What Producers Need-to-Know Before the Big Report
Jan 11, 2013
As we move one day closer to the big report, I am going to toss my hat in the ring and throw out a few thoughts: First off my "wild-card" guess is that the "old crop" corn supplies are tighter than the trade is thinking on increasing "feed" demand. I really doubt the USDA will do much with the export numbers or the the ethanol numbers despite the trade clamoring for a reduction to the estimates. My hunch is they will simply wait a little longer to see how it all plays out once South America shuts down their corn exports. Globally, I doubt we see much of a change to the corn balance sheet, as any reduction in Argentina will more than likely be offset by gains in Brazil.
I suspect soybeans will also gain a little bullish "old crop" momentum with the USDA more than likely bumping overall domestic crush higher. Not only do I think more meal is being used, but considering the recent approval of the Biodiesel tax there will certainly be some additional demand added to the oil side of the equation. One could certainly argue that the USDA needs to raise exports as well, but with China canceling cargoes and Brazil getting ready to come online I suspect the USDA will wait to see if US exports can gain any attention at all in the months ahead. My gut tells me stronger demand than anticipated will trump a bump in the USDA production estimates.
Wheat seems to be a little tougher nut to crack. On one hand you have increasing acreage concerns, not only here at home but also in other areas of the world. On the flip side you have production concerns in Argentina (where the USDA will more than likely reduce their current estimate), and production concerns coming up here in the US, where the winter wheat crop may experience massive "abandonment." Demand wise exports continue to struggle and we continue to hold out hope for more demand moving forward, but there are simply no guarantees. Lets also keep in mind global wheat feeding has been nothing to write home about. In a nutshell, I guess I have no real clear cut opinion about how the trade will interpret the wheat numbers. I suspect wheat to be fairly "neutral," and therefore, at least temporarily follow the direction of corn, especially if there are no glaring changes in the USDA forecast.
Playing the Report: So what does all of this mean? As a producer, regardless if you are bullish or bearish, I personally believe you need to have 20-40% of your "new crop" corn and soybean risk already taken off the table at prices above $6.00 vs the SEP13 contract. If the report is wildly bullish you should be looking to hedge more of your production estimates or pulling the trigger on more cash sales. Even though the balance sheet is currently tight the trade will eventually start to look at new crop balance sheets which will ultimately put more downward pressure on new crop prices. If the report is bearish then you patiently wait for brighter days to make more sales. Wheat producers should already have 50-60% of their new crop production estimate priced or hedged so no major issue either direction. A wildly bullish report, and we will start to look for areas to make a few more wheat sales. A bearish outcome might actually prompt me to lift a portion of our hedges thinking we have some potential for bounce to the upside (depending on how the numbers look).
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