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Grain fundamentals remain important

Al Kluis 01/11/2013 @ 10:32am

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.

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.

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.

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