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BRIAN HOOPS

By Staff | Aug 14, 2015

Cutting crop costs

According to the University of Illinois, current cash bids for 2016 delivery are $3.70 for corn and $8.70 for soybeans. At those current bids, net farmer income would be -$124 per acre without the $100 of cost cuts, given a split of 50 percent corn and 50 percent soybeans.

With the $100 of cost cuts, net incomes would be -$24 per acre. Even after $100 of cost cuts, incomes would be negative given fall delivery bids, pointing to the risks that exist if costs are not cut.

If non-land costs are to decrease by a significant amount, cost reductions must occur from fertilizer, seed, pesticides, and machinery depreciation.

Large cuts in costs will be difficult. However, profitability in 2016 likely depends on making these cost cuts.

According to the American Farm Bureau, last week’s Agricultural Prices report, indicated the index of prices received for crop production was down 11 percentage points from the same time last year, while the prices-paid index was unchanged.

The situation for corn and soybeans is even more telling, with corn prices down by more than 20 percent from last year and soybeans off nearly a third.

A report last week by the University of Illinois’ Dr. Gary Schnitkey suggested farmers will need to look at four areas in the months and possibly years ahead.

These include reducing machinery purchases, closely managing seed, fertilizer and chemical costs, trying to negotiate lower cash rents and reducing family living withdrawals from the farm.

Cargill profits drop

Cargill Inc., the largest closely held company in the U.S., posted a $51 million loss for the fiscal fourth-quarter amid weakness in emerging markets.

The loss for the three months through May compared with net income of $376 million a year earlier, the Minneapolis-based company said in a statement.

Sales declined to $28.4 billion from $36.2 billion. The company said that while its four business segments were profitable, it took a write down on its enterprise resource planning system and there was also a charge related to Venezuela’s currency.

The company “did not meet our own expectations,” said David MacLennan, Cargill’s chief executive officer, in the statement. “The economic environment remains sluggish in many emerging markets where we have invested significantly over the past several years.”

CORN ANALYSIS

Corn closed the week 2.5 cents higher.

Last week, private exporters did not report any sales.

Weekly export sales showed corn sales were 11 million bushels for both old and new crop. New crop sales are 40 percent behind last year’s sales pace.

In the weekly crop progress and conditions report, USDA reported corn conditions fell 1 percent from the previous week at 70 percent good-to-excellent.

While the trade was looking for a small improvement, this year’s crop is only rated 3 percent less than last year’s record setting crop.

Corn silking is 90 percent complete. Minnesota’s crop is rated 87 percent g/e, the third highest on record, while the crop in Illinois lost 1 percent to 56 percent g/e.

Iowa is rated 83 percent, Nebraska 75 percent and Indiana is 47 percent.

If weather would turn hot and dry in the final kernel-filling stage, we would have one final rally this summer. Weather must turn adverse before Aug. 25 as after this date, our key yield development time will be over.

On the flip side, an early frost during the kernel-filling stage would also send prices higher as a killing frost could potentially hurt yields.

The commodity funds have a net long of over 241,000 contracts and unless weather does turn adverse prior to Aug. 25, expect the funds to trim net long positions as the market prepares for harvest this fall.

Typical rallies in late summer are 30 to 50 cents, which would be an excellent opportunity to make additional catch up sales if given the opportunity on production that can not be stored at harvest.

Seasonals show a small rally during the August timeframe, before turning lower as harvest begins in September.

Strategy and outlook: Producers are:

  • 100 percent sold of the 2014/15 crop.
  • Re-owned 50 percent with September calls, liquidate now.
  • Sold 50 percent of 2015 production and own December puts on balance of production.
  • Sold 20 percent of 2016 crop.

SOYBEANS ANALYSIS

Soybeans closed the week 24.25 cents higher.

Last week, private exporters reported sales of 264,000 metric tons of beans to China for the 2015/16 marketing year.

Weekly export sales of soybeans totaled 37.6 mb. New crop sales are 47 percent behind last year’s sales and the slowest pace since 2008.

The weekly crop progress report showed soybean crop rating improved 1 percent to 63 percent g/ e and is down 8 percent from last year.

Pod-setting is at 54 percent nationwide versus 49 percent on average.

Iowa is rated 79 percent g/e, Minnesota 81 percent, Nebraska 73 percent, while Illinois is 50 percent and Indiana is 43 percent.

From Aug. 20 to Aug. 30, soybeans will have completely filled the pod, and seasonal highs will be in.

Beans need moisture in the pod-setting stage to achieve normal yields and forecasts into early August are for cool and wet conditions.

However, hot and dry conditions will force moisture to the root system, leaving the bean in the pod to develop small.

The soyoil content is what suffers most, leaving bean oil undervalued if hot and dry conditions set in across the Midwest.

Commercials are bullish to soybean oil.

Seasonally, soybeans post lows in the month of August in the first half of the month and rally into Labor Day where the highs will be formed before harvest pressure weighs on the

market.

Strategy and outlook: Producers are:

  • Sold 100 percent of 2014/15 production.
  • Sold 50 percent of 2015/16 production.
  • Own November puts on balance of production.
  • Sold 20 percent of 2016 November.

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.

Brian Hoops can be reached at (605) 660-1155.

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