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Grain fundamentals remain important

At a recent webinar, a farmer asked, “Why do you even look at grain fundamentals? Do they even matter anymore?” I said that I thought they were still important because they do impact long-term price direction and, ultimately, affect the price level at which you'll trade. I use a combination of fundamental analysis, time studies, and technical analysis when I put together my long-term master market plan each year.

Obviously, I don't know what the acreage or yields will be in 2013. But I do have several different scenarios that I look at so I can anticipate.

When I put together the master marketing plan for a new year, I always review what happened the last year and try to anticipate what may be the same or different in the new year. First, I build a set of bull and bear fundamentals. Second, I write down the critical market weeks when I need to make marketing decisions. Third, I set up some key benchmarks on my long-term charts to watch. This allows me to make some initial price targets where I am willing to sell.

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Fundamental scenarios for 2013

Here are my bull, bear, and neutral (most likely) fundamental scenarios for corn and soybeans for 2013.

For corn in 2013, I am using 98 million acres, estimating that 91.5% of those acres will be harvested for grain. The bull scenario for corn is a yield similar to this year at 124 bushels per acre; the neutral yield for corn is at 152 bushels per acre; the bear scenario projects a national yield of 166 bushels per acre.

For soybeans in 2013, I am using 79 million acres of soybeans, estimating that 98% of those acres will be harvested. The bull scenario for soybeans is a yield similar to this year at 39 bushels per acre; the neutral yield for soybeans is 42 bushels per acre; the bear scenario projects a national yield of 45 bushels per acre.

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When I analyze the fundamentals for corn in 2013, the largest variable is projected yield for the 2013 crop. At this time, I am projecting a 152-bushel-per-acre yield next year. I think this will be lower than the one USDA will use in the late-February annual outlook conference. I am staying this low because of the huge area in the western Corn Belt and the southern Plains that is in extreme to exceptional drought. If the drought monitor changes and improves, then I may increase my corn yield expectation.

It will be a fascinating spring to watch the weather and the corn market. Subsoil reserves in the western Corn Belt need to be recharged, but too much rain in April and May will delay planting. It will be a balancing act, with traders watching the forecasts and planting progress reports very carefully. The difference between a national average yield of 152 and 166 would be at least $1.20 per bushel in the average price U.S. farmers will receive for the crop they harvest in the fall of 2013.

Soybean outlook

When I analyze the fundamentals for soybeans in 2013, the largest variable is projected yield for the 2013 crop. A close second is the size of the South American soybean crop. As of now, the total soybean crop in South America is pegged at 149 million metric tons or about 5.4 billion bushels. I'll stay conservative with my early yield estimate for soybeans because of the drought conditions in the western Corn Belt. I also expect a large increase in double-crop soybeans in 2013, which usually yield about 40% less than full-season soybeans. The math is pretty easy: A 3-bushel change in the national average soybean yield is likely to change the price you sell for by at least $3 per bushel.

5 key days to watch

There are five key days to watch this year when you need to make marketing decisions for both the corn and soybean markets. These are critical weeks to make decisions, and odds are good that they're also weeks when market attitude can change from bullish to bearish or from bearish to bullish.

January 11, 2013. This is when the USDA will release its final 2012 crop production report and the grain stocks report. These reports, bullish or bearish, will set the tone for the first three months of 2013.

March 1, 2013. By this time, you'll know what the initial price is for your RP crop insurance for 2013 corn and soybeans. If the average price for December 2013 corn is over $6.50 per bushel, increase your projected corn acres by 1 to 2 million acres.

May 10, 2013. This is the day of the important USDA Crop Production and Supply/Demand estimates. This date tells you whether corn planting has hit the 50% mark and whether the U.S. is likely to get a trend line or better yield.

June 28, 2013. This week has been a major high or low in the corn and soybean markets the last four years. Watch this week very carefully again this year.

August 30, 2013. This is the week when the grain markets topped out in 2012. A high or a low could occur here in 2013.

These are the critical weeks to make marketing and risk-management decisions. How much you should sell will depend on the price level of futures and your yield potential.

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