In late 2013, Iowa State University ran an analysis of the estimated costs of production in Iowa for 2014.
Its analysis was eye-opening.
While some of the assumptions are subject to interpretation and not practical in a real farming environment, it used a 200-bushel yield for corn following soybeans.
ISU estimated the total cost per acre at $848.36 and total cost per bushel at $4.24.
Corn following corn increases the cost even more.
Using a 185 bushel-per-acre yield, the estimated cost per acre is $896.10 and total cost per bushel is $4.84.
Current December corn futures are around $4.50.
This is a board price and doesn’t figure in the basis, which figures to be wider than previous years, due to increased supplies as end users will not need to tighten basis
to attract inventory.
This puts farmers in a precarious position this spring. Prices are already below most producers’ breakeven levels, given a normal harvest basis.
This means that any rallies above the cost of production are likely to find selling interest.
If a rally doesn’t occur this year, many producers will feel the negative effects of over-production.
Corn closed the week 5.5 cents higher.
Last week, private exporters reported corn sales of 246,888 metric tons of corn to an unknown destination, as well as sales of 220,000 mt to Spain.
Weekly export sales of corn showed a total of 72.4 mb, the highest in three years and well above the 7.9 mb needed each week to reach the USDA forecast.
Total annual exports total of 1.255 billion bushels are double the rate of last year’s exports.
USDA’s export forecast of 1.45 bb looks to be raised in the future.
With supply now finalized and indications of improved demand, the January supply/demand report should mark the low for prices.
The market has found the forecasted short covering and has tried to rally. Producers are advised to use rallies to unload stored production, unless they are willing to gamble on weather uncertainties providing a rally during the summer.
It is expected funds will buy back some short positions ahead of the planting and growing season, allowing corn to have some short-lived rallies.
Many producers are nervous about the upcoming growing season, wanting to get some hedges in place.
Patience this year should provide selling opportunities.
Strategy and outlook: Producers are 100 percent sold of 2013/14 crop.
Producers are 10 percent sold of the 2014/15 crop.
Soybeans closed the week 2.25 cents lower from last week.
Last week, private exporters announced a sale of 183,000 mt of soybeans to an unknown destination.
Weekly export sales of soybeans showed a total of 18.2 mb.
Total export sales of 1.567 bb exceed the USDA forecast of 1.495 bb.
The weekly charts show an interesting pattern developing. A triangle or wedge pattern is visible, indicating the market will eventually break out of this pattern and a large move will follow.
This chart pattern is similar to the one found on cattle charts, that led to a major bullish rally.
Producers should be prepared to act according to whichever way the market moves.
A bullish breakout occurs at $13.35 and a bearish one at $12.37.
Oil World pegged Brazil production at 89.5 million metric tons, Argentina at 54.5 mmt and world production up slightly to 287.8 mmt.
Strategy and outlook: Producers are 100 percent sold of the 2013/14 crop.
Producers are 10 percent sold of 2014/15 production. Sell 10 percent at $12.10.
This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solution’s Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such.
Brian Hoops can be reached at (605) 660-1155.
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