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Analyst:?More volatility likely ahead

By Staff | Feb 13, 2013

“We’re still dealing with tight ending stocks and that creates a possibility of bullish volatility.” —Nick Mueller Senior market adviser for Stewart-Petersen

By LARRY KERSHNER

kersh@farm-news.com

DES MOINES – Sounding more like a doom-and-gloom prophet than a grain analyst, Nick Mueller, a senior market adviser for Stewart-Petersen, based in West Bend, Wis., told an audience on Jan. 26 at the Iowa Power Farming Show that the 2013 growing season looks like an iffy proposition.

His one-liners include:

  • “It’s scary being this dry going into spring.”
  • “It’s a stretch to think we’ll hit trendline yields (in 2013).”
  • “The world stocks-to-use ration is the lowest it’s ever been.”
  • “For the first time ever, world (food) demand is outstripping what the world can produce.”

Mueller said the January supply and demand report from the U.S. Department of Agriculture was not as bullish as analysts were expecting, even though the report expects the current marketing year, which ends Aug. 31, would show less than 500 million bushels of corn in the U.S. larder – less than 6 percent of the total supply. In February, USDA would increase the carryout by 30 mb to 632 mb.

The world ending corn stocks, according to USDA in January, was estimated to close the marketing year with about 85 million metric tons, which is less than 14 percent of the world supply.

Although analysts were actually expecting smaller stock-to-use numbers, “we’re still dealing with tight ending stocks,” Mueller said, “and that creates a possibility of bullish volatility.”

Although USDA’s supply and demand report will alter its numbers each month, Mueller told producers if they “just look at ending stocks,” he said, “you can predict the fundamentals.

“The stocks-to-use number indicates the actual demand.”

Although the market constantly seeks an equilibrium, Mueller said the strangeness of the current market with its high prices, despite slumping demand “is showing that prices are not slowing the demand as they should.”

But to keep above the profit line, Mueller recommended producers keep their cash position solid. “Even if the price is falling, make sales in 5 and 10 percent increments,” he said,” because the next price shift could be lower.”

Concerning soybeans, ending stocks are estimated to be just 4 percent of the 2012 crop.

As for 2013 marketing, Mueller expects soybeans will work down to a breakeven level in the current cycle.

“But they won’t stay there long before springing back up.”

2013 outlook

If the drought, which started in summer 2011 to present continues, Mueller said, producers can easily expect to see corn break into the $8 range this year. Although some climatologists have since indicated that a wet spring is possible, still, much of the western Corn Belt is in extreme drought and the central Corn Belt is severe drought.

Mueller expects that if there is moisture for planting, timely rains throughout the growing season will be the key factor to final yields this fall.

“There’s a bullish case for 2013,” he said.

At the same time, if farmers plant 99 million acres of corn this year, and supply continues to outstrip demand and decent yields are harvested, watch for the bottom to drop out of the futures market quickly.

If that happens, he said, producers should continue with small sales of old crop using fixed risk ownership.

At the same time, they should sell the value of their new crop. He recommended producers assume normal weather and secure a profitable price floor.

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