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Ray Grabanski: Profitable 2010 due to FSU drought
Grains have all rallied to profitable levels again, with corn over $4 futures,
soybeans over $10 futures, and wheat over $7 futures. These are profitable
levels for production of the 2010 crop, especially with the crop looking like
yields will be above average for nearly all crops. The US has a windfall this
year, producing an outstanding crop and getting a good price for it as well.
It is coming at the expense of the FSU counties, who are experiencing perhaps
their worst drought in a century. Intense heat is hitting most of the countries
of Ukraine, Kazakhstan, and Russia that is burning up crops and is likely to
lead to a significant decline in total crop production in these areas. That has
already pushed prices up much higher than they were earlier this year, and it
giving producers a chance to sell in the top third of the last 12 months prices
Wheat prices have risen even higher than the top third of the past 12 months
prices, in fact, they've risen to the highest price since fall of 2008, when
prices were coming down from the mountaintop of the extreme high prices of the
2008 crop year. We are now looking at wheat prices offered for 2011 that will
attract acres away from corn and other crops!
That makes it exciting for the corn and soybean market, too, as wheat prices can
finally attract some acreage away from other crops, instead of the other way
around. For years, we have been losing US wheat acreage, only to see those
acres show up in soybeans and corn. The crop year 2011 should be the opposite,
as 2011 wheat prices at $7.48 July CBOT should attract acreage away from $4.33
Dec11 corn and $10.08 Nov. soybeans. Its wheat that is now trying to bid away
acres from corn and soybeans (and other crops), as we bet on the come that Us
exports will increase significantly in 2010/11 marketing year.
Basis is awful, as futures prices have climbed so fast cash prices haven't kept
up with the move of futures markets. Farmers with no knowledge of basis have
been willing sellers of cash grain, essentially giving away $.50-$1 to those
grain traders who will work the basis to their advantage. Clearly, this is a
market where you price grain in the futures market, and let the basis stay open
until prices cool off from current torrid values. Then when basis improves, you
can effectively lock basis and convert to a cash market price. But don't be
writing cash contracts today, as you are only giving away some serious dollars
to the merchandizer who knows how to work basis. That is one of the main
reasons to use a marketing firm such as ours, in that you don't give up the easy
money (which basis typically is for capturing a better price for your grain).
Clearly, US growers who are expected to produce a record large yield in wheat
crops, a record large corn crop yield, and a near record large soybean yield
will benefit from higher prices caused by the decline in the FSU countries of
Ukraine, Kazakhstan, and Russia. This windfall will benefit growers who will be
rolling in the dough from these profitable price levels for grains. But as
always, we'll have to remember to price something when the market is as good as
it is getting right now! Good prices and high markets don't last for ever, so
it's a good idea to price something when this opportunity comes along.
Something to also consider is that this rally is allowing us to not only sell
2010 grains at a profit, but also 2011 and 2012 crops (wheat especially can be
sold at $7.50 or better for both years). One should be somewhat conservative
about multiple year sales (making sure inputs are locked in, too). But still
these are some very good profitable levels for grain sold in this area, and is
something that needs to be considered. Corn is above $4.30 for 2011, and above
$4.30 for 2012 corn. Soybeans are trading $10.09 for 2011, and Nov12 at near
$9.90. By far the best sale opportunity is in wheat, with over $7 wheat futures
available for 2011 and 2012 - a price that will compete well in attracting acres
away from corn and soybeans.
The information contained, while not guaranteed as to accuracy or
completeness, has been obtained from sources we believe to be reliable. The
opinions and recommendations contained are based on our judgment and do not
guarantee that profits will be achieved or that losses will not be incurred.
Recommendations should not be construed as an offer to buy or sell
commodities. There is substantial risk of loss in trading futures and
options on futures.