With corn, wheat and soybeans putting in short-term lows, we asked a few analysts if it is time to lock in feed needs now. The consensus: don't be too aggressive until you have a better feel for the actual crop. Normal weather would mean lower prices this fall. The possible exception: feed wheat. Here are their comments:
Brian Grete, Pro Farmer Senior Market Analyst: While short-term lows appear to be in place in both the corn and soybean meal markets, there's no strong urgency to lock in extended feed coverage at this time. Meal supplies are snug, but not tight, and there isn't a shortage of corn.
The exception: If livestock producers can lock in profits by covering feed needs, they should most definitely do so now. Otherwise, the post-July 4 timeframe will give livestock producers a better idea of the summer price trend. If, at that time, it appears prices are bound for a period of extended price strength, it will be a signal to get more aggressive on booking feed needs through summer and into fall. Unless there's significant crop risk, however, new-crop supplies will be plentiful through winter. That argues against getting too aggressive on long-term feed coverage, from a supply perspective.
Overall, corn and meal futures remain in long-term choppy patterns – choppy to lower for corn; sideways for meal. In general, buy weakness (but don't extend coverage too far) and don't chase markets at the highs—unless there are signs that futures are breaking out from the overall choppy trend.
Marty Foreman, Doane Feed Grains Specialist: Corn prices are showing signs of having reached a pre-pollination low in mid-June. But whether the lows hold beyond early July hinges on how weather unfolds. We think just the risk of a weather pattern change to hot/dry justifies covering a portion (20% to 30%) of second-half 2010 feed needs now. However, assuming we actually experience normal weather the rest of the season, prices are likely to work lower into late summer or fall so we would defer more aggressive feed coverage for that timeframe.
Bill Nelson, Doane Oilseeds Specialist: In the short term, meal prices are subject to upward price shocks from tightness of supplies versus good demand, led by exports. We've recommended coverage through mid-July and would cover the balance of that month if July meal dropped to the $275/ton area. Longer-term over the next several months, if soybeans retain their above-average condition with high-yield potential, cash prices should be expected to erode. That argues against more aggressive forward coverage. But should crop conditions begin to deteriorate by mid-summer, then we'd advise stepping up coverage toward 50% of second-half 2010 needs.
Dan Manternach, Doane Wheat Specialist: Now is a very good time for buying feed wheat in the southern Plains. Basis levels have utterly collapsed to their worst discounts (to futures) in several years on the glut of old crop, a big new crop, lower-than-normal protein and weak merchant demand. That weak basis is an opportunity for feed buyers, particularly where wheat is priced at less than 90% of the price of corn, bushel for bushel, when it's generally considered by animal nutritionists to be worth 105% the price of corn in feed value.