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Marketing ahead: choosing the lesser of two evils

By Staff | Sep 4, 2018

By KAREN SCHWALLER

kschwaller@evertek.net

For the most part, growing the grains is the easy part.

The hard part is what comes afterwards; getting it all marketed.

Angie Setzer, vice president of grains for Citizens LLC, of Charlotte, Michigan, said this year’s strategy might be best summed up by considering whatever is the “lesser of two evils” in these days of depressed grain markets.

Corn

Setzer, of Algona, said June brought the “perfect storm” with tariff issues and word that trade wars were erupting around the globe.

“Having those issues arrive has been a negative headwind to corn, even if weather hadn’t been viewed as exceptionally supportive,” said Setzer, adding that rainfall effected most of the Corn Belt over Memorial Day weekend and into June, resulting in probable yield reductions from expected record highs.

“With all the talk of record high yields and crop conditions, it made it really easy for sellers to come in to the market and push prices down to levels not typically seen until later on in the year.”

She added that some price recovery has occurred since lower yields are now predicted from some areas experiencing pollination issues, along with a dry July. Additionally, some areas experienced delayed planting and now are ahead in crop maturity due to the heat experienced in June and early July.

Yield estimates are beginning fall back, but she added even with trade disputes around the world, the U.S. is really the only supplier of corn in the marketplace.

“You put the U.S. and China together and we have two-thirds of the world’s corn on hand,” said Setzer. “…and the Chinese supplies are not coming into the global pipeline. We’re starting to see extreme interest in purchasing new crop corn. We’re seeing export for old crop corn outpace USDA estimates, and that demand is driving this market a little higher.”

Going into fall, Setzer sees the corn market being exceptionally supported, depending on yield and whether or not the USDA comes up with a yield above 178 bu/acre in the August report.

“I haven’t felt like we needed to be in a hurry to liquidate supplies, but it’s important for growers to recognize that a 35- to 40-cent rally is good in any type of depressed market,” she said, “but especially if they have old crop supplies to sell, or know they need to make new crop sales due to space or cash flow needs.”

She added that producers with home storage might do well to have some targets in place ($3.90 to $4.00 futures on the December contract or $3.50 cash, for instance) for selling purposes. She thinks prices are going to remain steady for now, since there is no real pressure to get rid of old crop corn reserves.

Additionally, Setzer said producers holding on to old crop grain are wise to put a crop bid in that is 10 to 15 cents higher than current trading prices, and that “waiting for a couple of cents” is not a good approach to marketing.

“If you know you need to make sales and the current price is OK, starting to sell some is OK, especially if you need to catch up,” she said.

By her estimates, there is more commercially-owned old crop corn in the reserves than producer-owned, and many elevators will be carrying corn into the new crop year because they may not need the room or think their trade territory yields will be lower. Setzer said that can be huge for elevators because they could make another quarter per bushel by waiting to move that grain until January.

Producers with Sept. 1 deadlines for selling or renewing delayed price old corn contracts would be money ahead to sell in order to avoid further costs applied toward their grain.

Setzer also sees corn prices as having some positive direction ahead for the next couple of months.

Soybeans

As expected, Setzer said soybean markets are a “toss-up” because it depends on August production as related to August weather conditions.

“Yield-wise it’s more important in beans because it doesn’t take much production to make the swing from tight to burdensome stocks,” said Setzer, adding that USDA’s estimate of 48 to 48.5 bu/acre most likely lines up with what can realistically be expected.

With trade issues on the table, she expects to see soybean prices remain where they are, at least without any unexpected surprises in overall production.

The same scenario unfolds with old crop soybeans as with old crop corn; it’s probably best to sell them if storing them at home, unless producers are feeling bullish and are sure there will be no further expense involved in storing those soybeans.

“As long as you’re not paying commercial storage and you can do it, it’s OK to sit on them,” Setzer said. “But the reality is, when it comes to old crop beans, you have about a month and a half to make the decision, but I wouldn’t necessarily re-up commercial storage if that were my choice. They’re not the most beautiful price to sell at right now, but sometimes you just have to chalk it up to a loss and move on.”

New crop soybeans are another story, as producers have time to analyze the weather conditions across the soybean belt/corn belt and react. If there is no measurable, extreme precipitation that would result in increased soybean yields nationally, then she said it might be good to retain them for a time and have some target prices in mind.

“I think people will have the opportunity to sell $9 cash beans again at some point between now and January, barring any kind of major production surprise,” said Setzer.

Selling $9 for a bushel of soybeans is no prize with the cost of production, but with the markets as they are, she said the price would be higher than it has been in some time, and that it would be the lesser of two evils to choose the price where fewer dollars are lost.

“You never sell enough when (the market) is falling apart,” she said. “Unfortunately right now there are some tough decisions to be made in soybeans … it all amounts to your own ability to withstand risk for your particular operation. Breaking even isn’t fun, but it’s better than losing money. In soybeans right now, you could flip a coin and guess the price direction as good as anyone else.”

Over the next year, barring any major production surprises, Setzer said producers could see opportunity to sell November 2019 soybeans above $10 again on the futures.

“The problem is that people usually bring their soybeans right to the market at harvest time, so they have until Oct. 31 to make a decision,” she said, “and it’s hard to do right now because there is such a lack of information.”

“There are bullish factors, but too many unknowns right now.”

Setzer said producers would be wise to aim for a $9 cash price target, which she said would involve much upside movement, considering the weak basis as of late.

“If we start to see rain develop and perhaps a wetter long-term forecast, maybe adjust that to $8.50 or so, but I think we’ll see some strength returning to beans and give us some additional selling opportunities,” she said, adding producers will need to make their good fields carry the weight of the fields that may have been lost this production season.

“You always want to make every bushel count but it’s so much more imperative in years when yields are down from what we’ve become accustomed to,” she said. “It’s important to know there are ways you can try to enhance your approach to marketing and add value to your grains that you may not have used prior to a year like this.”

Above all, Setzer encourages producers to get to know their grain buyers so they can establish a good relationship and, together, help make the best decisions for each individual operation. If not the buyer or someone at a local co-op, she suggested seeking out like-minded people in person or on social media. She often uses Twitter to see what others are thinking.

“If you’re working with a buyer whom you think is not looking out for your best interest, it’s 2018; it’s time to find someone who is,” she said.

As far as trade goes, Setzer said while the tariff issue with China is important, it should not be impacting the day-to-day situation as it is because the U.S. is seeing “exceptional demand” from other buyers for soybeans.

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