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2013 corn price potential

Wondering about your 2013 corn and whether to price or not?
You're not alone. Right now you can likely forward contract and receive close
to a $6.00 cash price for fall delivery, and for many of you, that's close to
$1.00 profit on your acres.

Yet, it's hard to price now: Moisture in your subsoil is
likely depleted, which makes the notion of committing bushels hard to digest.
What if your part of the country does not receive precipitation? Will you even
have a crop? Forward contracting early may have burned you last year
because of the drought. Prices went sky-rocketing higher, and your final yields
were probably the worst you've had ever.

Marketing your crop this year will likely be even harder
than last year. The best way to be ready for the marketing challenges that lay
ahead in 2013 will be to first imagine all of the possible scenarios that could
unfold… Scenarios that could push prices higher to test recent highs, or scenarios
which could push prices lower, even lower that you're wanting to admit is
possible.

Recently, someone asked me if it would be possible for the
U.S. to plant 100 million acres of corn for 2013. My reaction was that I was
skeptical. Then I started to call around to different seed reps from different
companies across the Midwest, and sure enough, seed sales for corn are up
anywhere from 5% to 15% depending on location. An unexpected scenario at first
blush.

So what does that mean for prices? Let's look at a few
scenarios. In the following scenarios, I will assume a yield of 147, which will be
better than last year's 122.3 (assuming that we might get some precipitation
this winter and spring, but not enough to fully relieve the drought). Be ready,
though-- in February, the USDA will likely use a "trend line" yield number
of 162, and will wait to adjust that number until Mother Nature proves
otherwise.

POSSIBLE 2013 SCENARIOS:

  • If U.S. farmers plant 96.9 million acres of corn, like 2012,
    and if demand remains constant, and yield comes in at 147, then ending stocks
    will be 2.53 billion bushels, MUCH higher than the current estimate of 647
    million bushels.
  • If U.S. farmers plant 98 million acres of corn, and if
    demand remains constant, and yield comes in at 147, then ending stocks will be
    2.677 billion bushels.
  • If U.S. farmers plant 100 million acres of corn, and if
    demand remains constant, and yield comes in at 147, then ending stocks will be
    2.957 billion bushels.

Remember, the market trades on perception of the future. If
perception is that ending stocks will grow, then prices will drop. If the
market feels that the drought will continue, well, that paints a totally
different picture and we will probably see prices hold current values, or retest
summer highs, as follows:

  • If U.S. farmers plant 96.9 million acres of corn, like 2012,
    and if demand remains constant, and yield comes in at 122.3 (like this last
    year), then ending stocks will be 354 million bushels, much lower than the
    current estimate of 647 million bushels.
  • If U.S. farmers plant 98 million acres of corn, and if
    demand remains constant, and yield comes in at 122.3, then ending stocks will
    be 476 million bushels.
  • If U.S. farmers plant 100 million acres of corn, and if
    demand remains constant, and yield comes in at 122.3, then ending stocks will
    be 709 million bushels.

What can you do with this analysis? Use it to be ready for
multiple scenarios. And remember, above all else, weather will be the largest
factor for prices this year. If you are not comfortable making forward cash
sales, then do consider how you can best protect the profit that the market is
currently giving you. Many get complacent when high prices are expected, and I'm
here to remind you that protecting yourself is important in this uncertain
environment where everything costs more. If it does rain, prices will drop.

If you are comfortable with your current soil conditions,
and you want to protect the current profits that the market is giving you by
forward contracting, have a backup plan ready in case prices push higher due
to unforeseen weather issues down the road. Consider reowning on paper with
an option strategy. If you are in need of ideas specific to your risk tolerance
and situation, feel free to give me a call. I'm happy to help.

If you have questions, you can reach Naomi at
nblohm@stewart-peterson.com, or post a marketing question in the Women in Ag discussion
group
.

 

Market scenario planning (sm) is a service of
Stewart-Peterson Inc. The data contained herein is believed to be drawn from
reliable sources but cannot be guaranteed. Neither the information presented,
nor any opinions expressed constitute a solicitation of the purchase or sale of
any commodity. Those individuals acting on this information are responsible for
their own actions. Commodity trading may not be suitable for all recipients of
this report. Futures trading involves risk of loss and should be carefully
considered before investing. Past performance may not be indicative of future
results. Any reproduction, republication or other use of the information and
thoughts expressed herein, without the express written permission of
Stewart-Peterson Inc., is strictly prohibited. Copyright 2012 Stewart-Peterson
Inc. All rights reserved.

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