Grain Marketing Highlights – July 20, 2012

Carl German, Extension Crops Marketing Specialist;

New Crop Corn Pushing Toward Historic $8.00 Mark
New crop Dec ‘12 corn futures may soon hit the $8.00 mark for the first time in history as the nearby Sept ‘12 contract did in overnight e-trade. With weekly crop conditions getting more dismal each week of the growing season, 2012 yield prospects for corn and soybeans continue to decline. On July 11 USDA estimated the U.S. corn yield at 146 bushels per acre, 20 bushels less than the June estimate. U.S. soybean production was estimated at 40.9 bushels per acre in the July report, a reduction of 3.4 bushels from June. Last week’s writing alluded to the idea that these estimates were likely to be too high due to the time lag between when the data is collected and when the report is released. The point being that U.S. crop conditions have not improved since before and after the release of the report. Further, weekly U.S. crop conditions have declined for six weeks in a row as of the release of this week’s report. Even if we see an improvement in crop conditions in next Monday’s report the damage to the U.S. corn crop has already been done.

The 2012 drought is one of the worst the U.S. has experienced from a national perspective since the 1950s, severely impacting a good portion of the Corn Belt states. Only 31 percent of the nation’s corn crop was reported as good to excellent for the week ending July 15 with 53 % reported as fair to poor. Eighteen states accounted for 92 % of the corn crop planted in 2011. National crop conditions for selected states are weighted based on 2011 planted acreage.

Market Strategy
The current situation consists of extreme market volatility. Extreme volatile markets add risks to using different marketing alternatives whether they are futures, options on futures, and/or cash markets. The added risks that are associated to the market greatly limits the opportunities to get any marketing done, although not necessarily impossible. Grain buyers are generally willing to work with producers to make any remaining old crop 2011 sales, 2012 new crop sales, and in some cases initial sales for the 2013 crop. Most grain marketers know what they can or cannot do in regard to making sales decisions. Meaning the individual producer usually knows the alternatives that they prefer to apply to making sales taking the current situation into account. In this kind of market all grain sellers should proceed with caution. Things are changing by the hour in the current market environment.

Currently, there is no carry in the corn, soybean, and SRW wheat markets. This means that the market wants to buy your grain now instead of later. Additionally, new crop corn, and soybean prices are making new life-of-contract highs almost daily. Both are strong indicators to be getting that portion of your crop that you know you are going to have at harvest sold with forward cash contracts and taking spot sales on any remaining old crop sales.

Drought markets are dictated by short crops. Short crops have long tails. This means that prices peak early to curtail demand, possibly before harvest and then tail off for a long period of time. The price peak curtails demand which is currently happening. USDA took 1.055 billion bushels out of projected U.S. corn use for the current marketing year from the June to July 11 supply/demand reports. They also increased beginning stocks by 50 million bushels from June to July. The tail off in price for a long period of time is the market looking to find the equilibrium price that will, hopefully, restore demand. Historically, no two drought markets have peaked at the same time. However, they have generally peaked anywhere from just prior to harvest, during harvest, or even into January. Remember, this year is different in that this drought is thought to be having a bigger impact on a larger portion of crop production areas than previous droughts. U.S. ending stocks for corn and soybeans are expected to drop to extremely low levels. That is why demand has to be rationed. Besides rationing demand, corn imports will be increased. It is rumored that freightliners of corn are now being lined up to bring corn into the Wilmington, NC port from South America.

This market will turn. No one knows just when that will happen. New crop corn prices attempted to make the historic $8.00 mark this morning but have now backed off at mid-day somewhat. If it is thought that demand needs to be rationed more prices will move higher from current levels. Once that task gets accomplished then the price will turn. The weather also weighs into this because it takes significantly less rain to turn the market than to grow the crop. It is important to focus on getting new crop sales done before the market turns. Currently, in e-trade Dec ‘12 corn futures are trading at $7.81; Nov ‘12 soybeans at $16.42; and Sep ‘12 SRW wheat is at $9.18 per bushel.

For technical assistance in making grain marketing decisions contact Carl L. German, Extension Crops Marketing Specialist.

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