Market Outlook

September 28, 2016 02:41 AM
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Market Update with Chip Flory

Even the Expected Can Be Surprising

In the days leading up to USDA’s Sept. 12 Crop Production Report, many observers expected an increase in the national average soybean yield. 

They got it—but it was still surprising. USDA ended up adding 1.7 bu. to its August estimate, which drove production up 141 million bushels from August to a total of 4.2 billion bushels.

Many also expected a cut to 2015/16 soybean carryover. That’s what they got, but it also proved surprising. USDA added 60 million bushels to old-crop soybean exports, dropping carryover to a smaller-than-expected 195 million bushels. The end result was an increase of 80 million bushels in 2016/17 total soybean supplies. Many thought (or hoped) the cut to beginning stocks would erase the increase to the crop. On the demand side, USDA estimates total 2016/17 soybean use will be 4.06 billion bushels, just 140 million bushels fewer than the expected record soybean crop. Total demand for U.S. soybeans could once again outpace production if the world is hit with another crop glitch in South America.

Corn’s new-crop balance sheet is heavy on supplies. The estimated crop of nearly 15.1 billion bushels is expected to be met with 14.48 billion bushels of use, leaving plenty of surplus corn that needs to find a home somewhere around the globe. 

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By Nate Birt

Ask an Analyst: Alan Brugler, Brugler Marketing & Management


What is your commodity marketing philosophy?
Producers want to pass negative price risk to others, but they want to keep the positive price risk for themselves. That rules out a straight hedging program. We’re fairly heavy on our options use. We don’t think it’s usually smart to sell multiple years at one time.

What distinguishes your consulting firm from others?
We’re a blend of technical and fundamental analysis. We use more quantitative-style analysis than a lot of other ag firms. We have 40 years of experience. We’ve seen major boom and bust cycles in ag. It gives us perspective. 

What’s one action every farmer should take to manage commodity marketing risk?
It depends on what they’ve done. Risk exposure on 80% of the crop requires a different strategy than being 80% sold. Realize the size of the annual average trading range. It is $1.15 per bushel for corn in years with a stocks-to-use ratio greater than 10%, for example. Know where you are in that range, and how it relates to USDA’s cash price estimate. Then look at individual strategies. Be aware that if you have carries in corn and wheat, you’ve got guaranteed returns to storage if you hedge. 

What percentage sold should farmers be on their crops?
Our rule of thumb is a three-bucket strategy. You would normally have two of those buckets filled by harvest, meaning you are two-thirds priced, though not necessarily for harvest delivery.

Which marketing tool is the most underappreciated? 
Probably options. A lot of producers don’t know how to use them right. They don’t realize the opportunities that are there.

Which experts’ business advice do you respect greatly?
John Marten and Jim Gill pioneered ag marketing in the 70s. They got farmers to hedge and look past just doing cash sales. 

What activities do you enjoy? 
I play volleyball and golf. I referee in the Upward Sports basketball program and volunteer.  




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