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November 2013 Archive for From the Editor

RSS By: Brian Grete, Pro Farmer

Pro Farmer Editor Brian Grete takes time to talk with Pro Farmer Members about some of the key issues in each week's Pro Farmer newsletter.

Stuck with give-and-take markets.

Nov 27, 2013

Hello Pro Farmer Members!

Happy Thanksgiving!

I'll admit, it's one of my favorite holidays. Thanksgiving means Iowa's gun season for deer is right around the corner and my family (immediate and extended) has some of the best cooks in the country, so the food is old-country and awesome!

But that's just the surface of Thanksgiving. What, of course, makes Thanksgiving a top-two or top-three holiday on my list is what it stands for - a time to give thanks to God for everything we have. And to be reminded that we come second. I'm sure you've heard or seen the Duck Dynasty bunch - the goofy bunch of redneck duck-call makers from West Monroe, Louisiana. (That's how they describe themselves.) You've probably also heard that Phil Robertson (the founder of the family's duck call empire) was the starting quarterback at Louisiana Tech University ahead of Terry Bradshaw and Robertson gave up the starting role so he could focus on what he really loves to do in the fall... hunt ducks.

The story of Phil Robertson and his wife Kay, however, is a lot more interesting than the building of a duck call business. You can watch why the Robertsons enthusiastically celebrate Thanksgiving here. I, for one, find the story fascinating.

Give-and-Take Markets

Soybean futures made an impressive advance in late trade on Tuesday to get the January contract back to unchanged on the day and to turn momentum back to the upside. That momentum carried over into early trade today and January futures traded to the highest level since Sept. 20. That early upside momentum, however, was erased in late trade today as futures were slammed back into the boundaries of a sideways trading range.

December corn futures were in a grind-it-out rally since posting a low at $4.10 3/4, and challenged resistance near $4.25 in Tuesday's trade before... you guessed it... prices were slammed back into what appears to be a developing sideways trading range between $4.10 and $4.25. From a fundamental view point, that's probably a good thing for now. It will give end-users and importers plenty of opportunity to establish the coverage they need for the winter months.

It's a similar story in December soft red winter wheat futures. After testing resistance near $6.55, the front-month contract dropped back into a $6.30 to $6.55 trading range as U.S. wheat struggles to get competitive in global wheat trade.

Even December hogs seem to be range-bound between $85.50 and $86.50.

But not December cattle futures. An impressive move Tuesday filled the narrow gap between $131.75 and $131.80, triggering a round of aggressive buying in the market today. Now December futures are building in some weather premium, as is deserved with supplies as tight as they are. Any disruption in movement would clearly create a too-tight situation for packers.

This is all part of the demand-building process that's needed every fall. This year, it's especially important for corn and wheat. Corn demand is rebounding nicely with exports running at about twice-the pace of year-ago and ethanol production on a solid pace. Wheat demand, however, still has some work to do to attract the exports it needs to turn prices back to the upside.

But that always seems to be the case with wheat. While countries around the globe undercut our price, the U.S. bides its time and waits for others' export supplies to run thin. It's almost as if the U.S. is wheat importers security blanket... they buy up other supplier's stocks knowing the U.S. will have some wheat left when stocks start running tight.
 

 

That's it for now...

... again... have a great Thanksgiving!

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

Are the bears running out of ammo?

Nov 15, 2013

Hello Pro Farmer Members!

Whew... I'm glad we got that out of the way!
 

The last two Fridays have been very important for corn market bears. The bears fired about every round they've got in the magazine at the corn market with a big increase to the national average corn yield from USDA's NASS last Friday and a cut to the implied corn-based ethanol use mandate today.

What have you got left?

That's what I thought... not much.

I'm not saying corn prices have posted a harvest low and are now set to rise through the winter months. But I am saying corn market bears are just about out of ammo. The market had to wait while about three-quarters of the 2013 corn crop was harvested between crop estimates from NASS, all the while listening to talk of "bigger-than-expected" corn yields.

Then during the government shutdown, a draft proposal from EPA was leaked. In it was a proposal that the 2014 corn-based ethanol use mandate would be cut about 1.4 billion gallons from RFS levels to about 13 billion gallons. And that's what EPA delivered today.

I guess maybe the next round might be that PEDV with threaten to dramatically reduce corn-for-feed use.

Okay... I'm joking around a bit here and not nearly as "frustrated" as that might sound. But the reality of the situation is that corn market bears have fired about everything they can at the market. Today's EPA RFS proposal will probably be enough to force December futures back down to test the Nov. 8 low at $4.15 1/2. And that low should be tested before it's confirmed as "the" harvest low. After markets have trended in the same direction for a long period of time, it is unusual for a low (or a high) to be posted with a "spike," which is what the Nov. 8 low looks like on the daily chart. To confirm the low, it will need to be tested at least once and probably several times.

And... unfortunately, that can take weeks... even months.

We didn't get a chance to cover this in this week's Pro Farmer, but Informa Economic, Inc., reportedly projected a 2014 corn crop of about 13.7 billion bushels this morning. That's if the consulting firm's 2014 corn plantings projection of 91.5 million acres is right. That's a cut in corn acres from 95.3 million planted in 2013. Or, a more accurate way to look at it might be that it's a cut from intentions to plant 97.3 million acres to corn in 2013.

In other words, the corn market built up supplies and, if Informa is right, is already responding to market incentives (or disincentives) to constrain supplies in the year ahead. Again... if Informa is right, that new supply probably wouldn't add much to 2014-15 corn carryover, suggesting a stabilization of the market.
 

 

That's it for now...

 

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

We've got to 'trust the numbers'

Nov 08, 2013

Hello Pro Farmer Members!

I'll admit... I felt sick this morning when USDA put the national average corn yield at 160.4 bu. per acre. Not because the yield came in well above our Aug. 23 estimate of 154.1 bu. per acre, but because I've got a suspicion where the national average yield for this year will end up. And that's at 161.5 bu. per acre for a national average yield.

The other thing that frustrates me about the current USDA yield is that the number was right in front of us back on Aug. 22 when we put together our crop estimates following the Pro Farmer Midwest Crop Tour.

Many of you might remember that we changed the yield calculation used on the Crop Tour a few years back. We did that because the "new" (which we refer to as the "standard") calculation was, on average, closer to reality in estimating the state-by-state yield pegs. And, just as importantly, when all the corn yield samples are dumped into one spreadsheet (about 1,340 samples in 2013), the average "all-sample" yield is above the national average yield for any given year. And when pulling samples from Ohio, Indiana, Illinois, Iowa, Minnesota, South Dakota and Nebraska, the average yield calculated should be above USDA's national average yield.

The "old" yield calculation (which we refer to as the "adjusted" calculation) always generated yield estimates that appeared too low. And, in reality, they were too low. When pulling samples from those seven states, the average all-sample yield should not be below the eventual national average yield. (As a side note, the "adjusted" yield calculation attempts to adjust kernel size based on the number of kernel rows around the ear.)

You've probably already noticed my frustration - the "standard" calculation is typically above the eventual national average yield... the "adjusted" calculation is typically below the eventual national average yield. Therefore, the average of the "standard" and "adjusted" calculated yields should give us something pretty close to the eventual average yield. It doesn't always work... nothing "always" works when estimating a national average corn yield in the third week of August. But, it works pretty good.

Below is a table of how the average of the "standard" and "adjusted" all-sample calculated average yield ("Avg. Crop Tour Yield) compares to USDA's August 1 estimates and final estimates.

Year
Corn Yield
Avg. Crop
Tour Yield
USDA Aug. 1
USDA Final
Avg. Crop Tour missed by
2006
145.5
152.2
149.1
3.6
2007
151.4
152.8
150.7
0.7
2008
154.3
 
155.0
153.9
0.4
2009
161.7
159.5
164.7
3.0
2010
159.6
165.0
152.8
6.8
2011
152.0
153.0
147.2
4.8
2012
123.4
123.4
123.4
0
2013
161.5
154.4
???.?
?.?

2006: Average all-sample yield was 3.6 bu. too low, but it pointed the yield in the right direction from USDA's August 1 estimate.

2007: Again, it pointed the yield in the right direction from USDA's Aug. 1 yield and ended up just 0.7 bu. above USDA's final yield estimate.

2008: A good performance... missed it by just 0.4 bu. per acre and pointed the trend in the right direction from USDA's Aug. 1 estimate.

2009: Missed the final yield by 3 bu., but pointed the trend in the right direction from USDA's Aug. 1 yield estimate.

2010: Poor finish on this crop... the Crop Tour all-sample average was too high by 6.8 bu. per acre. But it worked as a big warning that USDA's Aug. 1 estimate was way too high as the average of the standard and adjusted calculated yields was 5.4 bu. below USDA's Aug. 1 estimate.

2011: We saw the same crop USDA did in 2011... the average of the standard and adjusted yield calculations was just 1 bu. below USDA's Aug. 1 estimate and it pointed the trend in the right direction and ended up 4.8 bu. above the final yield from USDA.

2012: See what happens when you use this process on the most mature crop we've ever seen in 21 years of running the Crop Tour? That's scary.

2013: The average of the standard and adjusted yield calculation was 7.1 bu. above USDA's Aug. 1 estimate. As of this morning's report, the average of the standard and adjusted yield calculation is 1.1 bu. above USDA's current yield estimate.

That's where my frustration lies. We "had" the national average yield, but couldn't believe the numbers. We were looking at what was the most immature northern corn crop we've ever seen in 21 years of Crop Tour and "we just knew" there was no way it would finish strong.

And then the crop got the heat it evidently needed in the last week of August and first two weeks of September.

And then it didn't frost until Oct. 20.

And then the Crop Tour data worked... again.

The only good news is we just shortened up the debate that will take place in estimating the 2014 national average corn yield.

Another frustration from this morning's Crop Production Report was that our August estimates on harvested acres was better than our September estimate of harvested acres. Our Aug. 23 corn crop estimate included a harvested acreage tally that was 1.8 million acres below USDA's harvested acreage tally... we adjusted that to a 1.5 million-acre cut after viewing FSA's certified acreage data in September... USDA cut 1.9 million acres from the harvested acreage tally today. On soybeans, we cut 800,000 acres from the harvested tally back in August, then revised it to a 417,000-acre cut... and today USDA lopped 690,000 acres from harvested bean acres.
 

 

That's it for now...

... time to head home and think about this some more. (Trust the numbers... TRUST the numbers... TRUST THE NUMBERS!)

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

Markets have turned me into a 'downer'

Nov 01, 2013

Hello Pro Farmer Members!

Each market day, I record a closing markets report for our friends at AgriTalk... just as I did today. After listening to the report, an AgriTalk producer sent back an e-mail that said something like, "Wow... you were a downer today!"

It was a tough week in the grain markets. Excellent demand for corn and soybeans was no longer rumored, it was confirmed. We also got confirmation of still-shrinking cattle feedlot inventories and there is ongoing concern over lower slaughter hog numbers in the weeks and maybe months ahead due to PEDV.

Still, all the ag markets closed lower except for fractional gains in soft red winter wheat futures and some good gains in soybean oil futures.

Unfortunately, even the markets that did post gains are signs of the overriding negative attitudes in the grain markets. There was some export demand for U.S. soybean oil confirmed this morning, but most of the strength in the soyoil market is likely tied to the liquidation of long-meal/short-oil spreads. Spreaders love to be long-meal and short-oil when there is a chance of a meal-led rally in the soy complex, but even spreaders seemed to have given up on the chance for stronger prices in the soy complex.

Similar spread action is typical in the wheat market... spreaders have been long hard red winter or hard red spring wheat futures against a hedged (short) position in soft red winter wheat. Today, soft red was slightly higher as spreaders exited those positions, as well.

There are fundamental reasons for the negative attitudes in the ag markets, and one of the biggest today was a sharp rally in the U.S. dollar index, making U.S. products more expensive for importers. Add in the likelihood that USDA will confirm a bulging supply of corn and soybeans in the Nov. 8 Crop Production Report... and it has been a long time since attitudes have been this bearish in the ag markets.

So... yeah... I probably do sound like a downer. That's what happens when everybody seems to be leaning hard on the bear side of the market. And I don't want to sound like I'm a disgruntled "perma-bull." Pro Farmer is, after all, 100% sold on 2013 soybeans in the cash market and heavily sold in wheat. We'd like to have more 2013-crop corn sold, but downside risk in beans and most of the downside risk in wheat is covered... so the negative attitude shouldn't turn me into a "downer."

The reason this week's price action in the grains kind of knocked the wind out of me is because I'm a bit confused why demand -- good demand -- is being ignored. That's especially true for soybeans that are at risk of ending the 2013-14 marketing year with a still-tight carryover. That risk, however, is being overshadowed by expectations that a "big" increase in the national average bean yield will build plenty of a stocks cushion to put 2013-crop soybean carryover closer to 200 million bushels.

That's one reason I can't wait for the Nov. 8 Crop Production Report. Bullish or bearish, it's time to get another crop update from USDA. We feel like we've got a good idea of what will happen with the corn and bean crops (likely higher than estimated in September), but bigger crop estimates are just another "rumor" in the market that has to be confirmed (like strong demand rumors being confirmed Thursday) to put everybody back on "equal footing" to move the market forward.


 

That's it for now...

Follow me on Twitter at @ChipFlory

To join Pro Farmer, click here!

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