corniconLast fall I posted my 2014 post harvest marketing plans. My approach was conservative and, with spring approaching, I thought it would be a good time to share an update on my progress.

Corn: Carrying charges were large at harvest and I like selling large carries. In late October, cash corn prices were 55 cents under the nearby December corn futures contract. The carry to the Jul’15 contract was nearly 30 cents. In other words, the harvest basis for corn was 85 cents under the July contract – I sold the carry with expectations of the basis narrowing to 30 cents under by May or June of this year. Recently, the basis for corn has been quite strong, despite ample stocks in the country. Today, the basis for corn is trading at 30 cents under the May contract, or 36 cents under the July – just 6 cents from my target. I am reasonably confident of reaching my target in the next several months.

Soybeans: Carrying charges in the soybean market were also modestly large, and I chose to sell the carry (store soybeans and sell the May futures contract). At harvest, the cash price of soybeans in Southern Minnesota was 98 cents under the May contract. Like corn, I thought an expectation of 30 cents under the May was a reasonable objective. Currently, the soybean price is at 60 cents under the May contract, and the prospects for 30 cents under by the end of April are slim.

I also chose to hold some bushels unpriced and I met my price objectives in the late fall price rally, making two small sales at $9.74 and $9.82/bu.

HRS Wheat: At harvest in August, carrying charges were also large in the wheat market (Do you sense a common theme in all three markets? Large crops lead to low prices and large carrying charges.) Late last summer, wheat prices were 30 cents under the nearby September contract and 64 cents under the Jul’15 wheat contract. I sold the July contract and set ambitious sights on a 0 basis (option price the July contract) by spring. We are almost there – wheat in the Red River Valley is trading at option price the May contract, or 6 cents under the July. I am confident of reaching my original objective in the next 2-3 months.

In summary, the basis gains in corn and wheat have been quite impressive. Soybeans, on the other hand, are lagging behind. This should not be too surprising, as we are dealing with the largest soybean stocks in a decade.

Corn 2015 Pre-Harvest PlanThe bad blogger returns.

My pre-harvest marketing plans were written over two months ago, but I have yet to post them (check here soon). Why the lack of urgency? New crop pricing opportunities for corn, soybeans and HRS wheat remain quite a bit lower than my minimum price objectives for getting started. Hence, no action.

This is the first time in 14 years that I have written pre-harvest marketing plans with minimum prices less than production costs (and they are just modestly below costs). Why now? The production and sale of grain should be about maximizing profits, but commodity markets can be cruel. When markets are down, it may help to focus on minimizing losses.

As February comes to a close, my attention is shifting towards spring, and the onset of the “too-too” season. I am banking on a spring or early summer rally in prices to give me (and you) the chance to get started on pricing 2015 crops at prices better than what we have seen over the past 3 months.

HRS Wheat 2015 Pre Harvest PlanCan I guarantee better opportunities? Of course not. But I am hoping for the best.

 

Soybeans 2015 Pre Harvest Plan

 

 

 

Posted by: usset001 | December 26, 2014

Five Common Mistakes in Grain Marketing

Ed in NEOn December 18, I has the opportunity to speak at the Nebraska Soybean Day in Wahoo. My topic was Five Common Mistakes in Grain Marketing and over 200 good Nebraska soybean producers crowded into the Ag Pavilion at the Saunders County Fairgrounds to hear me speak (equipment displays and lunch provided by The Pancake Man may have drawn a few people too). Here a link to a television interview I did with Jeff Wilkerson of Market Journal, a production of the University of Nebraska.

The winter season of travel and speaking has just begun!

Posted by: usset001 | October 17, 2014

Ten open games added to Commodity Challenge

Commodity-ChallengeEarlier today I created 10 new games on Commodity Challenge (www.commoditychallenge.com). Commodity Challenge is an online trading game that features real-time cash, futures and options quotes for grain markets. With harvest in full swing, I thought it was time to create a number of new games – spread throughout the Corn Belt – and give more people the chance to test their skills as a grain seller, or as a grain buyer. Four of the 10 games are buying games, where the player tries to minimize their cost of feed (corn).

It is quite common for our CC open games to attract 100-300 players from every corner of the U.S. Give it a try and see if you can compete!

Here are the six new sellers games…

Illinois 2014 soybean open, Ohio 2014 soybean open, North Dakota 2014 soybean open, Iowa 2014 corn open, Indiana 2014 corn open, Kansas 2014 corn open

Here are the four new buyers games…

Oklahoma 2014 feed buyer game, Texas 2014 feed buyer game, Colorado 2014 feed buyer game, Missouri 2014 feed buyer game

Posted by: usset001 | August 27, 2014

Is the slump in grain prices here for the long term?

Demand DriversI received an interesting question this morning that asked for my longer-term opinion of the grain markets.

Question: I enjoy your articles. Do you think the slump in grain prices is a long term thing or more a temporary thing? I have finally made some money these years of the good prices and don’t want to risk losing what I gained with several years of low prices and these high expenses. I realize nobody knows the future but I would appreciate any thoughts or help you could give me.

My response: I am happy to share my opinion but keep in mind that my opinion and $5 will buy you a latte just about anywhere in the Twin Cities.

I think the last seven years (2007-2013) were extraordinary years for grain production and profitability, and it is unrealistic to assume that “extraordinary” would continue indefinitely. The grain complex was headed for a downturn in 2012, but the drought postponed the fall. In corn, ethanol demand has been the biggest story in the past two decades but look close and you will see that ethanol demand for corn has flattened out in the past four years. In soybeans, growing Chinese imports have mirrored the ethanol/corn story and have yet to flatten out. That said, take a look at today’s WSJ, with a large story on growing Chinese grain stocks.

My view of the last seven years is that disruptively fast growing demand has been the spark that created these extraordinary years. That spark has flattened in corn and may be in question in the soybean market. I think producers should make plans based on more “normal” returns to grain production and prepare for the possibility of several years of below normal returns.

My opinion is a bit of a downer but you can take heart in the fact that I have been wrong (many times!) before. Good luck harvesting your grain – I hope you have a great crop.

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!

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