Moderate market analysts point to the potential for big upside profit and downside risk in 2013.
The nation’s top crop analysts are spread across the marketing map, from extremely bullish to extremely bearish, with several in the middle, when it comes to corn and soybean prices. Opinions vary on how producers should protect themselves from market fluctuation.
The moderates on our list suggest taking a middle course until critical influences become better known. It's not clear what kind of a season South American growers will have. How well stocks were rationed in the United States won't be apparent for several months. In the meantime, these analysts suggest preparing for both higher and lower prices.
Click here to read what the bulls in our survey suggested.
Click here to see what the bears in our survey recommended.
Navigating Highs and Lows
Corn and soybean prices are expected to be highly volatile. With low ending stocks, there’s little room for downward production adjustments or increases in usage.
The South American growing season is underway, and it’s possible we’ll see record soybean production. Weak demand for corn exports and a potential increase in U.S. soybean yields offset bullish trends. With record exports, Brazil corn is displacing U.S. corn in some markets. China could surprise the market, if its corn crop falls short and demand grows faster than projected. On the other hand, if China’s appetite for soybeans slows, U.S. exports could fall short.
Upside market potential is high, but so is downside risk. As a result, consider an options-based
strategy, which establishes a floor but leaves the upside open. An alternative is to make cash sales if basis is favorable and purchase call options.
Prepare for Dual Scenarios
Because Chinese soybean demand has been voracious, look for a $14.50 to $17 range until more is known about South America’s yield. If yield looks to be superb, futures’ prices could slide to the lower end of that range. Should the weather look ominous with less than stellar yields, prices will likely retest the highs we saw this summer.
For corn, as tight as our stocks are, end users will continue to buy as they need it, so as not to excite the market and cause it to go irrationally higher. Corn will trade in the $7.25 to $8.25
range until January.
If we have perfect growing conditions in South America and adequate precipitation in the U.S. this winter, prices could go below $7 on the board. However, we need fall rain and good snow to replenish moisture. I am bullish on corn because absolutely perfect weather conditions are required between now and spring for a good crop, long-term.
Producers should prepare for both bullish and bearish scenarios. Keep making incremental sales as prices go to the high end of trading ranges. Pay attention and know the charts. In case prices break through a technical resistance, have a plan in place that allows you to re-own your crop. Establish price levels where you want to make cash sales. If prices meet those levels, be prepared
and have your orders ready.
A word on wheat: If the Black Sea region suddenly halts exports for whatever reason, wheat and corn markets will take a jump here.
Ride Out Market Volatility
Ending stocks are snug for 2013. Export expectations have been sharply cut, as have those for industrial use. Livestock producers made modest cutbacks, but not enough to meet USDA’s estimate.
Prices could be held back by a potential record corn crop in 2013 unless soybeans bid away acres. On soybeans, any significant sell-off tied to fund liquidation or a large South American crop will add export demand. The biggest bull argument: We oversell soybean supplies, which could convince crushers to shut down or export customers to sell back contracts.
Looking long-term for soybeans, I’m a market bear because I expect South American production to be at least 94% of USDA’s November estimate—still too many beans. I’m concerned about black swan events, mostly in the macro sector: the European debt crisis and its undiscovered U.S. twin.
For marketing strategies: 1) Control margin exposure. Don’t make big input cost commitments without offsetting forward sales or price floors. High fixed costs can be a killer if you don’t lock in the revenue side. 2) Options spreads and their cash market equivalents are probably the sanest way to ride out market volatility while protecting margins and capturing upside opportunities.
Rationing Is a Wild Card
Archer Financial Services
The market’s function will be to ration supply in the first and second quarters of 2013 for livestock, which accounts for 62% of total feed use. As in 1996, this job has not yet been completed. In 1996, this showed up in the March corn quarterly stocks report, and 2013 will likely show the same results. Exports and ethanol production are on the right pace, but without curtailing feed use we will have no supply by July. This will not happen simply by taking prices higher.
I believe the crop is larger than the October report, but it’s too early to be assured of a big South American crop. The problem will be getting this crop out fast enough into export channels, which South American exporters do not have the infrastructure to handle. Corn will be dicey March through May, but if South American soybeans increase by 35 mmt, prices will be capped.
Final production numbers are in flux and market volatility is on the rise. Make plans to join us at the Top Producer Seminar, Jan. 30–Feb. 1 in Chicago, Ill., to gain insight and tips from many of the market analysts featured in this story.
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