Use Extreme Caution Heading into Friday’s Report

March 28, 2012 11:48 AM


Friday’s USDA Grain Stocks and Prospective Plantings reports have the market fairly uneasy. During this week it is extremely important for farmers to manage their risk to the best of their ability on both sides of the corn price equation.

Grain Stocks

"The report is on Friday and there is a huge amount of risk going into that," says Doug Werling of Bower Trading. "The average range of the corn stocks estimate for the quarterly stocks number from low to high is 363 million bushels and the same for soybeans."
Kevin Van Trump of Farm Direction estimates that corn stocks will be reported around 6.2 to 6.3 billion bushels. "Certainly tighter than last year, but not as extreme as in 2006 and 2007," he says. While many are talking about a number that is below 6 billion bushels, Van Trump says he thinks it will be slightly more than 6.2 billion bu.
As a response to speculation circling around ending stocks and the amount of grain in on-farm bins, the editors at surveyed our readers asking how much 2011 crop corn they had left in storage. At press time more than 3,400 farmers weighed in on the survey and we found that 29% have zero old crop left in the bin, 28% have very little and only 24% have half or all of their 2011 crop left in storage. View the poll results.

Planting Intentions

The soybean crop is also at a teetering point this week. Analyst projections say that 75.4 million acres of beans will be planted this year in the U.S. and 94.7 million acres of corn. The market has seemed to accept these estimates, as of now.
"With the way things are happening, we could see beans continue up to the $14-15 level, and if what we’re seeing with good weather, big acres and no apparent planting delays, corn could be lower [than the current price]," says Nate Smith of the Gulke Group.
Some discussion is circling farm country that planting intentions have changed since USDA conducted the planting intentions survey in the fall. Weigh in your opinion or see what other farmers are saying.


What Friday Means for Livestock

Pro Farmer’s Julianne Johnston says that the market is highly anticipating corn acreage will be enough to build carryover for 2012-2013, which would lower the price of corn for livestock producers.
James Dunn, an agriculture economics professor at Penn State, believes a big corn crop could push corn prices down to the $5 per-bushel range. The CME is the same camp. "The CME is trading March corn at $6.50 and December corn at $5.40, which means they see lower prices in the fall," Dunn says.
Many market analysts believe that large carryover and ramped up milk output from dairy producers could drive the price of milk down in the coming months. However, there is the possibility that Friday’s report will rally corn up and that should give dairy producers hope for an increased price of milk. If corn goes up the price of milk will eventually follow, according to Liz Doornink of Stewart-Peterson.

Manage Your Risk

It is apparent that there is no way to tell what the market will truly do on Friday. Chris Barron, author of the Ask A Margins Expert blog, says farmers should look into locking contracts if they can.
"I think we need to be looking at the options strategies that are out there to kind of put a floor on our price opportunities," Barron says. "If we can do that, we can lock in some profit opportunities and most of them aren’t going to be as high as last year. In most cases they will be about half of what they were last year but think about the risk of the other side."
Bower echoes Barron, advising farmers to do the best they can to protect themselves. "I would exercise caution for the remainder of the week," he says. "Trade the ranges, be very sharp with what you’re going to decide to do."

See more pre-report coverage of the March 30 USDA reports and Don’t forget to tune in Friday at 7:30 a.m. CST to see full reports and analysis.
Have questions for our analysts about Friday’s report? Let us know and we'll get them answered on AgWeb Radio!


Related Pre-Report Coverage of the March 30 USDA REport:

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