Posted by: usset001 | August 20, 2014

Soybean conditions are very good

soybean conditions August 17 2014I’ve been sharing the attached chart with Minnesota producers. They say that a picture is worth a thousand words, but many people are taking the wrong message from this chart. Minnesota producers look at the graph and conclude that soybeans conditions in Minnesota are not good. Wrong conclusion. Soybean conditions in Minnesota – 64% rated good to excellent – are remarkably average. If you look at soybean conditions in the third week of August over the past 10 years, you will find five years better, and 5 years worse, with 64% on average rated good to excellent.

The story in this picture is just how good soybean conditions are in many other key producing states. 78% good to excellent in Illinois and Missouri! Most other top-producing states are at 70% G-E or better.

The crop conditions index for the U.S. soybean crop is at 381 – that is the highest it has ever been at this time of the year since USDA started regularly tracking crop conditions in 1986. (The crop condition index is based on weekly USDA crop ratings. An index of 500 reflects a crop in excellent condition, 400 is good, 300 is fair, 200 is poor and 100 is very poor.)

If we can avoid an early frost or any other unforeseen calamity, we are headed towards a record setting yield.

soybeanfieldIt’s no secret that corn and soybean prices are sharply lower in the past 12 weeks. Corn and soybeans have lost nearly a third of its value since early May. In southern Minnesota, corn that was worth $4.50/bu. in early May is closer to $3.10/bu. today. Soybeans that were worth $14.40/bu. in late May are now worth $10.50/bu. Weather has been favorable and, assuming we don’t have an early frost, the chances are good that prices will stay low through harvest.

I suspect that the favorite marketing ploy at harvest will be to store the grain (as much as possible) and wait for better prices after harvest and into the spring of 2015. So, what are the prospects for higher prices next spring?

My analysis looked at years since 1990, when Minnesota monthly corn prices (as reported by NASS) fell significantly from spring to harvest. By significant, I mean tears when prices fell at least twice as much, on a percentage basis, as a “normal” decline from spring to harvest.

For Minnesota corn, I found 9 years when the price at harvest was at least 17% lower than they were in the previous May (planting season): 1990 (-17%), 1992 (-19%), 1994 (-18%), 1996 (-25%), 1998 (-25%), 1999 (-20%), 2000 (-18%), 2004 (-21%), and 2013 (-24%). For the record, if Minnesota corn prices are at $3.00/bu. at harvest, that will represent a 32% decline from the average price of $4.43/bu. in May – a larger decline than all of the years considered here. What do all of these years have in common (beyond the price decrease)? In each of these years – like 2014 – the corn market was building larger ending stocks.

How did prices behave after harvest in each of these years? Keep in mind that there is a strong seasonal tendency for cash corn prices to rise from October (harvest) to the following May (spring). In Minnesota, the price in May is higher than the previous harvest price in 3 out of 4 years (75%), with an average price increase of 12%. In the nine years cited here – years similar to the current year in terms of building stocks and sharply lower prices – prices increased in 2 of 3 years (67%), but the average increase in price was only 4%. A 4% increase, applied to a $3/bu. price at harvest, has us looking forward to $3.12/bu. corn next spring. Ouch.

For Minnesota soybeans, I found 7 years when the price at harvest was at least 14% lower than they were in the previous May: 1994 (-22%), 1997 (-23%), 1998 (-17%), 2000 (-14%), 2004 (-42%), 2008 (-18%), and 2013 (-16%). If Minnesota soybean prices are at $10.00/bu. at harvest, that will represent a 31% decline from the average price of $14.40/bu. in May – a decline larger than all years except 2004. Again, like corn, in each of these years the soybean market was building larger ending stocks.

How did prices behave after harvest in each of these years? Like corn, there is a strong seasonal tendency for cash soybean prices to rise from October (harvest) to the following May (spring). In Minnesota, the soybean price in May is higher than the previous harvest price in almost 4 out of 5 years (79%), with an average price increase of 13%. In the seven years noted here, prices increased in 4 years (57%), and the average price increase was a mere 3%. A 3% increase, applied to a $10/bu. price at harvest, has us looking forward to $10.30/bu. soybeans next spring. Another ouch.

What are the prospects for higher corn and soybean prices next spring? Not very good.

Posted by: usset001 | July 25, 2014

New HRW Wheat games on Commodity Challenge

Commodity-ChallengeThe winter wheat harvest is rapidly coming to a close. I celebrate by starting 3 new games on Commodity Challenge. The new games are the Kansas HRW Wheat Open, the Nebraska HRW Wheat Open and the Oklahoma HRW Wheat Open. As their titles suggest, these games are open to anyone who wants to test or practice their wheat marketing skills, in a game that uses real-time cash, futures and options quotes. The games will be available from now through early June, 2015.

Commodity Challenge is an on-line trading game, features real time cash, futures and options quotes. Unlike other trading websites, Commodity Challenge highlights marketing decisions and risk management tools, and not speculation. Best of all, it is educational and free!

In order to play Commodity Challenge, you must first register at http://www.commoditychallenge.com. Check the HELP section for how to instructions, but I think most people will find it to be very intuitive. Check the LEARN section for on-line curricula and videos. Once you are registered, you can access the games from their home page. Simply select “FIND A GAME.”

Good luck!

Posted by: usset001 | July 24, 2014

The bear spread in corn

Dec July corn 2014The bear spread takes its name from the tendency for spreads in grain futures markets to widen (positive carrying charges to increase, or inverses to decline) when prices are trending lower. Put another way, as grain prices fall, it is typical for the nearby contracts to fall faster than deferred contracts. For speculators, this tendency gives you two ways to play a bear market. One way is to simply “short” the market, i.e. sell futures contracts. The other way is with an inter-delivery spread, selling the nearby futures contract and buying a deferred futures contract.

A recent example of a bear spread can be seen in the corn market (see charts). Over the past 10 weeks, as Dec’14 corn futures prices declined by nearly $1.40/bu., the Dec’14/Jul’15 spread has widened from 13 cents to over 27 cents/bu. While the tone of the market remains bearish, I don’t expect this spread to widen much more in the weeks ahead – at 27.5 cents it is just about as wide as it can get. I see an outside shot at 28.5-29 cents per bushel but, at this point, I can’t imagine it getting any wider. If you sold December futures to hedge the price of your new crop corn AND you intend to store corn at harvest, you might consider rolling your hedge forward from the Dec’14 contract to the Jul’15 contract, By next spring, you will put that 27.5 cents in your pocket, along with a stronger basis next year.

Posted by: usset001 | July 17, 2014

U.S. corn conditions look very good

US Corn Conditions 2014The latest crop conditions report show a U.S. corn crop in very good condition. Corn conditions are well above the average year and comparable to an average of the four best years since 1990 (1992, 1994, 2004 and 2009, based on yields relative to trend).

Current conditions, as of mid-July, are better than all years going back to 2004 – a great start!

Posted by: usset001 | July 17, 2014

U.S. soybean conditions point to a good crop

US Soybean Conditions 2014Like many grain analysts, I like to track crop conditions and the weekly updates. The latest report indicates that soybean conditions throughout the U.S. are very good relative to the average year. Current conditions are even favorable in comparison to an average of the four best years since 1990 (1992, 1994, 2004 and 2005, based on yields relative to trend).

Before we get too excited, I think we should remind ourselves that the soybean crop has a long ways to go before it is made. Case in point: 2003. Soybean crop conditions at this time in 2003 were nearly as good as current conditions, but August turned dry and the 2003 crop was a poor one. That said, it is noteworthy that current conditions are better than all years going back to 1994, as of mid-July. It’s a great start!

Posted by: usset001 | July 9, 2014

Minnesota spring wheat conditions and yield potential

MN spring wheat yieldsThe Minnesota trend-line yield for spring wheat in 2014 is 52.7 bu./acre (based on a simple linear regression of the last 30 years). Unless we enjoy some sort of miraculous recovery over the next two weeks, the Minnesota wheat crop is heading for yield well below trend. As of July 6, the Minnesota spring wheat crop has a crop conditions index (CCI) of 328 (see my previous post for an explanation of the CCI). This is the 4th lowest CCI recorded for the Minnesota spring wheat crop in early/mid-July since USDA started tracking crop conditions in 1986. Our Minnesota spring wheat crop has had too much rain, and a below average crop is on the horizon.

 
To calculate the Minnesota spring wheat CCI as of July 6, I did the following math…
(5% excellent * 5) + (36% good * 4) +(45% fair *3) + (9% poor * 2) + (5% very poor * 1) = 328

 
MN wheat conditionsConditions as of early/mid-July were worse in 1988 (CCI of 179), 1995 (311) and 2002 (318). Yields in 1988 were disastrous. Yields in 1995 and 2002 were 24% and 26% below trend, respectively. Maybe a better comparison is 1987 and 1999, when the CCI of 328 was almost the same as 2014. 1987 managed to eke out an above average yield, while yields in 1999 were 10% below trend. My best guess for Minnesota wheat yields in 2014 is 40-45 bu./acre corn.

 
For the record, the highest CCI ever recorded for the Minnesota spring wheat crop was 428, recorded in late June, 2003. Minnesota spring wheat yields averaged 58 bu./acre that year, which remains the highest average yield ever posted in Minnesota.

Posted by: usset001 | July 9, 2014

Minnesota soybean conditions and yield potential

MN soybean yields 1984-2014For the current crop year, the Minnesota trend-line yield for soybeans is 43.2 bu./acre in the current crop year. This is based on a simple linear regression of the last 30 years. As of July 6, the Minnesota soybean crop is sporting a crop conditions index (CCI) of 359, somewhat below average for this time of year (see my previous post for an explanation of the CCI). Despite the below average CCI, I’m holding out hope for a trend-line yield for 2014, assuming some favorable growing conditions over the next 4 weeks.

 
To calculate the Minnesota soybean CCI as of July 6, I did the following math…
(8% excellent * 5) + (53% good * 4) +(31% fair *3) + (6% poor * 2) + (2% very poor * 1) = 359

 
MN soybean conditionsAs of early/mid-July, this index has been as low as 269 and 239 in 1988 and 1993, respectively. Unlike corn, a CCI index for soybeans above 400 is uncommon for this time of year, occurring just once (404 CCI in 1994, the first time Minnesota soybean yields averaged 40 bu./acre).

 
For the record, the highest CCI ever recorded for the Minnesota soybean crop was 420, in the late August, 2010. Minnesota soybean yields averaged 45 bu./acre in 2010, the second best yield average ever posted (vs. 45.5 in 2005).

Posted by: usset001 | July 9, 2014

Minnesota corn conditions and yield potential

MN corn yields 1984 2014Based on a simple linear regression of the last 30 years, Minnesota trend-line yield is 175 bu./acre in the current crop year. However, Minnesota corn conditions (CCI of 367 – see below for an explanation) as of July 6 are average, at best, and modestly below average if we focus on conditions over the past decade. My best guess at this point is an average yield of 165-170 bu./acre in Minnesota.
The crop condition index (CCI) is based on weekly USDA crop ratings. It’s a conversion of the crop conditions into a single index. The CCI is calculated as follows…
(% excellent * 5) + (% good * 4) +(% fair * 3) + (% poor * 2) + (% very poor * 1) = CCI
To calculate the Minnesota corn CCI as of July 6, I did the following math…
(14% excellent * 5) + (50% good *4) +(27% fair *3) + (7% poor * 2) + (2% very poor * 1) = 367
MN Corn ConditionsAn index of 500 reflects a crop in excellent condition, 400 is good, 300 is fair, 200 is poor and 100 is very poor. As of early/mid-July, this index has been as low as 230 and 244 in 1988 and 1993, respectively. A CCI index above 400 is not uncommon for this time of year, occurring most recently in 2009 and 2010. The last two years we had a MN CCI index for corn at 367 or lower were 2013 (363) and 2007 (367), and both years ended with below trend yields. However, as recently as 2004, the MN CCI corn index was at 361 in early/mid-July and we ended the year with a new MN yield record (159 bu./acre vs. 151 trend). Conditions today are important, but matter less than growing conditions as they unfold over the next few weeks.

For the record, the highest CCI ever recorded for the Minnesota corn crop was 438, in the last-half of July, 1994. Minnesota corn yields in 1994 set a state record of 142 bu./acre, 15 bushels better than the previous record.

Pipestone MN 11 th commandmentFor producers who still hold 2013 corn or soybeans in storage, you are less than two weeks from breaking the 11th Commandment of Grain Marketing; “Thou shall not hold unpriced corn or soybeans in the bin beyond July 1.”

Two forces are at work here. First is the tendency for new crop futures prices to trade lower during the summer months. Dec’14 corn and Nov’14 soybean futures are off 20 cents/bu. since the start of June. The second force is basis, and the tendency for cash prices to lose ground on futures prices during the summer months.

Like every price tendency in grain markets, the 11th Commandment is not right every year because nothing is 100%. You only have to go back to the summer of 2012 to find an example of rising grain prices during the summer months. On the other hand, it was just last year when cash corn and soybean prices fell $2 and $3/bu., respectively, from early July to harvest.

The accompanying chart of soybean prices in Southwestern Minnesota says it all. Soybeans prices, on average, decline 10% (or more!) from early July to harvest. Spot soybean prices are currently close to the $13.50/bu. mark, with Nov’14 futures pointing to a cash price of $11.00-11.50/bu. at harvest.

The risk/reward trade-off on corn or soybeans in storage does not look good right now. Pay attention to the 11th Commandment of Grain Marketing!

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