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April 2011 Archive for MGEX Research

RSS By: Joe Victor, AgWeb.com

Joe Victor is a Business Development Specialist with Minneapolis Grain Exchange, Inc., where he monitors cash grain activity and cash grain opportunities. He provides marketing advice through this blog.

Record Low Spring Planting Pace

Apr 29, 2011

The recent hot-button issue getting a lot of attention is the apparent record low pace of corn plantings. Indeed, the 9 percent planting pace of corn is news worthy, but it is not a new record low. The corn planting pace in 1983 and 1993 was also 9 percent in the 18 states which make up 92 percent of the total volume of corn.

The initial report released by the USDA for 1983 indicates end stocks to use of corn were 26 percent., This number fell to 8.8 percent the following January, as stated in the USDA’s key annual report. Counter-intuitively, the season average farm price during the same period of time fell 9 percent.

In the first official forecast of 1993, the USDA indicated end stocks to use at 24.9 percent with a season average farm price of $2.60 per bushel. By the time the following USDA January annual report was released, the end stocks to use had fallen to a level of 10.4 percent with a season average farm price falling to a level of $2.19 per bushel.

In both 1983 and 1993, the poor pace of spring corn planting partially impacted both years’ end stocks to use. However, the season average farm price fell by 19.1 percent in 1983 and 17.8 percent in 1993.

Let’s now discuss an actual low planting pace…that of this years spring what crop. As of April 24, the six states which accounted for 99 percent of the 2010 total wheat produced had 6 percent of their spring wheat crop planted. At no time, dating as far back as 1981, has the pace of spring wheat planting been 6 percent. The previous weekly planting pace low was 13% in 1997. The initial July 1997 USDA report projected end stocks to use of 36 percent with a season average farm price of $3.66 per bushel. When the USDA released its annual report the following January, end stocks to use were reported at 48 percent and the season average farm price for other spring wheat was $3.44.

Even though the end stocks to use were reduced in corn, due in part to a slow planting pace, the season average farm price was less in the January annual report. The planting pace of spring wheat this year is at a record low. However, if history is to repeat itself, there is no guarantee of higher season average farm prices by the time the USDA releases is January annual report.

MGEX welcomes your questions.........Joe Victor

www.mgex.com

800.827.4746

Information used to compile this update is from publicly available sources. Nothing contained herein should be construed as a trading recommendation of MGEX, its employee or its members. For informational purposes only.

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Spring 2011, Similar to 1996

Apr 25, 2011

With dryer than normal weather conditions in the Southern Plains and wetter than normal conditions in the Northern Plains, MGEX looked to the historical weather maps to determine if there is any other year, or years, with similar weather patterns. Several years fit the pattern, including 1996, 1974, 1952 and 1904. But 1996 was not only very similar to the current weather pattern but is also the most recent. Of course MGEX is interested in the specific year which may lead to the specific price action of the major grains during March 1, through September 30^th.

Soybean price action trends sideways in 1996 with a range high of $8.382 to a range low of $7.152 per bushel. United States end stocks to use in 1996 were relatively tight at 5.4% versus the present of 4.2%. This suggest current prices may consolidate until the crop production is verified near the end of July to the beginning of August when pod fill is important.

Corn futures in 1996 made a rally from $3.866 per bushel on March 1 to $5.074 on April 26. There was also a corrective low of $4.35 on June 5, with a high price of $5.162 on June 28. Prior to July fourth^, corn futures made the peak before eventually selling off to $2.996. Corn end stocks to use were 10.05% in 1996 and are presently positioned at 5%. In 1996 corn reached 88% pollination on August 11 and corn futures were $3.75 per bushel.

Hard Red Spring, Hard Red Winter and Soft Red Winter wheats all reached peak prices in late April, with each following a downtrend to their respective lows by the middle of September. Wheat lost nearly $3 per bushel when 1996 end stocks to use were 19.3%, versus a present level of 34%. It did not matter that Hard Red Spring wheat, the second-most produced wheat in the United States, is planted in the Spring versus the Fall planted Winter wheats. Prices fell lower in unison.

It is difficult to predict weather more than three days out, however history may be a good teacher when looking at current weather conditions and its relationship to price.

MGEX welcomes your questions.........Joe Victor

www.mgex.com

800.827.4746

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The Feed Use Group is Blinking

Apr 15, 2011

An interesting recent discovery is there are poultry farmers blending wheat into feed rather than blending corn into its total mixed feed ration. History shows cattle feedlots replace up to 25% of their feed ration when cash wheat is 88% of the price of corn or lower.

Quotes for cash, not futures, prices of number one Hard Red Winter wheat (HRWW) versus number two yellow corn in the Texas Panhandle region show wheat prices are now below the required 12% level. As of April 8^th, 2011 there are locations within Texas that have cash wheat prices at 7.8% over corn prices which suggest it is less expensive to feed wheat.

Texas has the greatest percentage of beef cattle, followed by a two way tie between Nebraska and Kansas. Oklahoma and California round out the top five. There are 25 other states throughout the U.S. which follow the specific states listed above.

At about the same time the new lower yielding supply of U.S. corn was coming in, major exporter Australia’s east coast milling wheat crop harvest was plagued by too much rain. These two incidents helped to push higher both the demand and prices for the U.S. HRWW.

As the world assesses the 2011 northern hemisphere wheat crop, a new U.S. winter wheat harvest only months away and tighter end stocks of old crop corn versus wheat, it now makes wheat more valuable for feeding.

If USDA does recognize the additional feed use of wheat, look for ending stocks to be tightening and ultimately supportive to wheat prices.

MGEX welcomes your questions.........Joe Victor

www.mgex.com

800.827.4746

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Crop Conditions to Price

Apr 08, 2011

In early April, the USDA unveiled its first winter wheat crop conditions for 2011. USDA estimates the crop at 37% good to excellent versus a five year average of 52%. Since 1986, the highest good to excellent condition was 78% in 1993. The lowest good to excellent rating was in 1996 when the rating was 27%. Notably, since 1986, 80% of the time the good to excellent winter wheat crop conditions have dropped from the early April ratings to the last USDA report in late July.

When comparing recent good to excellent crop ratings, consider 2006 and 2002. In 2006, the good to excellent rating was 38% and in 2002 it was 31%. In 2006, the MGEX Hard Red Spring Wheat (HRSW) July futures had an 88 cent per bushel increase. This increase occurred from the initial April report to the final winter wheat crop condition report released in July from the Kansas City Board of Trade. Additionally, Hard Red Winter wheat futures increased 80 cents, while the CME Group’s Soft Red Winter wheat futures increased 22 cents. In 2002 the good to excellent crop conditions started at 31% good to excellent in April and finished in late July at 28%. With this 3% drop in conditions, the Minneapolis July futures increased 16 cents per bushel, while Kansas and Chicago were up 17 cents.

July winter wheat futures have been found to contract higher 16% of the time, and the other exchange’s contract lower during April through July. Since 1986, 64% of the time the change has been in the single digits, but the change in July wheat futures varies widely.

Since 1986, there have been only two years when all wheat gains were one dollar per bushel or more from April to July. Conditions dropped one year to 24% and the other year to 31%. Provided current conditions are 37% good to excellent, could they drop from the minimum of 24% down to 13%? The answer is, not likely.

In the future, it may not be wise to put a great deal of emphasis on the weekly crop condition reports the USDA publishes. This is a report the public demands, but in hind sight may offer inaccurate information.

MGEX welcomes your questions.........Joe Victor

www.mgex.com

800.827.4746

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