Price Action and Outlook - Monday, 14 July 2014

Last Friday the USDA released the latest WASDE numbers and surprised the trade with reductions to corn and soybean demand. 

SOYBEANS

  • The harvested acres estimate for new crop increased from 80.5 million acres to 84.1 since the report last month. 
  • The anticipated yield estimate was left unchanged at 45.2 bushels per acre.  The trade expects that number will grow closer to 46 bushels per acre due to ideal growing conditions.
  • Export demand increased by 20 million bushels and domestic crush numbers also increased by 25 million bushels.  Those two increases weren’t enough though to offset the increased number of old crop soybeans found by the USDA.

New crop soybeans prices have dropped by more than $2.00 per bushel since the high on May 22nd of $12.79.  Based on the “traditional” ratio scale of 2.5 to 1 for corn and soybeans a corn price of $3.50 per bushel would equate to a soybean price around $8.75 per bushel.  South America is also sitting with an 8-10 MMT’s of soybeans to compete against U.S. soybean exports in the upcoming months.

 

CORN

  • Global ending stocks were raised to 188 MMT’s (3.5 MMT higher than previously thought).  This puts the stocks to levels not seen in 14 years.  Increases were also made to Brazil’s crop increasing it by 2 MMT’s to 78 MMT.
  • Corn used for feed usage was also reduced.  Old crop demand for feed was decreased by 125 million bushels and new crop was also decreased by 50 million bushels.
  • Corn used for ethanol was increased by 25 million bushels.
  • The anticipated yield estimate was unchanged at 165.3 bushels per acre which many traders believe may be too conservative due to nearly perfect growing conditions.

New crop corn has fallen from a high on May 9th of $5.14 by over $1.30.  The trade expects the USDA won’t have a choice but to increase their yield estimates for the report on August 11th.  If the trade raises the estimated yield to 168-172 bushels, we could be looking at 14 billion bushels raised this season to add on top of the 2 billion bushel surplus already on hand. 

Unfortunately, data is being collected and calculated regarding available storage in comparison to expected yields.  These figures indicate that Illinois and Indiana are going to see a lack of available storage at levels not seen in 6 years.  Iowa is expected to have enough storage but also see inventory levels that are the tightest since 2007.  This information may convince buyers to hold off on paying basis premiums to producers.

As we know the activity and investment patterns of the Funds is a major factor in our grain price movement.  For several weeks now the Funds have been liquidating their long positions and appear now to be adding to their short positions.  The Funds purchase contracts based on several factors but until the there is significant information to change the over-all outlook the attitude is likely to remain negative.

With all of the negative news and plummeting prices some important decisions need to be made and conversations need to happen in order to stay profitable.  It is more important than ever to protect every potential bushel in your field.  I found this an important and interesting fact when dealing psychologically with the lower prices we are seeing now: 

 

A 30% drop in price from $5.00 puts the corn price at $3.50 BUT if you can increase your yield from 150 bu/acre up to 195 bu/acre you have still attained the same income.  An Ag economist from the University of Illinois, Gary Schnitkey, predicts farmland rents will begins a “three year adjustment process beginning in 2015.  He expects that Illinois will see rents drop by a total of up to $55.00/acre over the next 3 years bringing the average cash rent price down to $225/acre from the current average price of $280/acre.

The Polar Vortex strikes again!  Temperatures this week are expected to fall across most of the Midwest and Northwest.  A 20-30 degree drop from normal is expected by Tuesday.  This also adds to the price pressure since many regions around the U.S. are tasseling now in a stress free environment.

Sheila and Pam will be out of the office and unavailable for questions on crop insurance from July 21-July 25.  If you have weather related claims to turn in or need immediate assistance on crop insurance matters, please call Tammy Makela (RCIS) at 763-323-2256 or tammy.makela@rcis.com  if you are a customer of RCIS.  If you are a customer of NAU please call 888-784-4483 and ask for Robbie Fleener or Robbie.fleener@naucountry.com  these two are our Ag Performance underwriters.  If they cannot answer your questions, they will find someone that can.

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