Demand Repair Needed to Reverse Bearish Markets

June 26, 2013 03:07 AM
Demand Repair Needed to Reverse Bearish Markets

The U.S. has lost its competitive advantage for corn, which means farmers may need to sell theirs fast.

Dan Basse, AgResource Company president, says the mentality of the market has dramatically changed. "In the last 6 or 7 years, we have dramatically increased production of corn and other grains outside of the United States," he says. "High prices have encouraged places like Ukraine, Brazil and Argentina to really produce more corn and more soy."

He says the U.S. has seen its market position decline. "We are now only exporting 28% of our corn, soy and wheat production overseas – that’s a record low. We used to export over 50%," Basse says.

Basse says his company’s expectation is that prices will slide as the U.S. tries to buy back some of its competitive position in the world market. "That’s somewhere probably under $4.50 for corn and under $10 for soybeans."

He says, for the first time in five years, their advice is to price this year’s crop, and even 2014’s crop. "We’re concerned about a much more bearish landscape, as our demand drivers have lessened."

Several marketing advisors agree. AgWeb’s Hedge Position Monitor, which was updated June 19, shows that the average hedge position for 2013 corn is 53%. For 2013 soybeans, the eight participating advisors have an average of 64% sold.

avg hedge position 6 19 13

High Prices…Again…Maybe?

For the high prices that farmers saw last summer to return, Basse says, a drought as severe as last summer’s will have to occur. "We’d need a national corn yield of somewhere around 140 bu./acre to keep corn prices above $6 per bu. If we want to get above $7, we’d need a yield around 125 bu./acre, or like last year’s drought."

He says that for the last three crop years, the U.S. has lost almost 7 billion bushels of corn to weather. "Tell me where prices would be today if we had normal weather," he says.

For More Information
Read Basse's full Q&A about the markets with AgWeb's Hedge Position Monitor.

See current market quotes in AgWeb's Market Center.


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6/29/2013 03:00 AM

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