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May 2012 Archive for PFA Pioneer Blog

RSS By: Chip Flory, Pro Farmer

This is a private blog for Pioneer.

Extended trade observations

May 25, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Observations after first week of extended trading hours

May 25, 2012

The first ‘taste’ of expanded grain trade is a little bitter. We are not opposed to change. But when the change has many tentacles that reach deep into the industry, you’d think the change would be implemented in an orderly and
transparent way. That does not describe the expansion of trading hours in the grain markets. We’re sure the dust will settle on this issue (eventually), but after a week of expanded hours, the CME Group Friday morning announced changes to how the grain markets will be settled and it was announced that pit trade (traditional open-outcry trade) will open at 7:20 a.m. CT on USDA report days.

 

And that says nothing about the confusion created in the cash grain markets. Some of your selling locations are setting bids based on the 1:15 p.m. CT grain settlements; some are setting bids based on the last tick in electronic
trade at 2:00 p.m. CT. We’re far from comfortable with the direction grain trade is headed.

 

It feels like the ‘robots’ are taking over. More hours of grain trade have increased volume in the grain markets. Or has it? Last week’s grain trade featured the first mini weather scare of the year for corn and soybeans that had to be balanced against rumors that China cancelled some soybean buys. Volume and price volatility should increase when digesting those two issues.


But... we feel the impact of robots driven by trading algorithms was revealed in very choppy intra-day price action. Wide trading ranges have become common in grains, but visiting both ends of the range multiple times throughout the day is not common.

 

Perspective: It feels like the grain markets are losing the “human element,” which will only make risk-management more difficult going forward. We’ll get it figured out, but everybody is a student of the markets again.


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

After further review...

May 18, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

After further review...

May 18, 2012

After further review, the CME Group announced this week it will not have grain trade open from 6:00 p.m. to 4:00 p.m. under the electronic format. Instead... it will be open from 5:00 p.m. to 2:00 p.m. starting May 20. That's a 21-hour trading day... and it means markets will be open when USDA releases critical supply and demand data. Strap down the seatbelt... it's bound to be a bumpy ride.

 

We published the May issue of Pro Farmer's Crop Tour newsletter this week. We cover a wide variety of crop issues, including the final look at South American production from Pro Farmer consultant Dr. Michael Cordonnier. But South American crop worries are very quickly being replaced with crop worries around the globe. In the Former Soviet Union drought is starting to take a bite out of winter wheat production and is threatening spring-planted crops. Perhaps most concerning are exceptionally dry conditions in Kazakhstan. This country is a major player in the global wheat market and production is being severely threatened.

 

Many in the market this week wanted to talk about developing crop problems in Ukraine, as well. However, soil moisture levels are "okay" for now. Nonetheless, the forecast is for hotter and drier conditions, which could stall development of a newly planted corn crop. And corn is becoming more of a major crop in Ukraine. Right now, Argentina is the second largest corn exporter in the world, but many market watchers expect Ukraine to challenge Argentina for that number-2 spot within two to three years. If they have a good crop in 2012, Ukraine could move up the list as soon as the 2012-13 marketing year.

 

Be sure to read the May issue of Crop Tour. And thank you Pioneer for making it possible to bring this information to the market!


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

Residual corn use blurs corn supply.

May 11, 2012

Pro Farmer Extra

- From the Editors of Pro Farmer newsletter

Corn Residual Use Blurs the Corn Supply Picture

 

May 11, 2012

 

In this week's Pro Farmer newsletter, we make the case for a shift in corn's marketing year from the current Sept.-Aug. to an Aug.-July calendar. The reason is really pretty simple. The line between old- and new-crop supplies has been grayed by early-harvested corn. By moving the start of the marketing year to August 1, the line between the two crop years would be sharpened. In the commodity world, a gray line creates confusion; a sharp line would help bring back the usefulness of futures as a hedging tool.

 

And we are concerned corn futures have lost their effectiveness as a hedging tool. Old-crop corn basis is trading well above historical norms and basis is likely to remain exceptionally strong as the cash market attempts to ration what are tight old-crop corn supplies. Unless futures and the cash market converge back to historical norms, it becomes very difficult to offset risk with hedges in futures. Don't believe that? Ask guys that have tried to hedge wheat in recent years. Up until this year, basis had been so week (a perfect scenario for hedging) that short futures (hedges or HTAs) was about the only way to price the crop. The situation in corn is just the opposite, but strong basis right removes the need and opportunity to offset risk with futures. That's because is a crop is priced with a short futures position (a hedge), basis is still "open." If basis softens, that basis weakness comes right off the final selling price.

 

Also in Pro Farmer newsletter this week, we try to explain why USDA cut feed & residual use 50 million bu. to raise carryover by that amount in the May 10 Supply & Demand (S&D) Report. In reality, USDA didn't cut expected feed use... it cut use in the residual component of the feed & residual category. In fact, we argue USDA is working with a negative residual for corn right now. Negative residual use actually adds to total supply to help hold up carryover. The most clear example of a negative residual is was in soybean's 2007-08 marketing year. In the March 2008 S&D Report, USDA estimated soybean residual use at 79 million bushels. In April, residual use was cut to 2 million bushels. That added 77 million bu. to the soybean supply. In July, USDA estimated soybean residual use at -35 million bu. -- and a negative residual actually adds to the total supply for the marketing year!

 

The negative residual was finally resolved (at least nearly resolved) in the October 2008 S&D Report -- that's after the end of the 2007-08 marketing year. It was resolved when NASS revealed Sept. 1 soybean stocks of 205 million bu. and added a half bushel to the 2007 national average corn yield and 91 million bu. to the 2007 crop. That's right... USDA added nearly 100 million bu. to the 2007 crop while you were harvesting the 2008 soybean crop. It might seem crazy, but it was done because old-crop carryover has to be squared to the September 1 stocks data.

 

And we've seen similar happenings in corn the past two years. September 1, 2010, corn stocks were about 300 million bu. above USDA's September carryover estimate; September 1, 2011, corn stocks were about 140 million bu. above USDA's September carryover. The supply-side surprises are all part of erasing that year's negative residual.

 

More evidence USDA is likely working with a negative residual in the 2011-12 feed & residual estimate. USDA's current marketing year estimate of feed & residual use is 4.55 billion bushels. For next year, USDA expects corn feed and residual use to rise 900 million bu., to 5.45 billion bushels. That estimate comes from the same agency that projects 2013 total meat production (beef, pork and poultry) will be up just 1% from this year. Either we're going to experience a significant fall-off in feeding efficiency, or USDA will be erasing a negative residual in the 2011-12 marketing year with another supply-side surprise in the September 1, 2012, stocks report.


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

A close look at a couple of trends in farmland values

May 04, 2012

Pro Farmer Extra

 

- From the Editors of Pro Farmer newsletter -

 

A close look at a couple of trends in farmland values

 

May 3, 2012

 

Professional Farmers of America also publishes LandOwner newsletter. LandOwner editor Mike Waslten was all over a couple of important stories about farmland values this week and agreed to let us bring you the highlights from a couple of his blogs that appeared on Pro Farmer's website this week.

 

Survey: Iowa Cash Rents Rise 18% in 2012

 

Now we have numbers to put on what everyone has been talking about -- the state average cash rent in the state of Iowa rose $38 an acre, 18%, in 2012, according to an annual survey conducted by Iowa State University (ISU). The survey found the state average cash rent rose to $252 an acre. "This is the largest one-year increase since the statewide survey was started in 1994," states Willaim Edwards, ISU extension economist, who directs the annual survey. The second-largest increase was recorded in 2011 when the survey found a $30-per-acre increase.

 

"Average rents were higher in all nine crop reporting districts, with increases ranging from $57 per acre in north central Iowa to $16 per acre in south central Iowa." states Edwards. The $57-per-acre increase in the north central district represents a 26% increase. The $16-per-acre increase in the south central district represents a 9% increase.

 

High-quality land showed the largest increase in rents. Estimated rents for land in the high-third of each county increased by an average of 20%. but estimated rents on low-third quality row-crop land increased by only 15%. "In many counties, respondents indicated that typical rents were $400 to $500 per acre or more for the higher quality land," Edwards observes.

 

What's Behind that Puzzling 5% Decline in MN Farmland Values?

 

The median value of Minnesota farmland fell 4.9% to $3,443 an acre in 2011, according to an analysis of agricultural sales transactions reported to the state's Department of Revenue conducted by University of Minnesota ag economist Steven Taff.

 

The figure calculated represents the median value of actual land sold. But the number of sales of high priced southern Minnesota farmland fell sharply in 2011, which resulted in depressing the state median price. For example, only 87 transactions were reported in the south west region for 2011, down from 266 transactions in 2010 and the lowest since 1990 when 408 transactions will be reported.

 

In the south central region, 155 transactions were reported in 2011, down from 294 in 2010 and the lowest since 1990's 412. Same for the south east region which reported only 127 transactions in 2011, down from 198 in 2010 and 429 in 1990. For the state as a whole, only 1,115 acres were reported, down from 1,882 reported in 2010 and the lowest since 1990's 3,158.

In my mind, the news in this report is the confirmation of the sharp decline in the number of high-producing Minnesota corn/soybean farms offered for sale in 2011.


To see more of what Pro Farmer has to offer, be sure to visit www.profarmer.com.

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