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Marketing Hoops

By Staff | Feb 20, 2015

BRIAN HOOPS, president of Midwest Market Solutions Inc., in Storm Lake, presents a marketing outlook on Feb. 13 in Dakota City during a crop insurance meeting, sponsored by AgriPeril Insurance Inc., of Humboldt. Hoops said he was not “doom and gloom” about grain futures, but farmers must manage their risks.

By LARRY KERSHNER

kersh@farm-news.com

DAKOTA CITY – Brian Hoops said he doesn’t see the market is all “doom and gloom” during the 2015-2016 marketing season, but farmers will have to manage their risks.

Hoops offered a market outlook on Feb. 13 in Dakota City during a crop insurance meeting, sponsored by AgriPeril Insurance Inc., of Humboldt.

“There’s a lot of changes in marketing,” Hoops said, “just like farming in general.”

In fact, 80 to 90 percent of futures marketing is done electronically, he said.

“And by July 2, it’ll be 100 percent,” Hoops said. “There will be no more pit trading.”

He said the industry has moved to electronic trades because:

A). It’s more convenient for the producer and the buyer.

B). It’s faster.

C). There’s more money to made by traders, because the sales volume is higher.

But because the volumes are faster, electronic trading builds in its own kind of volatility, with larger price movements, more price risk, but also more profit opportunities with the right kind of risk management skills.

Fundamentals

For corn, Hoops said, the latest U.S. Department of agriculture report shows the 2014 U.S. production at 14.2 billion bushels, with usage at 13.6 bb, and a carryover of 1.87 bb.

Looking ahead, the March 31 planted acres report anticipates farmers will cut 1 to 2 million acres out of corn planting.

If weather outlooks are correct, Hoops said, calling for a wet spring and late-planting woes, there is less than a 25 percent chance of the U.S. producing another record crop, especially if hot and dry weather follows the rainy period.

He said the past shows record crops in 1992, 1994, 2004 and 2008, all followed a year later by poor yields – 1993 rains causing widespread floods, 1994 dropping 25 bushels per acre, 2005 yields down 12.4 bpa and 2009 falling short 11.9 bpa of the previous year.

If the U.S. matches its yield trendline for 2015, with upward to 2 million fewer acres planted, then the supply and demand scenario doesn’t change much in the next marketing year.

“But if we lose 12 bpa in 2015,” Hoops said, “the carryout could be less than 1 billion bushels and we could see $5 corn.”

For soybeans, the current USDA report shows a carryout of 380 million bushels.

If farmers switch corn acres to soybean acres and the U.S. produces an average crop, the carryout in August 2016 could be at 37 mb.

“And that’s a lot,” he said.

Even so, he said, China is buying U.S. soybeans again, even though the South American harvest continues to roll.

He said the U.S. has a better quality of soybeans and can ship them right away, where getting a truck load of soybeans to shipping ports from the Brazilian interior can take days.

“And Brazil has lowered its harvest predictions by 1 million metric tons,” Hoops said, “so I don’t think American futures will be affected.”

He said he expects the average soybean price in 2015 will be between $9 and $11 per bushel.

Marketing plans

Farmers can manage their risk of volatility and protect profitability through a variety of marketing plans, Hoops said. These include:

1). Hedges. Have a plan to sell crop at pre-set price levels and reown old crop at pre-set low price levels. Then write the plan down and work the plan, he said. “Take the emotions out of it.”

2). As cruse oil appears to have hit its bottom and may be recovering, now is the time for locking in spring fuel prices.

3). Diversify. Use a combination of cash sales, hedges, contracts, puts and calls. “Use more than one buyer,” he said.

4). Market to hit profitability. “Don’t try to pick the tops. Sell into the upper 20 percent range.

5). Recognize opportunities, he said. “Buy calls on sold cash positions and buy puts on unsold cash positions.”

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