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2/3/2012
On the Linder Farm Network, Tom Neher discusses winter wheat market and how the uncertainty of Russian exports and weather continue to impact the markets. Listen now! 1/30/2012
Grain marketing during this time of the winter can be dreadfully boring. I grant the fact that there has been a troubling drought in much of Argentina and part of Brazil. Yet we have been talking about that event for two months and it has become old news. The European sauvignon debt crisis still has the potential to rack havoc on the global economy. Yet, this seems to be old news in the market place. The USDA released its report on the 2011-2012 crop production and stocks early in January. Yet, many in the market are tired of the debate over the “old crop” numbers. Market analysts are starting to put out their estimates for planted acres for the 2012-2013 crops. Yet, we have three months before we will have any clue as to what impact the weather will have on planting.
The markets are waiting for some fresh news to trade on these days. The result of this market environment is continued volatility. With the stocks-to-use ratios so tight in corn and soybeans, the pressure continues to build. The markets are nervous and want to know how the next year’s supply will materialize. The basis is volatile, as grain producers are not in a position that they need to sell grain for cash flow purposes and are in no mood to sell in this market. The end users are bidding up the basis to buy grain. Without any fresh news, the “bulls” and the “bears” get hungry and grouchy.
This is the time of year when many grain producers in this part of the country like to take a vacation to a warmer climate. The grain bins are shut tight and cash flow is solid. It is a natural time to get away from the normal routines and stressors of life. These experiences are healthy and rewarding in nurturing our souls and relationships with loved ones. It is time to enjoy the bounty of a profitable year.
The hard part about going on a vacation is getting everything in order to be away from the operational side of our business. Then there is always the returning to a desk piled high with mail or e-mails that have filled the “in-box” on the computer. This “return stage” of the vacation can be very important to the success of your business. If one can put together a plan for action upon the return, they can use the rejuvenation of the vacation for maximum gain. This plan should include improving communication and management skills. Strategies for spring tillage and planting can be established. Marketing plans must be reviewed on a regular basis. Crop input acquisitions can be fine tuned, to manage production costs. This is a time when one can find a grain angle or two!
The market will find some fresh news and the battle for acres between corn and soybeans will be in full force very soon. The markets are very efficient at “pricing” the fresh news into the price. The communication systems that we enjoy today enable this efficiency. This is why it will be so important to have your marketing plans in order. Conditions can change very quickly in this environment. Those that have a plan of action and a fresh spring in their step will be more nimble and able to take action when the time arrives to make their moves. 1/18/2012In an interview on the Linder Farm Network, Tom Neher discusses reaction from the Jan. 12 USDA Report, along with the continued hot, dry weather in Argentina affecting current market conditions. 1/17/2012The USDA issued its final crop production report for 2011 on January 12th. The numbers for corn released by the USDA, on their own, were bearish. 2011-2012 corn production came in at 12.358 billion bushels, above the average estimate of 12.265 billion bushels. Quarterly stocks of 9.642 billion bushels came in 251 million bushels above the average estimate. U.S. ending stocks came in at 846 million bushels, 97 million bushels above the average estimate, while world supplies were pegged at 128.14 million metric tons, well above the average pre-report estimate of 123.52 million metric tons.
Many readers that produce soybeans, wheat or cotton may be getting tired of all of this talk about corn. Yet corn is currently the king of grains and what happens in corn leads the price direction for the other commodities. Following the report, corn lost $.52 per bushel in value. Are things really that bearish in corn? Do we really know that much more about the corn market than we did before the report? My answer to both of these questions is, no.
I have always said, there are two fundamental figures in the study of supply and demand that tell the story. They are the stocks-to-use ratio and the basis. The stocks-to-use ratio is a convenient measure of supply and demand interrelationships of commodities. The stocks-to-use ratio indicates the level of carryover stock for any given commodity as a percentage of the total demand or use. The basis is the difference between your local cash price and the exchange traded futures price. The basis is a reflection of the local supply and demand.
When studying the stocks-to-use ratio, analysts consider any ratios that are lower than 15-20% to be tight and warranting focused attention. In the USDA report, the U.S. stocks-to-use ratio remained unchanged at 6.7%. The global stocks-to-use only increased slightly to 14.8%. The former is the second tightest on record with the latter representing the second tightest since the 1973-1974 marketing year. In other words, there is no margin for error.
When studying the basis, analyst can see the reflection of how easy or hard it is to buy or sell grain. If buyers are having a hard time buying grain in the cash market, they must bid up the basis in order to attract bushels. If buyers can buy all that they want they will lower their basis bids and still buy all that they need. Looking at the corn basis in Mankato, you find that the current basis is well above the 5 year average basis. Buyers have to bid up the basis to attract bushels in the cash market.
If we use fundamental analysis (study of supply and demand) to study the markets, we must assume that the markets are still in a bullish trend and supply remains tight, with strong demand. If we use technical analysis (study of market behavior) to study the markets, we must recognize that there are many larger geo-economic or psychological factors at play. We must assume that these psychological factors were responsible for the bearish price movement following the report. These markets are dynamic and we must look at the grain angles and manage the margins in play. 1/13/2012With Lynn Ketelsen of the Linder Farm Network. Tom discusses the weather in South America and its impact on the grain markets. Tom also discusses the USDA report that was recently released. Listen now! 1/3/2012In closing the pages on 2011 and opening the book on 2012, we face a year of uncertainty. Will 2011 have marked the peak of the commodities markets? Will the world economy stabilize and recover? Where will the next mass protest occur? How will a politically divided nation find leadership that can bring all sides together to solve our national debt challenge? The questions can go on for several pages, if we ask them. Uncertainty is clearly a theme for 2012 and beyond.
Webster’s Dictionary defines uncertainty as a noun: the quality or state of being uncertain: doubt. Closely related are words such as distrust, dubiety, misgiving, mistrust, reservation, skepticism and suspicion. Do these words describe how many of us feel about our political leaders, banking institutions, religious leaders, the USDA or even the markets? How do we make sense and order out of the world that we live in today?
A year ago, in this column I wrote about “Black Swans” and the book written by Nassim Nicholas Taleb. In his book Taleb writes about his black swan theory or black swan events as being a metaphor that describes the concept that “The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.” We certainly saw some Black Swans this last year in the form of the “Arab Spring,” in which oppressed people changed the political landscape.
I was visiting with a friend of mine the other night about these issues and our national and global economies. After a long conversation about all that was going badly in the world, he said something that caused me to ponder. He said, “The only way that I know how to handle the uncertainty is to think globally and to act locally.” After a long pause, I told him that he may have just struck on the way that we need to look at farm management.
We need to think about the global nature of our interconnected economies. We need to remember that what happens in another country will have “ripple effects” on our local economies. Let us be cognizant that the Black Swans that others witness will also have an impact on us, half way around the world. Yet, our actions need to be “local,” on our farms, in our communities and local markets. We can have more impact on what happens on our farms than we can our neighbor’s or the economy in China.
We need to remember to think about the impact of the global economy and events around the world; but our action (work) is most productive if focused locally (our farms). We can work on risk and margin management on our farms. We can focus on the very best production practices for our own land. We can invest our energy into the relationships that mean the most to us. As we look towards the year ahead, these are the things that may help us to make sense and order out of the world that we live in today. 12/19/2011
As we look back on 2011, we see that grain prices were lower one year ago than our current prices. Then we saw prices rally throughout the spring and summer. Corn reached its peak in June, right before pollination. Soybeans reached their peak in September following flowering. By then the crop was made and the supply was established. We could see that we were not going to run out of corn and the Chinese were not going to take our last bean. The “fear factor” started to work its’ way out of the prices.
This was a year of more normal, seasonal price fluctuations, compared to the previous two years that saw autumn rallies. Over time, grain prices tend to make their contract high prices before harvest. Historically, post harvest highs only occur 25% of the time. With two post harvest rallies just behind us, the odds are not favorable that we will see another for some time.
With our natural tendency to do this year, what we should have done last year; I have been fearful that a great deal of un-priced grain remains in storage. In my conversations with grain merchandisers, I have had my fears confirmed. Many have told me that they have far fewer cash contracts on their books than normal. This has kept the basis strong, due to a lack of movement in the market channels. Yet, un-priced grain in a bear market takes equity off of the balance sheet.
As we close our books for 2011, we now should know what our true cost of production for any un-priced grain in storage. We can measure the costs against the revenue that the market offers and then know our margins. As we buy inputs for the 2012 we can plug the costs into our projections for next years’ margins. This is a very critical time of the year in the development of a marketing plan. A written marketing plan is very helpful in maintaining discipline in the execution of the plan. Sharing the plan with business partners, spouses, children and lenders can also keep our focus on margin management.
As we look forward to the next year, we can be assured that there will be challenges that will test our management strategy and practices. With the unease in the global economies and the subsequent social unrest; volatility will remain the central theme in the market place. Risk management will be a key to navigating our way through this environment. If we can find ways to lay much of the risk on to others who are willing to assume it, we start to stack the odds in our favor for success. The Christmas and New Year holidays are a time of transition from the past to the future. It is a time that is painful for those who have lost loved ones this past year. It can also be a time of joy and excitement for the anticipation of good things to come forth in the coming year. During this time, remember to give thanks for all of the many blessing that we experience. Take time to cherish those that mean the most to you. We are truly blessed! 12/5/2011Many grain producers that held grain un-priced to this point in the marketing year are asking if the luster has come off the commodity markets. With the dearth of bearish news and the lack of bullish news the market has lost much of the speculative interest of investors.
The most recent Commodity Futures Trading Commission weekly Commitments of Traders Report showed speculative traders holding net-futures ownership of about 228,000 in corn, which is the smallest this position has been since late July 2010. This group also trimmed their soybean net-futures ownership to only 11,000 contracts, down from the 228,000 contracts seen in late December 2010. Market volatility has eased, decreasing from almost 54% in mid-July to about 28% today.
Could we be looking at $3.00 corn and $6.00 soybean prices in the near future? This question is beginning to haunt those that are holding on to un-priced grain. Those that have made commitments to high priced land are feeling the nagging fear of regret. Yet, as we look at the tight world supply and demand situation, it is difficult to see that much has changed in the last month.
The answer lies in the human psyche and the fear that the world economy will languish for the next few years. Or even worse, that the crisis in the European banking system could cause another global freeze in the flow of capital. This fear and volatility causes a paralysis in the investment and consumer communities. If money does not change hands and people do not buy commodities, prices have only one direction to move.
During these fearful times China has been keeping its focus on the “long run.” While many are paralyzed with fear, the Chinese are making major investments in European infrastructure. They have a keen interest in buying manufacturing companies and securing vital resources to strengthen their economic future.
The Chinese culture has been around for nearly 5,000 years. They have seen many things come and many things go during this time. They have learned some lessons the hard way. Lesson makers have been famines, wars, natural disasters and cultural crises. The Chinese have learned from these lessons and have a much longer view of the world than many of us in the western culture.
As I mentioned in my last column, when a turtle experiences fear, it pulls its’ head and legs into it’s’ shell. When this happens, the turtle cannot move forward. This can only happen when the turtle’s legs reach for the ground and sticks out its neck.
As a child I remember having the story “The Tortoise and the Hare” read to me. Today I wonder who is playing the part of the turtle and who the rabbit is. Do we have the courage and determination to face the challenges that we will encounter? Will we play the part of the rabbit and spend our time thinking that we are the fastest ones in the race? Those that think they can predict the future of the markets, tend to play the role of the “Hare.” While those that practice margin management, tend to play the role of the “Tortoise.” Which role will we play today? 11/21/2011
The soybean markets have seen a steady decline in price over the last two months, while corn has taken its’ “hit” just in the last few days. As we look back on this past year, it is helpful to remember the anxiety that the markets were feeling during the growing season. We asked questions about the supply and demand for grain. Would we have enough corn to make through the year? What will happen if we run out of corn? Will we have to choose between livestock and fuel? These were questions that were hotly debated and generated fear in many areas of the markets.
We now know that we did not run out of corn. All needs were met and the “pipeline” did not run dry as many feared. We even had some rather challenging growing conditions. Yet we raised the fourth largest corn crop in U.S. history. Livestock producers became creative in designing feed rations that utilized non-traditional ingredients. The by-product of grain based ethanol is dry distillers grain (DDG), has become a larger part of many livestock rations. Unfortunately many of the ethanol critics do not give the industry much credit on this aspect of production.
The point is that, the agricultural production community has met the challenge of feeding and clothing a hungry world. New genetic advancements have given the grain and livestock sectors a much more efficient growing opportunity. Critics will grouse about the genetic modification of plants or animals, yet they must remember that people have been modifying genetics for hundreds of years. Mother Nature even does this through natural selection and evolution. Modification techniques have advanced with the development of knowledge and information.
Is this a perfect world of agricultural production? No, it is not. There will always be room for improvement and working towards sustainability. If we have to wait for everything to be perfect, we will never make any advancement. It is only through trial and error that we will be able to find the breakthroughs in life sciences. The naysayers rarely get much done in the way of producing positive results in the advancements in the human condition.
I remember visiting with my Grandpa one time about my fear for taking a risk in life. He asked me to think about the box turtles that live out in native grass pasture. He asked me what a turtle does when it gets scared. I told him that the turtles pull all of their legs, head and tail into their shells. Grandpa then asked me how much a turtle can accomplish when they are in that state. He went on to point out that a turtle can only make progress if it is willing to stick its neck out and use their legs to propel them forward. At that time, I know that I had been gifted with his country wisdom once again.
As we are in this Thanksgiving season, we must give thanks for all of those in the agricultural community that are willing to “stick their necks out” and make progress in advancing our production practices. We must be mindful of best practices and safety, while unleashing the power of human creativity. We have much to be thankful for, given the bounty that we experience. 11/7/2011
Commodity and equity markets seem racked with volatility. Concerns about the Greek debt crisis and the bankruptcy of the brokerage firm; MF Global triggered fears of a meltdown in prices. The two situations were related in that losses at MF Global were reported to involve investments in European debt. These events come closer to home as customers of MF Global found their trading accounts “frozen” as a result of the bankruptcy. Grain merchandisers and producer hedgers were left scrambling to find other brokerage firms.
Along with the frustration of locating a new broker and transferring positions; came securing funding in the new accounts. The bankruptcy trustee was only transferring a given percentage of the funds, until a full accounting of the MF Global books could be secured. These matters provoked concerns about the integrity of the entire futures and options exchange system, the Chicago Mercantile Exchange Group and the Futures Commission Merchants who are members of the exchange.
The concern that I share with others’ in the industry, is that the entire trade is based on the integrity of the market place. If the integrity in question starts to erode, disorder and inefficiencies will emerge. The industry has been working to support a margin management paradigm shift and it is reliant on a sound and stable market.
Last week, I spent a number of days attending the Grain and Soy Summit in St. Louis, Missouri. This conference was different for others’ that I have attended. Nearly half of the attendees were from other countries than the United States. I was surrounded by people from Russia, China, Taiwan, Vietnam, France, Cameroon, Uganda, Brazil, Argentina, Mexico and Canada to name a few. The worldwide perspective that these representatives brought to the summit was quite different from what I experience when I attend trade association meeting of only U.S. attendees. I left the meeting with the solid understanding that we are truly in a global marketplace.
We here in the Upper Midwest like to talk about corn more than soybeans. This maybe that we raise so many bushels of corn and currently there is more money to be made growing corn rather than soybeans. The attendees of the summit were much more interested in talking about soybeans. The fact that we will export between 8 and 15 percent of our corn on a given year compared to 50-60 percent of our soybean crop may contribute to this matter. Clearly the world is in the market place looking for soybeans. The world primarily imports our corn in form of meat and fuel.
Another observation that I made was that the MF Global situation was not mentioned once from the speakers or was a subject of conversation with the foreign attendees that I spoke with at the summit. My phone was “ringing off the hook” with people in the U.S. trying to find out what was happening with the unfolding debacle. Yet, the foreign guests were totally focused on learning all that they could about food security, food safety, transportation issues and more efficient methods to extract the value out of the grain and soybeans they use in their countries. The interesting thing that I realized was that many from the United States were more interested in maintaining the “status quo.” Are we going to be left behind by the world looking for the grain angles, while we just mutter, “If it isn’t broke, don’t fix it?” | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XsnLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | FileType | xsn | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.2 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.3 | 255 | | Edit in Browser | /_layouts/images/icxddoc.gif | /grain/articles/_layouts/formserver.aspx?XmlLocation={ItemUrl}&OpenIn=Browser | 0x0 | 0x1 | ProgId | InfoPath.Document.4 | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsx | 255 | | View in Web Browser | /_layouts/images/ichtmxls.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&DefaultItemOpen=1 | 0x0 | 0x1 | FileType | xlsb | 255 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsx | 256 | | Snapshot in Excel | /_layouts/images/ewr134.gif | /grain/articles/_layouts/xlviewer.aspx?listguid={ListId}&itemid={ItemId}&Snapshot=1 | 0x0 | 0x1 | FileType | xlsb | 256 |
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DTN Grain Experts
February 03, 2012
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DTN Grain Experts
February 03, 2012
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February 3, 2012
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DTN Grain Experts
February 03, 2012
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FARM MARKET NEWS - CORN REPORT FOR Fri, February 3
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