s final decision is regarding the Ethanol Mandate one important fact to remember is, the mandate is a FLOOR not a CEILING for production.  So as long as the profit margins remain intact many analysts believe we will not see a reduction in corn bushels used for this purpose.  Some plants have seen shortages in rail cars which have created a spike in the price of ethanol, over the past 3 weeks the December price has gone from $1.60 to $2.10, there was a key reversal at the end of last week, which won’t support the market if it continues. 

Weather in South America remains beneficial for crops at this time.  Brazil’s record soybean crop may be at risk according to the Agriculture Ministry which has issued a State of Emergency in the Mato Grasso region due to an infestation of caterpillars.  The infestation has devastated some crops and is likely to cause production costs to rise as more pesticide applications will be needed.

 

Export demand continues to be strong for the week ending 11/21.  Corn shipments totaled 30.2 million bushels, 2 million bushels more than needed to meet the yearly USDA goals.  Soybeans were also positive, totaling 3 times the amount needed.  The cattle on feed report did not offer as supportive news.  Cattle on feed sit at 94% of the volume from just one year earlier, which puts it at the smallest number since November, 1996.  Placements are at 110% of last year but this offers little to be excited about since this was the 2nd lowest amount of cattle entering feed lots since the records have been kept.  Fund buying has been supporting the grain market today.  Over the past month funds have bought 30,000 corn contracts and 12,000 soybeans contracts.    What the funds will decide to do with these contracts at year-end remains to be seen.

 

CROP INSURANCE

Please have all notices of loss in to us by December 1st so we can send them in on time.  Please work on turning in your production totals as soon as possible also.

 

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