When to market 2011 grain
FORT DODGE – The trick to marketing new crop grain in a high market is to understand what a good price is.
This was the message Tuesday stated by Dan Greder, a marketing adviser for Sciota Trading, of Ames, during a two-hour seminar at Iowa Central Community College.
In a high market as producers are looking at now, Greder said, the difficult part is knowing if the price has peaked or will it suddenly fall? How much to sell? How much should one hold back?
“These are good profitable prices,” Greder said of the current grain prices as March corn closed at $6.44. “But so was $4.”
He said that producers often look at a high price and feel they have to pull the trigger and lock in all of the grain they can at a known profit. However, he recommended following a “scaled up-selling” approach that would release 10 percent of one’s new crop at incremental times – a system that would not require buying large quantities of put options as hedges against prices going even higher.
Greder said producers have to keep their eyes locked in on the endgame of a marketing year, namely the U.S. Department of Agriculture’s estimated ending stocks. That current estimate for Oct. 31 sits at 745 million bushels, a very tight margin. It amounts, he said, to 40 days of world use, the lowest its been since 1995.
Greder told about two dozen producers that if corn producers increased planted corn acres to 92 million acres, up from 88.19 million acres in 2010, and had an average national yield of 165 bushels per acre, it would tally 14.02 billion bushels. The USDA’s estimate of 13.73 billion bushel demand for 2011 grain would then leave ending stocks at 1.04 billion.
“We would add only 95 mb to stocks,” Greder said. “It’s a drop in the bucket.”
And if the national 2011 yield comes in lower, say at 157 bushels/acre, ending stocks are dwindled to 339 mb by Oct. 31, 2012, an 18-day world supply carryover.
However, he said a number of unknowns are still having an impact on when to sell this year’s new crop including whether producers will increase corn acres? Will the anticipated drought by Iowa State University climatologist Elwynn Taylor occur this year? Will China start buying U.S. corn? Is the USDA’s export demand estimate too high? Will ethanol demand on corn continue? What impact will South America’s lack of expanding acres have?
“How many here expect at least one weather panic this year?” he asked the room. After the world lost 800 million corn bushels to weather, much of it in Russia and China, weather reports make commodity marketers nervous.
He said a multitude of factors should be considered by producers of new crop corn before selling their grain on the futures market.
Greder reminded his audience how the early USDA crop reports during 2010 estimated a bigger yield and production than actually happened.
Even though producers looked over the crop and said the grain was not there, prices fell as the USDA’s reports were more sanguine.
If that happens in 2011, he advised producers to watch three factors closely in knowing when they should sell a portion of their new crop – weather, acres planted and yields. Three lesser impacts includes the value of the dollar, crude oil prices and the ethanol mandate.
The number of acres planted, compared to 2010, the anticipated yield as affected mostly by weather, compared to 2010, can give producers a good clue as to the ending stocks
If a USDA report looks too good to be true and prices drop, Greder said producers still have an opportunity to make money if they hold back selling their new crop if they know ending stocks will not be substantially increased, or if stocks will be lowered.
Greder recommends the same strategy for soybeans.
With ending stocks estimated at 151 million bushels the U.S. will have to match acres planted with a national average of 45 bushels/acre to break even with new production and demand.
“If we just match the 2010 yield of 42.8 bushels,” Greder said, “stocks will drop to 121 mb because worldwide demand is increasing.”
Next month the guarantee crop insurance prices will be know, Greder said most producers will immediately go to the markets and sell grain based on their guaranteed costs.
He thinks the spring guarantee for soybeans could be as high as $13 per bushel.
However, he said by watching the markets as a scaled up-seller, a producer doesn’t have to rush out to sell grain, because the market is high.
“You can take a structured approach to selling,” Greder said, “and still have the opportunity to make money.”
He said both corn and soybeans prices will be well-supported at least until mid-summer, when the condition of row crops can be assessed compared to acres planted, and how those two factors will affect ending stocks.
Contact Larry Kershner at (515) 573-2141, Ext. 453.
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