By Chip Flory
Market Update with Chip Flory
Use Falls Across the Board for Corn, Soybeans and Wheat
USDA’s Jan. 12 reports don’t represent a game-changer for corn and soybeans, but wheat did get the first hint that—in the long term—supplies will start to tighten as acreage shrinks.
Corn stocks on Dec. 1, 2015, indicated 4.12 billion bushels of corn were used in the first quarter of the 2015/16 marketing year, 2.8% less use than in the same quarter a year ago. That’s not a catastrophic collapse in use, but USDA estimates total corn use will drop just 1.3% from a year ago.
Corn stocks remained basically unchanged from Dec. 1, 2014, but on-farm stocks fell 4% from a year earlier, indicating corn movement proved stronger than most market-watchers believed. Meanwhile, soybean use in the first quarter of the current marketing year fell 6% from a year earlier, compared to USDA’s projection of a 3.9% drop in total use.
After a 1% increase in wheat use in the first quarter of the current marketing year, second-quarter use fell 5% from a year ago, compared to USDA’s projection of a 1.5% decline in total use this year.
USDA’s lower-than-year-ago total use projections are well-known market factors. Yet current use suggests prices haven’t been low enough for long enough to recover lost demand. That suggests more range-bound price action is ahead.
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By Nate Birt
Ask an Analyst: Matt Bennett | Bennett Consulting
What is your commodity marketing philosophy?
I insist farmers know their breakeven price for whatever crops they’re marketing. That way, they can make decisions a little more based on business than emotions.
What distinguishes your consulting firm from others?
I grew up in a family that had grain elevators, and we also farmed. After college, I started helping with the merchandising. I’ve got a multifaceted look at the market. I write three newsletters per week and my focus marketing-wise is what I’m doing on my farm. If I’m recommending it, I’m willing to do it personally.
What’s one action every producer should take to manage commodity marketing risk?
Whether for cash bushels or insured new-crop bushels, we’ve been selling calls. In this sideways market we’ve been in, I’m quite happy to pay a margin call if the value of my crops has increased.
What percentage sold should farmers be on their crops?
As far as cash bushels go, we were 100% hedged going into harvest 2015. As far as the new crop goes, it depends on the individual. Producers with lower land costs can be profitable at these levels. For situations where costs are higher, we don’t have a lot on the books yet.
Which marketing tool is most underappreciated?
If I can take a short call option against cash or insured bushels for the following crop year and truly label it as a hedge, I think it’s a good tool.
Who is one expert in our industry whose business advice you respect greatly?
Darrel Good, ag economist at the University of Illinois. He helped me be a little bit more conservative in my thought process.
What activities do you enjoy?
My wife and I have four kids, and the fifth is on the way. We’re involved in their activities and in our church. I also do speaking with Monsanto’s Channel seed brand.
By Nate Birt
Bear Markets Will End in 2016, Analyst Predicts
A rally in wheat prices is coming in the near future, representing the first in a series of events that will end bear markets for commodities in 2016, predicts Mike Florez, Florez Trading.
Expect wheat to reach a price bottom first, Mike Florez says.
“One thing that does interest me is the wheat market,” Florez tells “AgDay” host Clinton Griffiths. “The funds are really short the market big time. Five times in the last four years, they’ve gotten this short. Every time they’ve gotten this short, a rally has ensued. The smallest rally you got was 75¢; the biggest rally you had was $3.50. I’m going to play this. I haven’t bought anything yet, but I think the smart way to play that is to buy some calls on May wheat. Something that’s 10¢ or 20¢ out of the money might pay off pretty well.”
The wheat market likely will bottom first, followed by other commodities as the new year continues, he says.
“I do think the bear markets will end in 2016,” Florez says. “I look at time cycles. Where we bottom now has a direct correlation to where something topped or bottomed in the past. It’s coming due in 2016, probably springtime. We could certainly get lower [prices]into then. Typically when markets bottom, they kind of get ugly; they get volatile and the bottom falls out. I don’t know if we’ll be in that situation, but it’s akin to what oil is going through right now.”
In the meantime, producers should sell corn and soybean rallies as they have the opportunity, Florez says. He doesn’t expect big drops for those markets.
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