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Protect fall crop profits now

Ray Grabanski 02/26/2013 @ 8:14am President, Progressive Ag www.progressiveag.com

Last week, I wrote about the possibility of $11 soybeans by this summer.  

Soybeans gained for a few days after that on news of disappointing rains in South America, but quickly did an about face and tumbled back to lose 65c in a matter of two days.

This week, I am concerned about another possibility - $4 corn by harvest time 2014!  When I look at charts of crop prices, I note that new crop corn (and 2014 to 2016) contracts have made new lows on a frequent scale recently.  

When you look at the fundamentals of the market, over 2 billion bushels carryout projected by USDA on a return to trend yields (yes, I do think trend yields are not only possible, but are likely in 2013!), it's hard to be bullish.  

Why do I think we can return to trend yields (163 bushel or more) in 2013?

First of all, from our paltry 123 bu/acre crop this year, anything looks too high!  But, we have to remember, this year's drought was a once in a 50 year drought - it's not likely to happen again in my lifetime!  Since last September, (when my yield projection for 2013 may have been about 155 bu/acre due to low soil moisture levels), we have improved the drought monitor tremendously. The eastern half of the Corn Belt virtually has eliminated in any soil moisture shortage.  That raised my yield projection to over 160 bu/acre.  Now, the western Corn Belt has received above normal precip, since January, in many parts (including KS), which makes it look like a weather pattern change is occurring.  If we have wetter than normal weather into spring planting, we might further shrink the drought monitor for the US.

Also, we now are getting close to finalizing the South American crop, and it looks like SAM will be near normal production (a return to 'trend' yields there - actually above normal in Brazil and normal to below normal in Argentina, or average for SAM as a whole).  

With USDA predicting a return to corn of $4.80 national average price for 2013/14, with a 2.0 billion bushel plus carryout of corn by the end of that marketing year, that will result in a completely different world by harvest of this year's crop.  USDA stated the only reason for a price as high as $4.80 is that the forward sales will be at much higher levels. So, a $4 corn market at harvest will be about what can be expected if the normal 2014 corn crop occurs.

I have nary talked to a farmer that thinks we can return to 'trend' yields in 2013.  But that doesn't mean it won't happen.  What it does mean is that farmers don't believe it can happen, and that matters because that explains why farmers are not selling Dec corn at $5.50, when many informed people (including Pro Ag and USDA) are predicting a $4 corn harvest price low.  

This has implications for the aggressive marketer. Not only can he sell $5.50 or higher corn now (for 2013 and also 2014 and 2015), but buying RA insurance at 85% with the harvest price exclusion could net a huge harvest payment for producers willing to buy against the risk of $4 corn at harvest. And that means another very profitable year for that producer.  It will be hard to compete with this guy when it comes to bidding for land over the coming few years if he is right in this market analysis!

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3rd droughti in a row 02/27/2013 @ 7:55am ive been told experts are people who predict things 25 miles from their home..i will give you facts i live in webster county iowa flat and black ....last spring i removed a grove dug holes 24 ft in the ground no moisture after 2 ft to make a dirt ball this fall tiling no moistire below 8 inches...it takes 20 +inches to grow a full corn crop ....i wont have 163 bu crop as it stands now if rain dosent come timely wont get much of anycorn 85% crop insurance with hail over the top..plant early and pray... ive farmed 45 years dried out 5 times drowned out 3... think that makes me some kind of predictor

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mark guildenzoph predictions 02/26/2013 @ 10:44am Would you like to know why we don't believe it can happen because of facts not predictions. Fact droughts can occur at any time not every 50years like the last comparable to2012 in 1990 and two years prior88. Just like the weather center said Katrina would only happen every 100years then Sandy pounds the east coast whoops. The facts are where I live in Chicago Lake Michigan is still 20 inches low so as far as water levels being returned to normal not true all over the country. The fact of the matter is that if the grain market was adjusted by supply and demand like all other commodities we would be at 20dollar corn and 50dollar soybeans. Based off of predictions the market is turmoil what will happen is of no concern to the average farmer who cares about what is happening now FACT.

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