Sep 20, 2014
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Will 2015 Corn Downshift in South America?

August 18, 2014
By: Nate Birt, Top Producer Deputy Managing Editor google + 
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Looking ahead to the 2015 crop year, producers should start paying attention to announcements coming out of South America, from big crops expected this year to possible acreage shifts next season, experts tell the U.S. Farm Report Marketing Roundtable.

Power Hour Noon Logo"Less than a year ago, we’ve gone from inverted carrying charges where there was no carry at all," explains Bob Utterback, Utterback Marketing Services. "Now the market’s got carry, and I think one of the best trades on the books is the July-November bean spread in 2015. July beans are still premium to November beans. If we have this inventory in South America, the front end is going to collapse to the back end, carry is going to come to the market, so that has a significant decision as to where you place your hedges."

The decision to plant less corn in Argentina next year should also be monitored, adds Naomi Blohm, Stewart-Peterson.

"Already in Argentina, they’re talking about next year they’re going to keep their soybean production the same, but they’re going to reduce the corn," Blohm notes. "It’s not because the soybeans have this excellent margin or something like that, it’s more a matter of money from the standpoint that their interest rates are rising, they’re having a hard time getting loans. As far as input costs go, that’s something that we need to be mindful of here because that then equates to a fight for acres in the United States. When we start to see those seed incentives come in place this fall, there’s going to be a lot of potential excitement coming up."

Domestically, most corn and soybean farmers remain undersold on 2014 contracts, the two say. On the price front, the good news is that the market appears to be putting in a sideways floor, at least for a while. Yet Utterback cautions producers face a reality they haven’t seen in more than a decade.

"I completely agree that the market is going from a trending market to a sideways market, but that is a completely different reality," Utterback says. "We’re going to carrying charge markets, we’re going to wide spreads in the market, wide basis. Those are things we haven’t had to deal with since 1997 to 2001. We haven’t had to deal with that type of structural market since then, and by the time we get our head around it, the market will be moving to another structure. That’s the problem I see is, how long is this going to last?"

Click the play button below to watch the complete U.S. Farm Report Marketing Roundtable starting at about the 7:30-minute mark:

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