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Power Hour: Lock in Margins When Reports Rally Prices

April 4, 2014
By: Ed Clark, Top Producer Business and Issues Editor
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In just weeks, doom-and-gloom harvest forecasts of $3-something corn have reversed course by as much as $1 per bushel. That’s because USDA’s two March 31 reports—bullish for different reasons—sent corn, wheat and soybean futures higher.

"We can take a pretty big crop and still not collapse prices," says Chris Hurt, Purdue University ag economist, during a webinar this week. "These are exciting times for the crop sector."

Behind that newfound optimism is his estimate that corn demand will increase nearly 500 million bushels from USDA’s projection inNovember. In part, he bases that on the recent Grain Stocks report.


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The surge in demand, both in exports and ethanol, has caught nearly everyone by surprise. It should keep 2014/15 corn prices in the $4.50 to $4.75 range, he says. That assumes trend yields of 163 bu./acre. Even in the unlikely event that corn yields reach a record 170 bu./acre, eclipsing an all-time high of 165 bu./acre, new demand would prevent harvest prices from dropping below $4.15 per bushel, Hurt says. On the flip side, poor national yields of 149 bu./acre, would send corn soaring to $5.90 this fall.

Price management still key. It’s not time for sit-on-your-hands marketing, however.

"There are pricing opportunities of corn futures at $5 to $5.20," adds Corinne Alexander, Purdue ag economist. She thinks that level deserves a serious look because the risk premium could evaporate. "When we’re in the world of comfortable inventories and normal crops, in seven out of 10 years, the highest prices are in the March/April/May window," Alexander notes. Once that level of uncertainty subsides and the growing season looks promising, end users no longer are aggressive in paying risk premiums and can be patient for lower prices in the fall.

Moreover, it’s possible some producers who indicated a switch to soybeans in March’s Prospective Plantings report will revert to corn. That’s because the corn price outlook has become more bullish. For example, on March 3, Purdue budgets showed a $51 acre advantage for Indiana soybeans versus corn on average quality land. On April 1, the spread had narrowed to just $12.

"The switch to soybeans may not be as large as anticipated," Hurt says. A shift of 1 million to 2 million crop acres is likely, with corn picking up the lion’s share. Weather could change the equation further, as cold and wet conditions are expected to remain through April.

Another reason to price early is the Ukraine conflict, responsible for a 20- to 30-cent premium in the corn market, Hurt says. If tensions subside, such premiums could do an about-face in a hurry. Other risk factors for lower corn and bean prices include the slowdown in China’s economy, weak soybean crush margins and the PEDV outbreak.

On soybeans, Hurt recommends that producers sell the old crop. Prices have topped $14, the result of a lower carryout and a smaller Brazilian crop. With stocks hovering dangerously close to record low levels, "there clearly could be more upside potential—to as high as $16," he says.

Producers should price new-crop beans, too. "We’re going to make a run, maybe at $12.30, cash beans out of the field at harvest at $12. That looks like a tremendous marketing opportunity at this point."

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