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Consternation with Markets

October 4, 2013
corn ears
In the Corn Belt, August brought a great deal of variability to ear development, even from stalks next to each other.   

Crop tour confirms producer insights, slows advance sales

After seeing late developing crops with good yield potential in multiple states on Pro Farmer’s Midwest Crop Tour in August, those farmers who rode along and took the pulse of crop conditions are shifting marketing gears.

"I don’t feel the need to make sales after seeing the corn crop," says crop scout Tim Gregerson. Still, the Herman, Neb., corn and soybean producer was open to making a small percentage of sales within weeks of results, but only if the market factored in stress from late summer heat wave indexes hitting triple-digits.

"The corn market has more work to do," Gregerson says. "The 2013 weekly crop condition ratings have not been accurate. USDA has overestimated the good to excellent crop ratings."

Seeing the Midwest crops up close in combination with the long-range weather outlook has Gregerson delaying most of his corn sales until winter, when he expects prices and basis to be more attractive. "I won’t feel the need to market anything during harvest," he says.

Gregerson, who uses options, cash sales and futures, is far less forward sold than he typically is—a story echoed by nearly all farmers throughout the seven-state swing from South Dakota to Ohio.

Some farmers began shifting their marketing strategy for 2013 early on. "We are taking a different marketing approach this year," says Richard Guse, who farms 3,900 acres of corn and soybeans near Waseca, Minn.

"We have no cash corn sold for the new crop," Guse says. "However, back in January, I bought a bunch of puts, so I’m 100% covered at about the $6 level." Guse found less corn than he expected as he went through the Eastern Corn Belt, which could mean rock-bottom prices won’t be reached.

"We expected to see fantastic things in Illinois, Indiana and Ohio," he says. "It’s not bad, but it’s not what I was expecting."

Realistic, but Optimistic. Still, Guse is plugging far lower prices into his crop models. He thinks prices in 2014/15 could hit $4, if not dip below. For that bearish scenario to ring true, it will take two good back-to-back crops.

"A lot of people are predicting $3.25 to $3.40 corn, but I think the thing they are missing is that Brazil is going to cut back quite a bit this winter," Guse explains. "The numbers don’t work there. If corn stays sub-$5, I think the world’s production will fall off. They can’t do it for that price, so I don’t think it’s going to get as ugly as a lot of people think."   

Illinois farmer Mark Henrichs thinks it’s possible corn could fall to $4 per bushel for the next two years, but because of dry conditions he and other producers are experiencing, he says it’s more likely that corn will rebound closer to the $6 level.

tim gregerson

The corn market has more work to do. The 2013 weekly crop condition ratings have not been accurate. —Tim Gregerson, Herman, Neb.


However prices shake out, it won’t change his marketing strategy. "I never forward sell," says Henrichs, who owns a majority of his 5,200 acres of corn and soybeans near Saunemin, Ill.
Instead, he sells his crop nine months after harvest with the hope of more accurate USDA numbers. If Henrichs were to forward sell and be unable to deliver, he would forfeit a bunch of his multi-peril crop insurance check, he explains. "By January or February, USDA will make some truthful adjustments," he says.

Henrichs acknowledges that many farmers take a different approach, but says the strategy has worked well for the 35 years he has used it, including during the 2012 drought.

Holding Tight. John Orr, who farms near Fayette, Iowa, says he’s sold very little 2013 corn.
"Typically, I’m 30% sold by August," Orr says. In fact, he’s been pre-selling more in recent years with a goal of 60% to 70%. This year has been an exception to that goal.

This year’s highly unusual spring conditions convinced him otherwise. "Seven out of 10 years, I’m better off selling out of the field at harvest," Orr calculates, noting that he doesn’t have enough storage and paying for storage often doesn’t pencil out. Additionally, he has observed that a new trend appears to have developed in which prices have plateaued, so there is not the large harvest price discount that there used to be.

While he hasn’t made a firm decision on the 2013 crop, he’s inclined to sell it at harvest. "If I do and the market tightens up, signaling that prices are headed higher, I’ll get long calls to give me the upside," Orr says.

Frost is a definite wild card. Karl Duncanson, Mapleton, Minn., might have corn that yields 200 bu. plus, but a lot depends on whether frost holds off until the crops are mature in October. "If our corn only yields 140 bu., we might be close to 100% pre-sold," Duncanson says, noting that he doesn’t expect average yields to be that low.

Marty Tegtmeier, a farmer from Sumner, Iowa, is currently 10% sold on corn, which comprises the
majority of his acres. Last year, he was about 40% sold by mid-August, which is his normal.

karl duncanson

If our Minnesota corn only yields 140 bushels per acre, we might be close to 100% pre-sold. —Karl Duncanson, Mapleton, Minn.


Uncertainty Looms. "We are uncertain on yields," Tegtmeier says, and that’s why he doesn’t have more grain priced. "I don’t want to sell more than what I have, and the 40% of expected yields I sold in August last year was pretty close to everything I produced."

Tegtmeier says he might have to identify a new target price for marketing. "If it’s $4.50, we’ll have to take a closer look at all of our input costs and figure out what we can skimp on," he says. With the possibility of soybeans taking a harder hit than corn, marketing them is even more dicey. "The way spring looked, I was afraid I wouldn’t be able to fulfill my soybeans contracts," Orr says. "But I’ll do that and then some."

"I sold futures contracts for soybeans in May," says Ken Eckhardt, Minnesota Lake, Minn. "I sold a lot of soybeans; the price was profitable." However, he has yet to sell corn. "I like to be 50% sold by August, but every year is different," he says.

It’s a Messy dart board for Projected Prices

soybean pod

Soybeans run the potential for even more production challenges than corn.   


At the conclusion of the Midwest Crop Tour, Pro Farmer estimated corn prices for the 2013/14 marketing year at $5.75 per bushel farm price—on the high side of what many analysts predict. This compares to USDA’s projected range of $4.50 to $5.30 per bushel in its Aug. 12 Crop Production report.

Pro Farmer estimates corn yields of 154.1 bu. per acre.

"We are more optimistic on corn exports than USDA," says Chip Flory, Pro Farmer editor. Larger exports coupled with smaller production than that forecast by USDA leads Flory to believe the 2013/14 carryover will be 1.4 billion bushels, 300 million less than USDA.

Despite Flory’s optimism compared to USDA and other analysts, he urges caution. "It’s going to be a record corn crop, and you have to market accordingly," he says, acknowledging immature ear development and the risk of an early frost.

On soybeans, Flory predicts an average farm price of $13.50 per bushel in the coming marketing year, significantly above USDA’s $10.35 to $12.35 range.

Pro Farmer pegs the soybean crop at 3.158 billion bushels, with an average yield of 41.8 bu. per acre. This is 100 million bushels less than USDA’s August forecast that included a yield estimate of 42.6 bu. per acre.

"I’m really concerned about the soybean crop," Flory says.

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FEATURED IN: Top Producer - October 2013

 
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