Annual Market Outlooks

Run With the Bulls: Take Charge of Your Crop Mix, Marketing

Wed, 02 Aug 2023 17:33:48 GMT

Now is the time to be aggressive — not in marketing, financial decisions or crop mix shifts — but in risk management. After years of stagnant prices, the tide has turned.

Tighter carryover of corn and soybeans for 2020/21, smaller-than-expected South American crop production due to dry conditions caused by La Niña and consistent buying of U.S. grain by China are all supporting grain prices.

These factors are creating the rare occurrence of a downtrend supplies and an uptrend in demand. They are also creating a good old-fashioned acreage battle for 2021.

“It appears no matter which crop we plant, corn or soybeans, we have the opportunity to be profitable,” says Jerry Gulke, president of the Gulke Group. “Now we must have the wherewithal to capture the profitability at hand — without getting greedy and ignoring the reasons we farm: to put food on the table, clothes on our backs and to money in the bank. It is nice to see opportunity knocking on our doors again.”

Dive Into Your Numbers

You must consider a laundry list of agronomic, economic and business factors when deciding what to plant in 2021. Standard rotations are critical, but with smart management straying from rotations could earn more dollars per acre.

“Profit planning begins with a new strategic plan each year,” says Chris Barron, Iowa farmer and national financial consulting with Ag View Solutions. “Before market noise influences your decisions, dive into your numbers. Forget last year’s numbers and start fresh with three categories: expenses, production and market price targets.”

When choosing between planting corn or soybeans, Barron suggests analyzing the following factors:

How many acres will you switch from your normal rotation?
What is your expected yield for each crop on each field?
Will you face increased capital requirements?
Will you need more equipment or labor?
Will your storage requirements change?
Are there any agronomic considerations/costs?
How will the additional bushels change your marketing plan?

“Look at your yield history and see which crop has been more consistent or provided the highest yields,” Barron says. “Subtle changes on your rotation might not impact your operation much but build a checklist to evaluate any likely bottlenecks.”

A key element to consider is your storage capacity. “For every acre you switch from soybeans to corn, your bushels and handling requirement can increase as much as 70%,” he says.

For example, just a 500-acre corn increase can add 70,000 bu. of grain to manage in the fall. That same shift can easily add as much as $125,000 of operating capital/cash.

Educated Agronomic Gambles

With your crop choices, you want to make educated gambles, says Farm Journal Field Agronomist Ken Ferrie. Think through all your agronomic choices and communicate with your team.

“We get to watch a lot of train wrecks, and 90% of those wrecks happen when farmers are changing the track,” he says. “What we usually see is a farm with a crop system everybody is following. Then the guy in charge of marketing and inventory sees a price opportunity and adds 800 more acres of corn. But that change doesn’t flow down through the rest of the group until next spring. The guy selecting hybrids didn’t know and the pest team wasn’t in on the decision. This causes major wrecks.”

If you are swaying from your normal crop rotation, understand the risks and rewards. For example, side effects of corn-on-corn production include a likely drop in yields, excessive residue and a high carbon penalty (large volumes of old crop residue stimulate microorganism populations and cause soil nitrogen to become tied up and unavailable until later in the season).

“You can manage the residue with row cleaners on your planter and you can also apply the needed nitrogen with your planter,” Ferrie says.

Your planting and harvest capacity are also a factor. “If you barely are getting corn planted now, you’ll be giving up bushels with more corn acres by not planting on time,” he says. “And, if you barely get done with corn harvest now, adding another 600 acres will be tough, especially if you are low on drying capacity.”

To ease bottlenecks, he says, plant short-, mid- and long-season hybrids to break up harvest.

Soybean-on-soybean production can be a little easier to manage, Ferrie notes. The biggest challenge is matching up traits and herbicides to manage weed and pest pressure.

In studying piles of yield maps, Ferrie says bean-on-beans typically suffer a 5 bu. to 7 bu. per acre decrease. To compensate for that drop, he suggests planting soybeans earlier than normal. (To read Ferrie’s advice on early-planted soybeans, visit AgWeb.com/high-yield-soybeans).

Lock in Profits

While maximizing yield is the most effective way to improve profit potential, Barron says a grain marketing plan is essential.

“Making sales or using option strategies to lock in a price floor is the only way in practice to take advantage of the opportunity you find on paper,” he says. “Have a strategic plan with rules for locking in profit opportunities to take some of the emotion out of the decision.”

You want a proactive and flexible plan, says Matt Bennett, owner of Bennett Consulting and partner with AgMarket.net.

“In the current environment, writing a hedge-to-arrive (HTA) contract without a large fee makes sense,” he says. “I certainly don’t want to mess with basis much because there’s so much that can happen with basis.”

Be open to making sales on your 2021 crops. Currently, Bennett says 20% sold in new-crop soybeans and 10% sold in new-crop corn are smart targets.

“We are staring profit margins in the face,” he says. “Now we have to decide if we have to roll the dice on making sales this far in advance at prices levels we’ve been begging for the last five years.”

When prices are high, Bennett reminds, there’s more risk of the bottom falling out than going up.

Create, review and update your plan. “At a minimum your cost analysis should be reviewed every 30 days as variables such as expenses, weather, growing conditions and other revenue streams impact your bottom line,” Barron says.

Grain Marketing Watch List

Will these elevated corn and soybean prices stick around? As the focus shifts to 2021 planting, market analysts Matt Bennett and Jerry Gulke suggest watching these key factors.

South American weather. Rain at the right time could shift production estimates in the growing season, which lasts until U.S. springtime.
Chinese demand. Will they continue to buy and exceed expectations?
U.S. agricultural policy. How will President-elect Joe Biden’s leadership play out in global trade?
COVID-19 impacts. Will concern over further shutdowns and food supply encourage countries to build strategic reserves? Or will a vaccine lessen that concern?
U.S. dollar value. If the U.S. dollar trends lower — or drop dramatically — U.S. products become even cheaper, which would entice global buyers.

Price is a Great Fertilizer

Since prices peaked in 2012, price direction has been down, says Jerry Gulke, president of the Gulke Group. High prices 2011 to 2013 incentivized production worldwide. The U.S. became a storehouse for the grain surpluses. “Trade tariffs and political rhetoric distorted markets and trading for a time, but the laws of supply and demand were not repealed,” Gulke says. “Rational price discovery is back in vogue again.”

Angie Setzer: Target Profitability Points

Tue, 01 Aug 2023 15:55:46 GMT

The rare occurrence of a downtrend in supply and an uptrend in demand put the grain markets on an upward trend to close out 2020. For 2021, be prepared for a good old-fashioned acreage battle. In response, create a disciplined marketing game plan. We asked eight analysts to provide their best estimates on price direction and market strategies you can employ in 2021. Here is one of eight.

Angie Setzer, Citizens Grain

Export shipments, monthly crush numbers and South American production potential will have my attention in soybeans. How these three factors evolve will give us great insight into the amount of risk premium soybeans need to have in place well into August.

Gasoline demand and its subsequent impacts on ethanol will be what I pay attention to for corn. It is possible a reduction in demand for ethanol could limit the positive impact of aggressive exports. Of course, South American production will have the ability to make or break our export potential.

The dollar is a dominating factor when it comes to global economic developments. In December it became clear bearish sentiment wanted to dominate. But, with all of the unknowns from COVID-19, it is possible this bearish breakout could be more of a fake out.

This year should not be about marketing at breakeven, but about a targeted point of profitability. Once you hit that point, make incremental sales as the market moves higher.

Do not enter into a contract you do not understand, and do not feel changing your approach is necessary. Don’t be bogged down by where the market could go. Instead focus on what the current market values mean for your operation.

Read More

Alan Brugler: Compute 12-Month Price Targets

Mark Gold: 3 Grain Market Factors to Watch

Richard Brock: Use the Right Tools to Make Grain Marketing Fun

Bill Biedermann: Grain Demand Curves Have Shifted

Brian Basting: Lock in A Floor, Maintain Flexibility

Naomi Blohm: Watch Global Energy Policies

Gain more grain marketing insights at the 2021 Top Producer Summit. Register now!

Disclaimer: This material has been prepared by a sales or trading employee or agent of these analysts and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions and agree that you are not, and will not, rely solely on this communication in making trading decisions. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that these analysts believe are reliable. Such information is not guaranteed to be accurate or complete, and it should not be relied upon as such. Trading advice reflects good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice provided will result in profitable trades.

The Long View: Grain Market Expectations To 2030

Wed, 26 Jul 2023 17:14:24 GMT

Increasing demand and economic recovery create stable outlook

The COVID-19 pandemic delivered a lasting blow to the global economy. As it slowly recovers, rising global demand for diversified diets and protein will continue to stimulate import demand for feed grains and soybeans, according to USDA’s Agricultural Projections to 2030.

Increased demand for these crops — as well as for wheat, rice and cotton — will be coupled with rising competition from countries such as Brazil, Argentina, the European Union (EU) and the Black Sea region.

Although strong trade competition continues, USDA reports U.S. commodities remain generally competitive in global agricultural markets.

Agricultural exports are expected to grow at an annual rate averaging 2% per year for the rest of the decade. For 2021, U.S. total agricultural exports are projected to increase by 12% to within $350 million of the 2014 record level because of higher prices and stronger export quantities of major field crops

FOCUS ON DEMAND

Corn prices are projected to fall from $3.65 per bushel in 2021/22 to $3.55 in 2024/25, but then remain stable. Growth in domestic corn demand is strongest for feed and residual use, driven by domestic meat production to meet both domestic and export demand for beef, pork and poultry.

Soybean prices are projected to start at $10 per bushel in 2021/22, and to fall through 2025/26 before slowly rising the remainder of the projection period. USDA projects Brazil will take the biggest share of China’s future soybean demand, but U.S. exports and prices also benefit from revived Chinese demand.

2023 Weather Outlook: Ready the Snowplow

Thu, 20 Jul 2023 19:37:11 GMT

Be ready for a colder and snowier winter versus recent years

Persistent drought in the West had producers yearning for precipitation all year. The solution might come in the form of winter weather events, according to some ag meteorologists.

The back-half of December, which quickly turned cold, will continue into January, says Bret Walts, lead ag meteorologist at BAMWX.
“High pressure above the high-latitude areas will likely allow colder-than-normal temperatures to persist across the northern and eastern U.S. for January,” he says. “This looks to be a pattern that is a bit less favorable for snow in the Plains but will remain active in the winter storm department across the East.”

In February, Walts predicts the southeastern U.S. will warm up, as the below-normal temperature levels will stay in the central and western portions of the U.S.

“This should set the stage for an active month of winter weather for the Plains and Midwest, with frequent bouts of very cold air in the Northern Plains,” he says.

However, Walts says February will find the eastern third of the country might start to get some tastes of spring with a warmer March on the way in the East.

Cold Temperatures to Start 2023

Frigid temperatures are forecast to be widespread during the first two months of 2023, according to data from BAMWX.

LACKLUSTER LA NIÑA

As spring moves in, the La Niña pattern will lose its hold, according to Drew Lerner, senior ag meteorologist at World Weather.
“La Niña is a five-month running mean of sea surface temperatures in the eastern Pacific Ocean,” Lerner says. “Because of this definition, La Niña will remain in place long after sufficient weakening has happened, allowing weather patterns to begin influencing world weather. This is where some forecasters and analysts get the forecast wrong.”

TOO LITTLE, TOO LATE

Lerner says in January, La Niña will be on its way out, paving the way for a potential neutral pattern. This shift will bring wetter weather to the Great Plains and western Corn Belt in February and March, with some relief in late January.

While there will be some beneficial precipitation in the winter months, Lerner says it will yield mild soil moisture improvement.

In the Plains and western Corn Belt, Lerner expects relief in late winter and early spring, followed by dryness. “I think that’ll have a huge influence on the marketplace and spring planting,” he says.

Cotton Tug-of-War: Production and Prices Battle It Out for 2023

Wed, 25 Jan 2023 16:25:07 GMT

Cotton production will hang by the thin threads of demand in 2023 — and prices will likely sway in the 80¢ to 85¢ per pound range, depending on La Niña’s trajectory. Patience might be the most valuable tool for producers this year, especially when it comes to navigating the economic landscape.

Prices and Production

“New crop December 2023 futures are in the neighborhood of 80¢,” says Don Shurley, University of Georgia’s professor emeritus of cotton economics. “This does not inspire cotton acreage but much will also depend on the price of competing crops, production costs and the individual farm situation dictating rotation and flexibility,” he explains.

Mark Jekanowski, USDA Outlook Board chairman, recently shared his takeaways from USDA’s most recent supply and demand report and sheds light on what to expect in terms of production and trade for the upcoming marketing year:

U.S. production is forecasted at 14.68 million bales.
Global production is projected at 115.40 million bales.
World consumption is down to 110.9 million bales due to decreased use in India, Indonesia and Vietnam.
U.S. exports are forecasted at 12 million bales, down from 14.6 million bales in 2021/22.
Global exports are forecasted at 41.7 million bales, down from 42.9 million bales in the previous marketing year.
U.S. ending stocks are expected to be 4.2 million bales, representing 30% of projected use.

Challenges

It is no secret the cotton industry’s infrastructure capacity continues to stretch beyond comfortable levels, especially in the Western states. It is also no surprise producers are cautious and apprehensive when it comes to scaling current operations due to inflation, a shifting La Nina and lingering logistical challenges.

Inflation seems to be one of the biggest obstacles facing producers. Jeff Thompson of Autauga Quality Cotton predicts additional rate hikes in the coming months.

“As expected, the Fed raised interest rates for the fourth time this year. Smaller than those previous, it was their comments afterward that shook both equity and commodity markets,” he says. “Even though consumer prices fell in November to an annualized rate of 7.1%, down sharply from June’s 9.1%, the red-hot labor market has the Fed believing high inflation will continue through 2023 thereby suggesting additional rate hikes will be forthcoming.”

During a recent roundtable discussion hosted by the Ag Market Network, O.A. Cleaveland of Mississippi State University discussed the infrastructure challenges pertaining to the rising cost of equipment.

“With this kind of additional risk it’s just more and more headache and pencil pushing,” which impacts everyone from producers to the mill, Cleveland says.

Brad Pippington, a producer also on the roundtable discussion, says farmers are “at the point they don’t know where to sharpen it anymore.”

Although drought conditions in the South have caused concerns, the National Oceanic and Atmospheric Administration (NOAA) is forecasting the La Niña advisory to continue through the winter, with hopes of a spring slowdown.

“That typically means a lot of clipper systems and bouts of cold air for northern areas, while leaving the South warmer and drier,” says John Baranick, NOAA meteorologist.

For daily news and updates, sign up for AgFax’s Cotton After Hours .

For boots-in-the-field reports during the season, sign up for AgFax’s Southwest Cotton, Southeast Cotton or Midsouth Cotton newsletters .

Is the Low for 2023 Grains Already In? “That Depends,” Experts Say

Thu, 22 Dec 2022 21:43:17 GMT

The U.S. farm economy has farmers such as Ben Riensche of Blue Diamond Farming Company in Iowa optimistic about the future.

“I think you can say farming has a pretty good seat on the bus of inflationary times,” Riensche says. “Our output is worth more, it’s highly priced across the end-user space, our asset values are stronger, including farmland, and the machinery we have in our fleet is worth more.”

Riensche says when times are good, he searches for things that can make money while he sleeps.

“I’ve never been through an upcycle like this where I didn’t wish that I used it to get ready for that rainy day,” he says.

Strong farm income is helping him reinvest. According to USDA’s December estimate, net farm income in 2022 is forecast at $160.5 billion. If realized, it would be the highest since 1973 and more than 50% above the 20-year average – when adjusted for inflation. Net cash farm income would be the highest since USDA started keeping these inflation-adjusted numbers back in 1929.

“The last two years have seen exceptional returns to row crop producers,” says Farm Journal Economist Chip Flory. In 2022, grain prices picked up where they left off in 2021— moving higher and staying there. “As we look at the upcoming planting season of the major crops, we are looking at some of the highest profitability levels of the past two decades,” says Dan Basse, president of AgResource Company. “Farmers should lock down some of these margins and prices.”

The Kansas City fed agrees finances are strong. Loan demand is slowing, and bankers say the risk of defaults or collapse remains extremely low heading into the new year.

“When we look at the lending side, we see high levels of liquidity,” says economist Matt Roberts, formerly of Ohio State and now the senior grain and oilseed sector analyst with Terrain. “Overall, we see very low levels of stress in loan portfolios across the country.”

Ag bankers such as Alan Hoskins, president of American Farm Mortgage Company, say the stability and certainty of modern crop insurance helps to limit downside risk.

“Unless we would see commodity prices fall off the table going into 2024, it would certainly look like crop insurance is going to provide some pretty good guarantees,” Hoskins says.

New Demand Driver

The climate focus in Washington is also supporting a new demand driver for U.S. farmers — renewable diesel and sustainable aviation fuel.

“As we build out infrastructure for renewable diesel, we’ve got a 23% increase in U.S. crush rates coming over the next couple years,” Basse says. “Never before have we had 23 new crush facilities, or let’s say upgrades, occurring at the same time. So, there’s bullishness in the background here.”

Flory agrees the current surge in vegetable oil demand is something the industry hasn’t seen before.

“It’s going to change the flow of soybeans and soy products around the world,” he says.

While a new demand driver has the potential to undergird grain markets in the future, it doesn’t mean there won’t be challenges ahead. After hitting near 10-year highs in soybeans corn and wheat, the question is, “What’s next for prices?”

“We really haven’t tipped over yet because we’re not sure about South American production, or next year and whether there’s a drought,” says Alan Brugler of Brugler Marketing and Management. “Prices always fall it’s just how soon.”

“It’s really tough to predict that though because of the global dynamics,” Flory adds. “On an input basis, or on a margin basis, I think maybe we’ve already seen enough of a setback that we could begin another positive move higher and a strong farm economy going forward.”

Is it possible? Yes. Will it happen? The unknowns always remain unknown.

“If the market were to see something like a global recession, or South America has big crops, or in the Black Sea, the war is over, those kinds of things would cause declines in farm income and leave us in a precarious position,” Basse explains. “Heading into 2023 we’re in a good spot. The question is, what do we want to do with the market and the opportunities ahead of us?”

Machinery Pete: Death, Taxes and Change

Mon, 21 Nov 2022 16:23:17 GMT

You know the saying: The only two certainties in life are death and taxes.

This phrase has an interesting origin, dating back to a 1789 letter Ben Franklin wrote to French scientist Jean-Baptiste Leroy. Franklin’s knowledge and writing skills have stood the test of time.

But I think Franklin left something out. Death and taxes are not the only two constants. They have a third cousin — change.

More than two centuries after Franklin’s letter to Leroy, some guy who would come to be known as Machinery Pete started his journey of compiling auction prices on farm and construction equipment sold in North America. It was November 1989. What an amazing 32-year ride it’s been.

As I look to the future of the farm equipment market, I find myself looking back to draw on lessons I’ve learned in the past decades. Change has always been the fulcrum upon which truths become evident. So, I present my thoughts on the future.

1.No one can predict the future.

How’s that for a first proclamation? We can make educated guesses, but who could have known commodity prices would surge the way they did in the fall of 2020, during a 100-year pandemic? Things are the way they are, until they aren’t.

My advice is to train yourself to not take the “grumpy old man approach” to change. Life is too short for that mindset. Change brings opportunity, which is often good.

2. The pace of change is increasing – rapidly.

When I started compiling auction sale data in 1989 , there was no internet. I mailed out four books a year. You had to wait three months to get the latest auction prices. Imagine that now. When it comes to farm equipment, the amazing progression of precision ag technology will only move faster. Bring it .

3. The used equipment market has evolved.

Change sneaks up on you. Long-held unchallenged beliefs can go ... poof.

Farm equipment dealers will always have way too much late-model equipment stuck on their lots. That was the case until several factors changed that trend.

Dealer consolidation has progressed in an aggressive fashion. Fewer, larger and more well-capitalized dealerships take a different approach to used equipment inventory management. “Hold and hope” was a necessary faith-based approach of the former myriad of smaller dealerships. Frankly, they couldn’t afford to move the entirety of their large excess of late-model used inventory. They would have been out of business.

Today, dealer used inventory levels are the tightest I’ve ever seen . Late in 2021, dealers were piling into the auction market as buyers They needed more used inventory.

4. Trusted data is becoming more important.

So how can you navigate our ever-changing world? Lean on the best, most trustworthy data and information you can find. Tune out the white noise and tune in to trusted data. Lasting truths are found there, which you can apply and help your farm thrive.

The lasting truth I offer from my life of tracking sale data: It pays, literally, to take great care of your farm equipment. That won’t change.

Tap into the latest from Machinery Pete, the most trusted name in farm equipment.

Bid Now in Machinery Pete’s Online Auction Closing December 21

USDA Forecasts Farm Sector Profits to Remain Above Average in 2022

Wed, 05 Oct 2022 18:44:12 GMT

USDA released its latest farm sector profit forecast on Thursday. According it’s estimates, farmers may fare better than previous years in many 2022 balance sheet boxes.

Net Farm Income

Net income, a broad measure of profits, is forecast by USDA at $147.7 billion in calendar year 2022, an increase of $7.3 billion (5.2%) in 2022 relative to 2021.

The 2021 value is an increase of $45.9 billion (48.5%) relative to 2020. When prior years are adjusted for inflation, net farm income in 2021 was at its highest level since 2013.

Net farm income in 2022 would be $0.9 billion (0.6%) lower than in 2021 yet 42.1% above its 20-year average (2002–21) of $104.0 billion in inflation-adjusted dollars.

Net Cash Farm Income

USDA forecasts $168.5 billion in 2022, an increase of $22.1 billion (15.1%) relative to 2021. The 2021 value was $29.6 billion (25.4%) above 2020.

When adjusted for inflation, 2022 net cash farm income is forecast to increase by $13.5 billion (8.7%) from 2021 and be at its highest level since 2012.

Net cash farm income in 2022 would be 34.5% above its 2002–21 average of $125.3 billion. Net cash farm income encompasses cash receipts from farming as well as farm-related income (including government payments) minus cash expenses.

It does not include noncash items — including changes in inventories, economic depreciation, and gross imputed rental income of operator dwellings — reflected in the net farm income measure above.

Cash Receipts

From the sale of agricultural commodities, USDA forecasts cash receipts to increase by $91.7 billion (21.2%, in nominal terms) from 2021 levels to $525.3 billion in 2022.

Total crop receipts are expected to increase by $36.4 billion (15.3%) from their 2021 level following higher receipts for soybeans, corn, and wheat. Total animal/animal product receipts are expected to increase even more from the previous year, by $55.3 billion (28.3%), following increases in receipts for all categories of animal/animal products.

These increases would put total cash receipts in 2022 at their highest level on record, even after adjusting prior years for inflation.

Government Payments

While cash receipts overall are expected to increase in 2022, lower direct government payments and higher production expenses are expected to moderate income growth.

Direct government payments are forecast to fall by $12.8 billion (49.7%) from 2021 to $13.0 billion in 2022. The decrease is expected largely because of lower supplemental and ad hoc disaster assistance for COVID-19 relief in 2022 compared with 2021.

Total Production Expenses

This number, including operator dwelling expenses, are forecast to increase by $66.2 billion (17.8%) to $437.3 billion (in nominal terms) in 2022.

Spending on all categories of expenses is expected to rise with the largest increase in fertilizer-lime-soil conditioner expenditures, up 44%.

Average Net Cash Farm Income

USDA forecasts farm businesses to fall 3.3% from 2021 to $98,200 per farm in 2022 (in nominal terms). However, the regional average net cash farm income outlook is mixed.

For farm businesses located in the Northern Crescent region, average net cash farm income is forecast to increase in 2022, but it is forecast to decline for farm businesses in all other regions when adjusted for inflation.

Farm businesses specializing in dairy are expected to see the largest growth in average net cash farm income in 2022, while those specializing in wheat, cotton, and specialty crops are expected to see the largest declines in 2022.

Farm Sector Equity

Ag equity is expected to increase by $315.6 billion (10.4%) in 2022 to $3.34 trillion in nominal terms.

Farm sector assets are forecast to increase $337.5 billion (9.7%) in 2022 to $3.84 trillion following expected increases in the value of farm real estate assets.

Farm sector debt is forecast to increase by $21.9 billion (4.6%) in 2022 to $496.0 billion in nominal terms but it is forecast to fall by 1.2% when adjusted for inflation.

Debt-to-asset levels for the sector are forecast to improve from 13.56% in 2021 to 12.93% in 2022.

Working capital, which measures the amount of cash available to fund operating expenses after paying off debt due within 12 months, is forecast to fall by 2.6% in 2022.

For more details, visit USDA ‘s site.

More on ag business:

Why You Need to Understand Adjusted Gross Income
USDA Doubles Down on Equipment Gains

2021 Livestock Market Outlook Roundup

Wed, 05 Oct 2022 18:44:12 GMT

The editors at AgWeb.com are looking at experts’ projections for a variety of commodities in 2021 to help you succeed and be profitable in the coming year. Here’s a look at what analysts are expecting for the upcoming year in the protein segments.

2021 Beef Outlook: New Challenges, New Opportunities

Disruptions to the beef industry from the COVID-19 pandemic will likely linger into 2021, but the result may not be all bad for producers, Don Close, animal protein analyst at Rabo AgriFinance told AgriTalk.

Read more.

U.S. Pork Outlook: Will 2021 Be Different?

Five respected economists in the pork industry share their insight on what’s ahead in 2021 and ways producers can make the most of new opportunities ahead.

Read more.

2021 Milk Price Outlook: Throw the Crystal Ball Out the Window

Government intervention creates a level of uncertainty that makes a 2021 milk price forecast nearly impossible.

Read more.

2019 Outlook: Ag Technology

Thu, 22 Sep 2022 04:17:28 GMT

Yield monitoring and precision ag technology have been on the farm for almost three decades. However, many industry voices say there are still huge strides to be gained in maximizing today’s technology as well as the gains that will come from future technologies used on the farm.

“Agriculture needs technology, but technology needs agriculture because it can showcase the opportunities of technology,” said Josh Henretig, senior director of Microsoft’s AI For Earth at the 2018 Farm Journal AgTech Expo. According to AgFunder, in 2017 there was $2.6 billion invested in agtech.

Henretig went on to say that we are collecting, creating, using, and storing data in ways like we never have before, which are all catalysts for how artificial intelligence (AI) can be used.

“There are four ways AI is empowering decisions: descriptive analytics (what happened), diagnostic analytics (why it happened); predictive analytics (what might happen); and prescriptive analytics (what can I do based on available resources),” he explains.

Others also see the emerging potential of AI in agriculture.

“I see artificial intelligence as a game-changer, but we have to have the quality and quantity of data to back it up,” says Steve Cubbage of Record Harvest. “I still question if we have good enough data to make AI come to the farm level. Also, I’m looking for a company who can bring together the Internet of Things. Right now, it’s very disjointed out there. You adopt a sliver of a technology on your farm, but who ever can bring that together as a whole will be a game-changer.”

One AI-enabled technology that might come first is remote sensing to improve scouting, says Tim Norris of Ag Info Tech in Ohio.

“I look at the Teranis product as an example , which can see the weed pressures and insect pressures with imaging and measure infestations. This could take our scouting to a new level,” Norris says.

In his consulting business, Norris applies the motto “precision with a purpose.”

“We want every technology a farmer implements on their farm to actually solve something they are having trouble with,” he says.

This focus on ROI is echoed by Cubbage.

“As we look to 2019, I encourage farmers to take a deep breath and really look at what will pay back on their farm. Farmers have to have a laser focus on what will make them money in the coming year because we have really tight margins, and technologies should be looked at as what can help immediately,” he says.

When it comes to the agronomic applications of technology, Farm Journal Field Agronomist Ken Ferrie says farmers can keep focused on management to maximize three things: sunlight, water and nutrients. He says a sound agronomic foundation will be required for any return on the technology investment to be achieved. This includes hybrid selection, placement and populations.

Plant genetics are another application of technology with accelerated results coming to the farm. As former Monsanto (now Bayer) chief technology officer Robb Fraley said at the 2018 AgTech Expo, with all of today’s breeding technologies, we can find the one in a trillion trait in just three months of research work.

Plant breeders are using technologies such as AI and gene editing to be more precise and faster in their development of advanced genetics.

So where are other opportunities? Pete Nelson with AgLaunch, who works every day with emerging technologies and startups, says the biggest winner with technology will be the good growers who are already able to synthesize data, genetics and all of the pieces in their daily farm management to optimize efficiencies.

“I see new market opportunities for farmers, so in 10 years, I think there will be 20 crops instead of five, and the supply chain from on-farm storage to customer development will change,” he says. “There won’t be one silver bullet with technology tools. It’ll be a wholistic approach to look how all the pieces fit together.”

Many of the above sentiments were illustrated at the AgTech Expo with the four agtech startups participating in the Innova $100,000 Row Crop Challenge powered by AgLaunch:

Kopper Kutter : Kopper Kutter, LLC offers ARRO (Alternating Rotary Rowcrop Option) conversion kits for cornheads so that they can reliably harvest sorghum, sunflowers, and many other crops.
Rogo (formerly AgNext): The SmartCore by Rogo (formerly AgNext) uses a fully-autonomous robot that collects and packages soil samples with complete depth-, pattern- and location-consistency to give farmers more accurate soil data so they can make more profitable fertilizer decisions.
SioTeX : SioTeX is an eco-friendly specialty chemical manufacturer that makes a pure biogenic amorphous silica from rice hulls. Agricultural customers use the silica as a high-quality soil amendment to protect plants from mites, fungus, and stress and to increase crop yields.
Smart Farm Systems : Smart Farm Systems provides farmers with a precision irrigation monitoring and control system that allows them to apply just the right amount of water at just the right time on a field-by-field basis, conserving resources, improving crop yields and profitability.

The winner was the Arro corn head conversion kit for harvesting specialty crops.

Learn more about where agtech is headed from our expert panelists featured on stage during the AgTech Expo:

The September USDA Report Indicates Upside Price Potential Moving Forward

Mon, 19 Sep 2022 05:21:57 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 9/17/22

Corn

Last week’s USDA report showed corn carryout may end up being one of the tightest since 2012. While the yield estimate dropped to trade expectations, the USDA also decreased the harvested acre estimate by another 1 million. This is nearly equivalent to lowering the national yield by another 2 bushels per acre.

While this is good news for producers, and could mean the tightest carryout in a decade, it does not guarantee the market will eventually trade above $8. Higher prices may restrict global demand. With worldwide recession concern, and the US dollar at a 20-year high, corn usage around the world may ration itself at these price levels.

Seasonally, the market usually pulls back as harvest moves north in late September. Therefore, the market may be range bound for the next 4-6 weeks between $6.50 and $7.00 until more is known about the actual size of this year’s crop.

Beans

For beans, the USDA decreased the yield estimate below what most in the trade expected. Currently, next year’s carryout estimate looks to be the lowest in 7 years. Like corn though, global bean demand is still uncertain.

In the short-term, the upcoming US harvest should keep pressure on prices through at least mid-October. Long term, the potential size of South America’s next crop will dictate price direction, any weather issue in the southern hemisphere in December or January could mean explosive bean prices.

Bottomline:

This month’s USDA report was favorable to producers, but moving forward, demand will be heavily impacting prices.

Want to read more by Jon Scheve? Check out recent articles:

Avoid Catching “Backyard-itis”

If Yields Are As Low As The Pro Farmer Tour Indicates Then $9 Corn Is A Possibility

Corn Basis Is Imploding Around The Country

The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Avoid Catching “Backyard-itis”

Mon, 05 Sep 2022 14:32:28 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 9/5/22

The market is struggling to accurately estimate yields in the field. Plus, demand remains uncertain, especially with China’s new covid city lockdowns this past week. Concern over the world economy has kept pressure on the markets as well. It seems the market could be in a holding pattern until the September 12^th USDA yield report is released.

Avoid Catching “Backyard-itis”

“Backyard-itis” describes farmers who feel the weather conditions in their immediate area are more widespread than they really are. Usually, it happens when a farmer’s crops are not doing well, but I occasionally see it the other way too. A common symptom of this “disease” is wondering why the markets are not reacting as much as they should, given the weather conditions a farmer is seeing nearby.

Recently, I have seen many social media posts of farmers with their corn ears estimating yield potential. Like every other year, there are WAY more posts showing potential production issues compared to healthy ears. It seems farmers do not normally post when things are going well, maybe out of superstition that any positive comment will “jinx” their final yields. Or maybe, some worry that positive yield posts could make the market drop.

With the corn belt being 1,000 miles long and 500 miles wide, the 50-mile radius around anyone’s farm only represents 1.5% of the entire county’s corn growing area. That is not a big enough sample size to really impact the national yield. Even if someone drove all around in a 100-mile radius of their farm, it would still only be 6% of the entire corn belt.

I have also found that where farmers are located often determines what they think the national yield will be too. When I ask farmers about their yields in the “I” states, and their crops do not look good, they think the national yield will be much lower than what is being reported. Farmers in most of the other states are more realistic with their national yield estimates because they recognize that their “backyard” does not matter as much within the country as a whole.

With my farm in southeast Nebraska, I know how difficult it is to watch a crop dry up and reduce yield in the field. We have often missed out on good rains, while the “I” states received good consistent weather, so the market does not go up. Our little area does not affect corn values across the country, so we must pay attention to the entire corn belt to get a true understanding of widespread crop potential and how prices will be affected.

Talking To Other Farmers Throughout the Corn Belt

Conversations between farmers across the corn belt can be tricky because information can often be misinterpreted or misleading by accident. When asked how their crop looks this year, a farmer may say, “yields are nowhere close to last year.” This can sound concerning, especially if someone is unfamiliar with the area or what last year was like.

To maintain perspective, follow up questions like, “what were your yields last year” and/or “what are normal yields for you” can help a lot. That same farmer may then say, “they raised a record crop last year and it was 10% more than normal.” Based on that additional information, normal yields and weather to that farmer may be disappointing this year. However, in reality, they may be reacting more pessimistically than they should.

Be Careful Listening to Someone Talk About Their Position

I also find that when I ask farmers how much of their new crop is sold or how much of their old crop is still in storage that it will shape their attitude toward the market. I usually find that a farmer with no new crop sold, and old crop still left in the bin, will view their crop conditions and the national yield differently than farmers who have their new crop sold or are using risk management tools to protect it. Farmers aren’t alone in this bias, most market analysts and end users will often do the same thing as well. It seems to be human nature to have a perspective that suits your hopes and wants.

BottomlineSeeking to understand the full scope of crop conditions is good, but it is important to avoid seeking out answers that only justify your desired outcome. It is usually more profitable to gather information with an open mind to the results, which can open the door to more profitable marketing strategies and opportunities.

Want to read more by Jon Scheve? Check out recent articles:

If Yields Are As Low As The Pro Farmer Tour Indicates Then $9 Corn Is A Possibility

Corn Basis Is Imploding Around The Country

The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Sales At Lower Values Can Pull Averages Down Quickly

Shifting Sales Between Crop Years Nets A 90 Cent Profit

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

If Yields Are As Low As The Pro Farmer Tour Indicates Then $9 Corn Is A Possibility

Wed, 31 Aug 2022 18:47:22 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 8/31/22

The recent Pro Farmer Tour estimated a national yield of 168.1. If this happens prices will skyrocket much higher, because the lower yields would decrease carryout, and demand would have to be rationed.

However, in 8 of the last 10 years, the Pro Farmer’s corn yield estimate was between 2 and 6 bushels below the final USDA yield estimate posted in January. The market seems to be disregarding the Pro Farmer estimate though, and instead, is trading something closer to the August USDA production estimate. Weather data throughout the corn belt, along with satellite imagery, is indicating that yields are likely still in the mid 170’s.

Estimating Upcoming Price Potential Using the Stocks to Use Ratio

Comparing the stocks to use ratio between crop years is a common measure for determining how tight carryout is compared to other crop years. It essentially accounts for yield and demand inflation over time. It is calculated by taking final carryout divided by total usage.

In 2012, the stocks to use ratio fell to 7.4%, the 2^nd lowest ratio ever, behind only the 1995 harvest that had a 4.9% ratio. In both years prices rallied significantly to thwart demand. From 2013 to 2021, the stocks to use ratio did not fall below 9.2%, except for the 2020 crop year when it fell to 8.3% and prices traded above $8. Otherwise, from 2013 to 2021, the stocks to use ratio ranged between 9.2% and 15.7% with prices trading between $3 and $5.

Supply, as measured by the national yield, is the quickest variable change that can impact the stocks to use ratio. Additionally, any price increase would likely slow demand, so focus must be on feed, ethanol, and exports. In the latest USDA report, the combined feed and ethanol demand estimate for the coming year is right in the middle of the range seen over the last 8 years. This means export demand is probably the category that could be most affected. This makes sense because the US competes with other corn producing countries for the world’s business.

The following chart includes several different yield potential scenarios between what Pro Farmer published, and the latest USDA estimate. The stocks to use ratios are then calculated at the bottom.

All demand and carryout values in ‘000

This chart indicates that a major production decrease could mean an extremely tight stocks to use ratio and would warrant a major price rally to slow demand. It seems likely that if yields decrease substantially, exports will fall as prices would rally. Even small cuts to production could mean much less corn being exported as shown in the orange highlighted section. Basically, any yield reduction may mean tighter carryout and better prices.

Bottomline

Looking just at USDA estimates, corn values in the $6’s seem well supported. However, if the yields are as low as the Pro Farmer estimates published last week, then prices will need to trade much higher, possibly to new record values.

Want to read more by Jon Scheve? Check out recent articles:

Corn Basis Is Imploding Around The Country

The Corn Market Has Upside Potential And Depending On Weather Beans Could Still Be Explosive

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Sales At Lower Values Can Pull Averages Down Quickly

Shifting Sales Between Crop Years Nets A 90 Cent Profit

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Having A Risk Management Strategy Makes Big Market Drops Easier To Handle

Mon, 08 Aug 2022 13:19:22 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 8/7/22

Ukraine Situation

Four ships loaded with wheat and corn left Ukraine last Friday. Another four loaded over the weekend. However, depending on the vessel size, it will still take another 500 to 1,000 ships to move the remaining grain still left in storage there. The deal negotiated two weeks ago set a goal of loading 3 ships per day out of Black Sea ports, with a renewal of the agreement every 120 days. While the deal has potential, logistically there is no guarantee all the old crop in storage will be moved in time to allow enough room for the new crop that will be harvested soon.

It is still uncertain how many acres will be planted there this fall and next spring. Insurance costs to move grain out of Ukraine by ship has increased by 20 times, which will be passed down to the Ukraine farmer. Plus, moving freight through a war zone costs more too, which will also be passed on to the Ukrainian farmer. This means final cash values could be below production costs for producers, and lead to fewer acres potentially being planted this fall or next spring.

Weather

For the last 5 weeks, weather predictions on Fridays showed widespread hot and dry weather; however, by Monday morning forecasts changed to more precipitation and cooler temperatures each week. While most corn has passed the crucial time when moisture is needed most, final kernel fill will be determined in the next week. It is now the crucial moisture time period for beans. Moving forward, weather can still impact corn some, but beans will be the most affected.

USDA Report

The USDA’s first look at corn yields using satellite data is Friday, and national yield predictions are wide-ranging from as low as 170 to as high as 178. Based on precipitation maps, corn yields might be closer to the 176-177 range. However, if hot and dry weather persist through mid-August, the national corn yield could pull back in the September USDA report after the first samples are officially tested and as harvest reaches I-70 giving the market more information to digest.

2022 Crop Position

As I shared in past weeks, I had 30% of my 2022 crop sold with an average futures value of $6.40 during the run up at the beginning of the year. I then rolled 20% of the 2022 sales back to 2021, leaving me 10% of 2022 sold at a $6.40 average.

Market Action

I was confident rolling these sales back in late June because on April 19^th I had bought $6.80 puts for 40 cents on 70% of my anticipated 2022 production, represented by the yellow X below.

This meant I had a $6.40 guaranteed floor price on 70% of production. Including the 30% sold at $6.40 futures, I had 100% protection on my 2022 crop at $6.40. This was substantially higher than my breakeven for the year, and one of my highest guaranteed profit margins I have ever locked in at the start of planting.

After moving the 20% new crop sales back to old crop, I am left with 80% of my 2022 production protected with a guaranteed $6.40 floor. I am comfortable with the remaining 20% unprotected from the rolling of corn between crop years, because I have plenty of storage available to keep it in the bin until next summer while I wait for an opportunity.

With the price pull backs since early June, I’m glad I have a floor price on most of my 2022 crop. With hindsight, I may have wished I sold more corn at higher values. However, my strategy at the time allowed for unlimited upside potential on most of my production and a guaranteed profit if prices went down. When I placed the trades in early April there was a lot of concern around the potential planting pace in the US as well as the war in Ukraine. If you also include the risk of dry summer weather due to La Nina conditions, upside price potential at the time looked potentially record breaking.

Even today, if the average national yield decreases or the situation in Ukraine changes, prices could still push to record breaking levels.

Want to read more by Jon Scheve? Check out recent articles:

Sales At Lower Values Can Pull Averages Down Quickly

Shifting Sales Between Crop Years Nets A 90 Cent Profit

How I Managed Spreads And Basis To Add 48 Cents Profit To My Final Corn Price

Understanding How To Trade An Inverse Market Can Add Profits To A Farm Operation

It Was A Disappointing Week, A Lot Of Market Questions Remain

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

How I Managed Spreads And Basis To Add 48 Cents Profit To My Final Corn Price

Mon, 18 Jul 2022 14:32:35 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 7/15/22

Recession fears continue to plague the market, preventing any major buying by the funds. While weather forecasts are changing daily, the latest USDA national yield estimate of 177 could still be achieved. However, if widespread extreme heat continues with little rainfall over the next two weeks, the national yield average may decrease by 1 or 2 bushels, which would likely mean upside potential in the corn market.

Market Action

Last week I explained how I rolled my July sold futures positions to the May contract and collected 48 cents. This was made with a basis trade at the same time. Following provides some historical context on why I made the basis trade and the final outcome.

During the first few weeks of the Ukraine war the market was very nervous. Traders and risk managers started making trades that covered their needs, anticipating worst case scenarios.

Initially, there was a lot of panic and fear, so the market went into “buy everything” mode. Wheat was the first commodity to really take off. End users began moving their bids against the May contract to the July, September, or even the December contracts for immediate shipment, because the May contract was climbing much faster than later months. This meant cash values were not climbing as fast as futures. No one knew what would happen next because sellers were unsure if they should continue to hold grain or sell immediately and, buyers wondered how they should hedge the grain they were purchasing. There was concern this uncertainty would carry over into the corn market too.

Seven trading days after the war started May corn futures went from $6.80 to $7.80. From February 28^th to March 3^rd, corn futures spreads between the May and July contracts widened from a 12-cent inverse (i.e., May was 12 cents higher than the July contract) to a 50-cent inverse.

Early on the morning of March 3^rd, I noticed grain buyers in the eastern corn belt moved their basis bids to the July contract. I figured it was only a matter of hours before western corn belt grain buyers did the same.

Therefore, I set my basis with one end user for the best delivery time value they had posted. That ended up being the April/May shipment period against the May futures. This shipment time period was higher than the March shipment period shown in the chart below by the yellow X. I made the trade on 70% of my 2021 corn production.

The chart above shows the posted spot March shipment period bids from several nearby end users, with freight rates from my farm subtracted from the price. When all freight rates were considered, several buyers were basically bidding the same price to me. The basis at my local end users did drop at the close of trading on March 3^rd as seen in the chart above and continued to drop over the next 2 weeks by another 30 cents.

Since this basis trade was set against May futures, all my hedges in the July futures contract needed to be rolled back to the May contract. This enabled me to also capture additional profit on the huge market inverse of 48 cents represented by the green arrows in the chart above.

This meant the basis value I sold for corn picked up on my farm for -10 on May futures was like trading +38 on the July futures picked up on my farm. This type of level would equate to the best basis value I have EVER sold, or even seen available to me for my farm, including the drought crop years of 2011 and 2012.

I could have chosen to not set basis and just rolled the July contract back to the May futures and hoped the spread would eventually collapse and then look to roll the spreads again back to the July and set basis in June. However, many in the trade told me they expected the spread to go to levels substantially higher than where it was trading much like the year before (see in the first chart). I was concerned the basis would drop more than any gain I may get from trading the spread. That’s why I wanted to minimize my risk by moving any grain with futures sales against it, at values that I knew at the time were the best ever.

Another 10% of my production also had a futures price objective hit against the May contract right after the invasion. I set the basis on those bushels at the same time but was not able to capture the spread trade premium since those sales were not ever in the July contract.

This basis trade cleaned up the ’21 crop short positions in my hedge account and left me with 20% of my production unpriced on both futures and basis. At the time I was unsure what to expect from the markets with the first war in Europe in over 80 years. I felt the best risk management plan was to avoid guessing what the spreads, basis or futures were going to do from that point forward during a time of war. I moved to the sideline and waited for more information.

Next week I will share what I did with the last 20% of my grain in the bin.

Want to read more by Jon Scheve? Check out recent articles:

Understanding How To Trade An Inverse Market Can Add Profits To A Farm Operation

It Was A Disappointing Week, A Lot Of Market Questions Remain

Basis? Spreads? War? Weather? Acres? Many Variables Still Impacting The Market

Is the Basis Market Indicating A Potential Corn Futures Rally?

Are Corn And Wheat Overvalued?

Are Beans Trying To Buy Acres Away From Corn?

Do Market Conditions Warrant $8 Old Crop Corn And $7.50 New Crop Corn?

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Where Could Corn and Soybean Prices Be this Fall?

Sat, 28 May 2022 14:08:54 GMT

Where will corn and soybean prices be this fall? Using history as a guide, be ready for very different prices than we see today, as prices typically shift from May to October.

That’s according to the recent analysis by economists at farmdoc daily. Read their analysis: Potential 2022 Fall Prices for Corn and Soybeans Based on History .

Researchers Gary Schnitkey, Krista Swanson, Carl Zulauf and Nick Paulson analyzed changes in future and cash prices for both corn and soybeans from May to October.

Their analysis finds that while futures and cash prices are directly correlated, cash prices decrease more often in years of falling prices than futures do.

Using CME futures and cash prices from 2001 to 2021, the year-over-year data shows:

• Corn cash prices have a 25% chance of being $7.59 in October.
• Soybean cash prices in October have 20% chance of hitting at or below $12.

Using the CME’s December futures and cash prices, researchers found outlooks on corn cash prices show almost no chance of $4 per bushel or lower. Around $5 or lower reigns slightly higher at 12% probability, with $6 or lower having odds of 23%.

Based on CME’s November futures and cash prices data, the researchers believe the odds of cash prices of $10 or lower soybeans come in at 5%, with $11 or lower prices near 8%, and 5% chance of exceeding $18.

From 2001 to 2021, the change in May to October corn cash prices averaged -2%, while soybeans averaged a 1% change.

More on markets:

Jerry Gulke: What Can Farmers Learn from the Stock Market Collapse?

Who Produces What? Key Agriculture Stats from Around the Globe

4 Trends Shaping the Rural Economy

The Market Is In A State Of Fear And With That Comes Volatile Prices

Mon, 07 Mar 2022 16:31:29 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 3/4/22

All eyes are focused on Ukraine, “The Breadbasket of Europe.” This week the war raised more questions than it provided answers.

How and when will this war end?
Will Ukraine farmers plant corn in the next two months?
Will the winter wheat crop be harvested this summer?
Will the ports be operational soon to export grain already stored in the bins?
If Ukraine does not plant corn this spring, where will the world find the extra 1 billion bushels of corn to make up for this production loss?

The Market Is in A State of Fear and with That Comes Volatile Prices

The wheat market has traders panicked, consequently it rallied $3.50 per bushel this week. The market was locked the limit up most days this week, so on Sunday night when the market reopens, prices likely go even higher. This has made it impossible for some grain buyers to buy cash wheat from producers, because these buyers would not be able to hedge their purchases. Once the market is no longer locked the limit up, it could turn very volatile and maybe even trade limit down the same day.

With so much uncertainty ahead more market participants have moved the sidelines and are not trading. With less traders in the market, it means less liquidity and more extreme price swings.

Some traders find themselves short Chicago wheat positions that they are losing money on, and these traders have resorted to buying other commodities as a potential hedge to help offset their losses from the massive rally in the Chicago wheat market. This partly contributed to corn’s $1.00 per bushel rally this week. Once those who are short the wheat market are done liquidating their positions, there could be a quick drop in all grain futures prices. Unfortunately, no one knows how much higher wheat will trade before it tops out.

After this week’s big futures rallies, basis values for corn, beans and wheat plummeted throughout the US. Consequently, many buyers moved their basis bids to the July contract because the spreads between the May and July were at record levels. This would seem to suggest in the short-term that futures values are overvalued compared to cash values. However, if the war in Ukraine drags on and prevents grain from being exported out of the Black Sea region or keeps the Ukrainian farmer from producing a crop at all, current futures values may turn out to be a good value in the long-term.

Moving forward it would not surprise me if the market traded up the limit and then down the limit in back-to-back days or even the same trading day. Until more information is known about the outcome of the war in Ukraine the market is going to be extremely volatile.

Want to read more by Jon Scheve? Check out recent articles:

What Fundamentally Changed To Grains In The Past Week?

Will Corn Test $7 Or Will It Return Back to $6?

Will South American Yields Be As Bad As Predicted?

Setting Bean Basis At The Highest Level Of the Year

How A Range-Bound Market Left Me With A Sale Above The Current Market Value

Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?

Why “Free” Storage Isn’t Really Free And Actually Hurts All Farmers

Are These Recent Rallies A Christmas Present Or Are They Sustainable Long Term?

Why Futures & Basis Should Be Marketed Separately. Futures May Hit $6 While Basis Could Increase 20-40 cents.

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

What Fundamentally Changed To Grains In The Past Week?

Mon, 28 Feb 2022 16:30:41 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 2/25/22

Geopolitics changed drastically this week. How the upcoming events unfold could still really impact the markets. It looks unlikely the current Ukraine situation will end quickly.

The USDA Economic Forum presented their crop planting estimates this week and they are looking for 92 million corn acres and 88 million bean acres. Both were in line with expectations and seem reasonable. The trade will use these numbers as estimates until the March 31^st planting intentions report is released.

The forum also released their yield and carryout estimates for the next year. Both values came across bearish from where prices are trading today. Still, the estimates are for 18 months from now, and A LOT could still happen to change those numbers between now and then. Weather will likely play the biggest role in what those final yield and carryout numbers look like next year.

At the end of the week, May beans had an extremely volatile final 48 hours. First beans rallied $1.25/bushel, but then immediately dropped $1.75/bushel in the last 24-hour span of the week. In the end, Friday’s close was still higher than where the market traded 9 days earlier.

May corn finished the week 3 cents higher than where it closed the prior week. New crop values were 18 cents lower than last week, but at the same levels from 3 weeks ago.

May wheat was still 50 cents higher than last Friday’s close.

After a wild week in the markets, it is important to note that fundamentally for grains little has changed since last Friday. World grain stocks are still the same, demand seems to still be there, production in South America has been reduced for this year, and prices closed out this week similar to last week.

Looking Forward

Beans:

South American bean production estimates are suggesting there will be between 800 million to 1.2 billion fewer bushels produced this year in the Southern Hemisphere than was originally planned. The US is the only other world supplier with beans left, and we only have 200 million extra bushels of supply available until we harvest in October. The unknown in the market right now is how tight China wants to let their supply reserves drop until the US harvests beans this fall. If there are any Midwest weather issues this summer, it could trigger major price rallies in late summer to ration demand for new crop.

Corn:

Corn prices will be most impacted by Brazil’s weather during the pollination period of their second corn crop over the next few months, and the US’s weather in June and July. If there are droughts in South America and yields are reduced, it could trigger increased buying of US old crop, which would tighten carryout like last year and potentially drive prices back into the $7’s.

US’s weather in the southern plains has been dry and could be hurting wheat crop conditions. If wheat yields are reduced and prices stay strong, this could help corn prices from drifting lower. Plus, if fertilizer prices stay elevated, there may be fewer corn acres planted this spring, which could tighten carryout and support prices this summer.

Bottom line:

There are still a lot of unknowns right now. We do not know how the eastern Europe events will unfold and weather is always a wild card. There are still 45 days before US crops get planted and 90 days before the weather market in the US starts. I would expect a bumpy ride for prices moving forward.

Want to read more by Jon Scheve? Check out recent articles:

Will Corn Test $7 Or Will It Return Back to $6?

Will South American Yields Be As Bad As Predicted?

Setting Bean Basis At The Highest Level Of the Year

How A Range-Bound Market Left Me With A Sale Above The Current Market Value

Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?

Why “Free” Storage Isn’t Really Free And Actually Hurts All Farmers

Are These Recent Rallies A Christmas Present Or Are They Sustainable Long Term?

Why Futures & Basis Should Be Marketed Separately. Futures May Hit $6 While Basis Could Increase 20-40 cents.

Jon Scheve

Superior Feed Ingredients, LLC

jon@superiorfeed.com

Will South American Yields Be As Bad As Predicted?

Mon, 07 Feb 2022 14:43:25 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 2/4/22

Bean Outlook

Everyone wants to know how bad the South American bean yields will be. Unfortunately, it is extremely difficult to predict upcoming bean yields there accurately. Even in the US, most farmers I know are unwilling to estimate their bean yields before the combine is in the field, let alone a month or two before.

The bean rally over the last few weeks is mostly due to persistent dry weather in the southern third of Brazil and much of Paraguay, which usually produces about 10% the size of Brazil’s crop. While crops in both of those countries have suffered, the extent of yield reductions is still uncertain. Last summer predictions ran wild on how bad US bean yields in the northwest soybean belt would be. In the end, farmers in those areas were surprised their yields were not as badly affected as originally feared. Similarly, it seems just too early to estimate final bean yields with any accuracy in South America right now.

Argentina’s beans have more growing season ahead of them, so weather there could still have a big effect on final yields.

This leaves the US bean supply as the global “bean back up” plan. If everyone else runs out, US beans become much more valuable. At the end of the day, it will come down to weather and if someone could predict weather long-term accurately, they could predict future prices too.

If South America’s crop continues to be reduced, US bean prices will increase. If this happens it potentially could cause an acreage battle with corn in the spring.

Corn Outlook

Corn prices appear to have stalled temporarily. Ethanol stocks are extremely high, and profits at those plants have dropped significantly on the recent rally. Plus, rail tank car logistical issues are slowing movement of finished product too. For prices to rally higher, dry weather in Argentina later this month will be needed to help push export demand back to the US.

Market Action

On January 25^th, an open order to sell March corn futures at $6.25 I had in place was hit. The order was on 10% of my 2021 production. I am now 60% sold on my old crop corn.

Want to read more by Jon Scheve? Check out recent articles:

Setting Bean Basis At The Highest Level Of the Year

How A Range-Bound Market Left Me With A Sale Above The Current Market Value

Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?

Why “Free” Storage Isn’t Really Free And Actually Hurts All Farmers

Are These Recent Rallies A Christmas Present Or Are They Sustainable Long Term?

Why Futures & Basis Should Be Marketed Separately. Futures May Hit $6 While Basis Could Increase 20-40 cents.

Jon Scheve

Superior Feed Ingredients, LLC
jon@superiorfeed.com

How A Range-Bound Market Left Me With A Sale Above The Current Market Value

Mon, 24 Jan 2022 14:55:34 GMT

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Market Commentary for 1/21/22

There is a big focus right now on Argentina’s weather and crop development. Half of their corn was planted early and damaged by the recent dry weather. The other half was planted in the last month and has been followed by some rain this past week, which has helped crop growth. Moving forward, Argentina’s weather in February will dictate price direction on futures until Brazil’s second corn crop takes center stage in April and May.

Earlier this month a large bank issued a statement suggesting commodities (i.e., energy, metals, currency, livestock, and grains) were a good buy for this upcoming year. It seems since early January a lot of money has been pushed into the market. This may be a big reason why the grain markets have been rallying so much so quickly.

Market Action

As I shared previously, I have been making straddle trades to help increase my price on some of my 2021 corn. In early August I placed 2 trades each on 10% of the 2021 production. I collected 50 cents from the trade that expired in late October and 17 cents from the trade that expired in late November.

Since these previous trades were profitable, and I wasn’t forced to make a sale on either, I replaced both with new straddle trades. Following details those results.

January Straddle

On October 15^th when March corn was trading at $5.30, I sold a $5.30 January straddle (where I sell both the $5.30 put and the $5.30 call) and collected 38 cents of premium. I placed this trade on 10% of my 2021 production. The options on this trade would expire 12/23/21.

What Does This Mean?

If March corn is above $5.68 on 12/23/21 – I would let this option execute, giving me a short futures position of $5.30. With the 38 cents I collected, the sale would essentially be like selling $5.68.
If March corn is below $4.92 on 12/23/21 – No futures sale is made, and I would lose penny for penny for whatever value March corn is below $4.92.
If March corn is between $4.92 and $5.68 on 12/23/21 – No sale is made, but I would get to keep some of the 38 cents of profit from selling the straddle that I could add to a later trade. The closer the market is to $5.30 on that day, the more profit I keep because I will either have to buy back the $5.30 call or $5.30 put before options expiration.

What Happened?

On 12/23/21 March corn was trading at $6.05, so as planned I let the call option execute as a sale at $5.30. With the 38 cents collected upfront, my final sale was $5.68.

February Straddle

On November 18^th when March corn was trading at $5.85, I sold a $5.85 February straddle (where I sell both the $5.85 put and the $5.85 call) and collected over 46 cents. I placed this trade on 10% of my 2021 production. The options on this trade would expire 1/21/22.

What Does This Mean?

If March corn is above $6.31 on 1/21/22 – I would let this option execute, giving me a short futures position of $5.85. With the 46 cents I collected, the final sale would essentially be like selling $6.31.
If March corn is below $5.39 on 1/21/22 – No sale is made but, and I would lose penny for penny whatever the difference between the value of March corn is below $5.39.
If March corn is between $5.39 and $6.31 on 1/21/22 – No sale is made but, I would get to keep some of the 46 cents of profit from selling the straddle that I could add to a later trade. The closer the market is to $5.85 on that day, the more profit I keep because I will either have to buy back the $5.85 call or $5.85 put before options expiration.

What Happened?

On 1/21/22 March corn was trading at $6.15, so I bought back the $5.85 call for 30 cents and let the put options expire worthless. This left me with a 15-cent profit (over 46 cents collected – 30 cents to buy back the call – about 1 cent in commission).

Final Thoughts on These Trades

Collectively, I’m pleased with the combined results of these four straddle trades. I suspected the market could trade sideways from August through January, and I managed to collect additional premium without much added risk. In the end I only had to sell 10% of my production with never more than 20% of production at risk of being sold at values that I was satisfied with. And while I did sell 10% of my corn at $5.30, the collected premium from the four straddle trades combined during that period totaled $1.20 (50 cents, 17 cents, 38 cents and 15 cents). Therefore, in the end my sale was actually $6.50 on 10% of my production.

Now that both trades are off my hedge position, I can make more similar trades again if I wish.

With this trade I’m left with only 50% of my 2021 corn futures position sold.

Want to read more by Jon Scheve? Check out recent articles:

Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?

Why “Free” Storage Isn’t Really Free And Actually Hurts All Farmers

Are These Recent Rallies A Christmas Present Or Are They Sustainable Long Term?

Why Futures & Basis Should Be Marketed Separately. Futures May Hit $6 While Basis Could Increase 20-40 cents.

Corn Spreads May Suggest Corn Is Undervalued And Needs To Trade At $6

How I Made Additional Profit In A Corn Market That Traded Between $5 And $6

Can Wheat Trade Above $9? And If It Does, Could That Mean $7 Corn?

Can Soybeans Trade Back To $13 Or Will They Continue To Slide Lower?

Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com

All Eyes on South America: Did USDA Trim Production Enough

Thu, 13 Jan 2022 20:23:26 GMT

Dryness in South American prompted USDA to cut production estimates for key countries, such as Brazil, Argentina. The cuts were more aggressive than most analysts expected, says Joe Vaclavik, Standard Grain President.

Here are the current estimates:

Soybeans:

Brazil production: 139 MMT, down from 144 MMT estimate in December, but up 1 MMT from last season’s record crop.
Argentina production: 46.5 MMT, down from 49.5 MMT estimate in December, but up less than 1% from last year.

Corn:

Brazil production: 115 MMT, down from 118 MMT estimate in December, but larger than last year’s crop by 28 MMT.
Argentina production: 54 MMT, down from 54.5 MMT estimate in December

“Those were big cuts from USDA, but it’s not surprising that they didn’t go any lower than that,” says Brian Grete, editor of Pro Farmer . “They typically slow walk those numbers, whether it’s an increase or decrease.”

Listen in as Grete discusses the USDA reports on AgriTalk with host Chip Flory:

Even with the lower production numbers, Grete says, most private firms are calling for even lower corn production.

“Many of them are in the 112 MMT to 113MMT range right now,” he says. “Remember that the first corn crop, which is damaged, only accounts for about a quarter of Brazil’s production. The Safrinha crop accounts for three-quarters and it won’t be planted until after the soybeans are harvested.”

As such, if the weather pattern does change the majority of the Brazilian corn crop could create much higher yields.

“So, I don’t think you can get too aggressive to the downside on the Brazilian corn at this point,” Grete says. “I do think there’s more downside risk in soybeans.”

South American Drought

Very hot and dry conditions persist this week for southern Brazil and Argentina, reports Eric Snodgrass, principal atmospheric scientist with Nutrien Ag Solutions.

“Models continue to produce a cold front that will deliver storms (possibly severe) from Argentina through Rio Grande Do Sul and Uruguay late this weekend into early next week,” he says. “The heaviest rains are forecast for northern Argentina to Rio Grande Do Sul and Uruguay.”

Weather models, Snodgrass says, have been consistent in showing a drying trend for Brazil’s northern and eastern growing regions, which includes Mato Grosso, over the next 10 days.

“This will allow for more rapid harvest progress and planting of the Safrinha crop,” he says.

Markets Shift Focus

With USDA’s big round of reports behind us, the market’s focus will shift, Flory says.

“South American weather is absolutely going to dominate this bean market and the corn market for the near term,” he says. “Then I’m going to say U.S. weather is the next focus — even ahead of demand.”

Read More USDA Report Coverage

USDA’s Final 2021 Crop Production Numbers Are In, Here’s What You Should Know

USDA’s January Reports Reveal Hay Stocks Hit a 10-Year Low in December

USDA: Record US Bean Crop, Lower South American Production

Will Beans Find Their Way To $14 Or Will They Trade Back Under $13 Again?

Mon, 03 Jan 2022 16:13:13 GMT

Missed a recent article by Jon Scheve? Get it sent to you directly every week. Send a request by email: jon@superiorfeed.com

Market Commentary for 12/31/21

Soybean Outlook

One year ago, the March ’21 soybean board was trading around $13, with projected US carryout at 175 million bushels. Now beans are trading at slightly higher values, but US potential carryout is at 340 million bushels.

There are concerns US export pace isn’t high enough to meet current USDA estimates, and upcoming reports may show carryout levels increasing even higher. Plus, Brazil’s current cash values suggest they have a 30-50 cent price advantage over US beans for shipments about a month from now when their harvest is fully underway. This may mean current price levels are not sustainable longer term.

If US export pace was reduced enough for carryout to increase to over 375 million bushels, that would be 200 million bushels (or 4 million metric tons) more than last year. While early South American estimates are predicting a reduction of 4 million metric tons, it’s important to remember that Brazil’s total production alone was projected to be 6 million metric tons more than last year only a month ago.

Therefore, for the current bean rally to remain sustainable, it will require more production issues in South America. These would include:

Further deterioration of Southern Brazil’s crop, which is nearing the end of its life cycle
Additional heavy rains in Northern Brazil to slow harvest or open pods and hurt yields
Sustained dry weather during Argentina’s upcoming growing season

The next USDA report on January 12^th will provide more information on the US’s harvested yields and updated carryout values. It seems likely there will be more market volatility for the next few weeks.

Want to read more by Jon Scheve? Check out recent articles:

Why “Free” Storage Isn’t Really Free And Actually Hurts All Farmers

Are These Recent Rallies A Christmas Present Or Are They Sustainable Long Term?

Why Futures & Basis Should Be Marketed Separately. Futures May Hit $6 While Basis Could Increase 20-40 cents.

Corn Spreads May Suggest Corn Is Undervalued And Needs To Trade At $6

How I Made Additional Profit In A Corn Market That Traded Between $5 And $6

Can Wheat Trade Above $9? And If It Does, Could That Mean $7 Corn?

Can Soybeans Trade Back To $13 Or Will They Continue To Slide Lower?

Can Corn Trade Back To $7 Or Does It Drift Back To $5

What Is In Your Marketing Toolbox?

Jon Scheve
Superior Feed Ingredients, LLC
jon@superiorfeed.com

2022 Weather Outlook: La Niña’s Encore

Thu, 30 Dec 2021 19:05:36 GMT

How will she impact drought conditions in 2022?

She’s back. La Niña has developed for the second consecutive year and is expected to last into early 2022.

“This could lead to a return of warm and dry conditions in the new year from southern California to the Southern Plains,” says Brad Rippey, USDA meteorologist. “Areas to the North may fair better, and Midwest areas could turn stormy this winter.”

How La Niña impacts and changes the current drought landscape will be key.

“As of early December, more than 55% of the country is experiencing drought,” Rippey says. “It’s the highest of almost nine years.”

Regions with early-year dryness could be problematic for the Corn Belt, adds Eric Snodgrass, Nutrien Ag Solutions principal atmos-pheric scientist.

“I’ll be watching from Texas to South Carolina because if we see drought development there, it could be an early-season indicator drought could expand North in the growing season,” he says.

WHAT TO WATCH

Beyond La Niña, Snodgrass is watching water temperatures in the Gulf of Alaska.

“The waters there are very cold,” he says. “If they stay cold until next spring or summer, I don’t like that for the Midwest. That’s because there is a decent correlation with cold water in the Gulf of Alaska and the potential for drought in Minnesota and nearby states.”

Here are additional 2022 outlook stories:

2022 Soybean Planting Projections are a Moving Target, Prices will Whipsaw

Drought and Demand Drive the 2022 Wheat Outlook

2022 Outlook: Why Corn’s Sweet Spot May Be Below $6 in the New Year

2022 Outlook: Pork Industry Rises from the Rubble

Don’t miss Eric Snodgrass’ preview of 2022 weather at the Top Producer Summit. Register now at TPSummit.com.

2022 Soybean Planting Projections are a Moving Target, Prices will Whipsaw

Thu, 30 Dec 2021 15:30:27 GMT

With input prices trending higher for corn, some traders in recent weeks have predicted more crop acres could move to soybeans in 2022. Not everyone is on-board with that projection, however.

Arlan Suderman, chief commodities economist for StoneX Group, is looking at production in South America as he ponders 2022 U.S. soybean plantings.

“I think I’m going to struggle (to predict U.S. acres) particularly because Brazil looks like they’re going to have a big crop, and we have yet to see what Argentina is going to do,” Suderman says.

For now, he predicts U.S. farmers will plant 89 million soybean acres next spring – 1.5 million acres above USDA’s current forecast of 87.5 million planted acres.

“I think that 89 million is kind of the top right now for soybean acreage, given soybean’s current price relationship with corn,” Suderman says.

Scott Irwin, University of Illinois agricultural economist, is not optimistic that soybean plantings will go as high as what either Suderman or USDA anticipate. If anything, Irwin expects movement in the opposite direction, based on his economic models which indicate 2022 soybean planted acres in the U.S. will dip to 85.5 million acres. That’s 1.7 million planted acres less than the 87.2 million acres farmers planted this past spring.

Plenty of time for acreage shifts
With the heart of planting season still months away, soybean acreage forecasts have plenty of time to move higher or lower.

Like Suderman, Jon Scheve, Marketing Against the Grain, is keeping a close eye on the Brazil soybean crop. Scheve says dry weather conditions that moved into the southern third of the country’s soybean growing area this past week could exact a yield toll there that would benefit the U.S.

“Over the next 60 days most of Brazil will be in the heart of the flowering stage and the beginning of the pod-fill stage,” Scheve reported on Monday. “Two-week forecasts indicate limited precipitation, and many traders think it might cause a yield reduction.”

In addition to weather, export opportunities will shape market opportunities and U.S. farmers’ planting decisions. Pro Farmer reported on Monday that cumulative soybean export inspections are running 22.8% behind a year ago and that USDA projects soybean exports will decline 9.5% from 2020/21.

“We still have some soft demand coming into China because of poor hog feeding margins, and we’ll need to monitor that,” Suderman adds.

Which way will prices go?
The November USDA World Agricultural Supply and Demand Estimates (WASDE) report pegs the season-average soybean price forecast for 2021/22 is $12.10 per bushel. The price forecast went unchanged in the December report.

Irwin tells farmers to anticipate lower prices further into the new year. His economic models show soybeans at $11 per bushel for 2022/23.

Chip Flory, Farm Journal economist and AgriTalk host, says farmers can expect soybean prices to be whipsawed by a transitioning soy market in 2022.

“Because of renewable diesel and investment in U.S. soybean crush, traders are getting used to the idea of crushing for oil and potentially being buried by meal,” he says. “I’d like to claim knowledge of how this will ultimately impact soybean prices, but it’s a transition I haven’t seen in my 35 years of watching markets.”

Flory shares three trends he’s watching:
1. A year ago, upside price momentum was building. At the beginning of December, “sideways” was the only way to define the trend in new-crop soybean futures.
2. A year ago, China was buying more soybeans as a hedge in case La Niña clipped Brazilian production. This year, China importers appear confident in Brazil’s soybean supply and are waiting for lower U.S. prices to fill demand holes.
3. A year ago, the markets were battling for acres. This year, corn’s rising input prices has the soybean market on the defensive to prevent a big-time switch to soybeans in 2022.

Here are additional 2022 outlook stories:

Drought and Demand Drive the 2022 Wheat Outlook

2022 Outlook: Why Corn’s Sweet Spot May Be Below $6 in the New Year

2022 Outlook: Pork Industry Rises from the Rubble

How High Can Farmland Prices Go?

Wed, 29 Dec 2021 19:43:48 GMT

Prepare for a dynamic farmland market in 2022

The supply-and-demand equation for farmland has shifted. For the past few years, a low supply was met with weaker but adequate demand. So, prices were supported and somewhat steady. In 2021, higher commodity prices and inves-tor interest boosted demand and supply followed suit.

“Over the past 12 months, most areas of the Grain Belt have experienced an increase in the amount of land sold,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “A number of states have seen a 10% or more bump in the number of transactions.”

In 2021, R.D. Schrader, president of Schrader Real Estate and Auction Co., says his firm had twice as many sales above $10,000 per acre as they did in 2019 and 60% more sales above $10,000 per acre than 2020.

“One two-week stretch, ending October and beginning November, provided four sales over $13,000 per acre in In-diana and Ohio,” he says. “It was not unheard of for land to bring 150% of what it had been appraised for in the last year, especially if recreational land was included.”

MORE RECORDS AHEAD?

During the second half of the year, it seemed like every sale was a new record, says Doug Hensley, president of real estate services for Hertz Farm Management. Will this incredible price strength continue?

“In 2022, we may see some new records, but it won’t be at every sale like it seemed to be in 2021,” Hensley says. “I expect the volume of sales to moderate, as some demand has been satisfied. Plus, in 2022, we’re seeing smaller cash flow margins and the potential for higher interest rates, both of these are headwinds compared to 2021.”

At this point, if the fundamental factors supporting land prices continue in the current direction, the market should be firm to somewhat higher, Dickhut says.

“But if any of these underlying factors change or unexpected world or national events come about, the land market could pause and even change direction,” he says. “For now, the outlook for the land market is positive as farmland continues to be a safe, long-term investment.”

Here are additional 2022 outlook stories:

2022 Soybean Planting Projections are a Moving Target, Prices will Whipsaw

Drought and Demand Drive the 2022 Wheat Outlook

2022 Outlook: Why Corn’s Sweet Spot May Be Below $6 in the New Year

2022 Outlook: Pork Industry Rises from the Rubble

Will the Cotton Blanket Cover 12M-plus Acres in 2022? Ask La Niña

Thu, 23 Dec 2021 17:14:26 GMT

Don’t expect the dizzying heights of $1.21 per pound, but the cotton outlook appears relatively solid for 2022. Bouncing up from 11.2 million planted acres in 2021, the Cotton Belt could see 12 million acres in 2022, and possibly more, contingent on a mercurial La Niña.

Fueled by a COVID clampdown and release, cotton’s amazing run from the 50-cent basement in 2020, to a pinnacle of $1.21 in November 2021, bodes well for 2022, with strong prices projected on the near horizon.

Wild Card

How wide might cotton’s blanket stretch in 2022? Scott Stiles , Extension economist with the University of Arkansas System Division of Agriculture, sees 12 million acres as a ballpark figure. “Certainly, we’ve seen some backoff from the extremely high fall prices of 2021, but when you’ve still got December prices trading near 90 cents, that an historically attractive price to growers. Right now, I’d guess acres climb about 900,000 and get us back to around 12 million acres.”

In concurrence with Stiles, John Robinson , Texas A&M University Extension cotton economist, projects approximately 12 million acres—with significant upward leeway. “I think we’ll go a little over 12 million acres, and I have a big question mark over the dryness of La Niña.”

Texas, the perennial U.S. cotton giant with a footprint covering well over half of all nationwide acres each year, is currently under a La Niña advisory. Translated: Growers face drought conditions, a heavyweight concern at planting, particularly for Texas’ large percentage of dryland growers.

“When it’s this dry, and the likely insurance price for cotton is going to be comparatively high, farmers respond by planting more cotton,” Robinson describes. “They put seed in the ground and see what happens. Considering La Niña, there’s a possibility for 500,000 to 1 million more acres of cotton just in Texas. How much of that gets harvested is a separate matter, but I can certainly see how acreage numbers could go up.”

Stiles echoes concerns over dry conditions: “Talk about a wild card: The La Niña effect is very real, and prices will respond if it goes on long enough. One way or the other, that could be a driver for the market. The Lubbock area received below normal rainfall from September to November this year. December tends to be a dry month as well. The High Plains region is now considered to be in ‘moderate’ to ‘severe’ drought. The cotton market will be following this closely in the months ahead.”

Prices?

Planted acres and harvested acres often are separate topics in the Cotton Belt, and the differences frequently are not resolved until the approach of fall. A possible weather-market situation in 2022 could keep prices supported.

“There is potential for strong prices in 2022,” Robinson says, “but I think we’ll return to more of a supply-and-demand rationale for prices, which should put us in the 80s and 90s—not likely over a dollar by next harvest, but still room for strong prices.”

Cotton’s price story dates back roughly 20 months, according to Stiles , and relates to dual key factors: “First, is record world mill use. We came out of COVID, and the general economy opened, and now you see USDA projecting numbers of just over 124 million bales in mill use for the 2021 marketing year, and that’s a record. Second, if inflation is on the horizon, money tends to move into the commodity markets. Speculative money started moving to the long (buy) side of the cotton market during April 2020, when cotton was trading in the low 50-cent area. It was a bargain, and they rode it to well over a buck.”

Chip Flory: What’s Ahead for the Grain Markets?

Wed, 22 Dec 2021 19:46:35 GMT

“Don’t panic on price slides and sell into rallies.” That was the consensus marketing outlook from several analysts on “AgriTalk” following the 2021 harvest. That advice was common for corn, soybeans, wheat and cotton. Let’s look at the outlook for each market.

CORN MARKET: ALL ABOUT DEMAND

The input price rise seen in the second half of 2021 has growers running the numbers on potential returns on 2022 crops.

Unless corn can increase acres from 2021, corn carryover will remain tight into the 2022/23 marketing year – and likely into the 2023/24 marketing year. Total corn demand this year was up slightly from last year in USDA’s November report. Most impressively, that estimate comes with the national average on-farm cash corn price up 90¢ from 2020/21. (More use at a higher price indicates a real increase in demand.) Here are the highlights:

Feed and residual use has found a home in the 5.6- to 5.7-billion-bushel range.
Exports won’t reach last year’s level and will fall about 250 million bushels as China finds alternative feeds and al-ternative sources for feed grains.

The difference is ethanol. Corn-for-ethanol demand in 2019/20 was smashed by COVID-19 and fell 500 million bushels from the year before. A recovery is accelerating, with corn-for-ethanol estimated up 225 million bushels from last year. USDA’s corn-for-ethanol estimate of 5.25 billion bushels could still be 150 million bushels too low.

December 2022 corn futures posted a contract high on Nov. 24, 2021, at $5.65. Most market regions sported basis levels that supported $5.25-plus, fall 2022 delivery cash bids. Throughout 2021, I heard Pro Farmer Editor Brian Grete say, “Corn is too cheap at $5 and too high-priced at $6.” I think I’ll hear that from Brian several times in the year ahead, as well.

THE NEW SOYBEAN STORY

January soybean futures spent two months of fall and early winter trading between $12 and $13. The smaller-than-expected November crop estimate limited “damage” to the soybean balance sheet. When January 2022 soybean futures peaked on June 7, 2021, the market had momentum, demand and supply scares working together to push prices to the $14.79 high.

Soybean prices will be whipsawed by a transitioning soy market in 2022. Until 2021, a soybean-oil-led rally couldn’t be trusted. Now, because of renewable diesel and investment in U.S. soybean crush, traders are getting used to the idea of crushing for oil and potentially being buried by meal.

I’d like to claim knowledge of how this will ultimately impact soybean prices, but it’s a transition I haven’t seen in my 35 years of watching markets.

I’d like to say China will find an appetite for U.S. soybean meal. In reality – that’s not how that market is geared. Chi-na has built a soybean crushing industry it will likely look to support. That means soybean meal will likely anchor soybean prices while soybean oil will lead on price advances.

Here are the trends I am watching:

A year ago, upside price momentum was building. At the end of November, “sideways” was the only way to define the trend in new-crop soybean futures.
A year ago, China was buying more soybeans as a hedge in case La Niña clipped Brazilian production. This year, China importers appear confident in Brazil’s soybean supply and are waiting for lower U.S. prices to fill demand holes.
A year ago, the markets were battling for acres. This year, corn’s rising input prices have the soybean market on the defensive to prevent a big-time switch to soybeans in 2022.

TIGHT SUPPLIES OF WHEAT

Rallies in wheat prices were easy to spark in the fall of 2021. A short Russian 2021 wheat crop triggered supply management and export taxes. The U.S. and Canada saw a terrible 2021 growing season in spring wheat areas. Australia’s big 2021 crop turned into a bust when harvest-season rains turned much of the crop to feed-quality. Finally, U.S. wheat growers saw a less-than-ideal start to the 2022 hard red winter wheat crop.

After five years of building global wheat supplies, stocks have tightened in two of the past three years. With consumption expected to outpace production again in 2021/22, tight global supplies of milling-quality wheat limit down-side price risk and leave the market open to supply- side shocks for at least two more crop years.

The last time U.S. wheat stocks were under 600 million bushels, winter wheat futures traded just over $9. Both old- and new-crop soft red winter (SRW) futures traded above $8.50 in November. Historically, the “so-so” winter wheat crop conditions and a trend of tightening global stocks mean rallies approaching $9 in SRW futures are likely and should be rewarded with new-crop sales.

“AgriTalk” host and Farm Journal Economist Chip Flory has been with Farm Journal for 33 years. He helps farmers understand the markets and seize opportunities.