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Be on the Lookout for Pricing Windows This Winter
You can’t take this winter off from marketing. Whether you have complex blended options strategies in place or unpriced grain in the bin, you’ll need to watch for sales opportunities that could be fleeting. Commodity advisers and ag economists do this for a living. Some of the best ones recently shared trends and reports they’ll watch this winter.
With last summer’s wide range of growing conditions, the January final estimate of 2015 corn and soybean production could be a market mover. Experts contacted for this story put it near the top of their list.
“The final 2015 production numbers and December 1 stocks released in January could be important,” says University of Illinois economist Darrel Good.
“There’s going to be some question for months about how this crop ends up,” says Bryan Doherty of the Stewart-Peterson Group.
Market adviser Al Kluis agrees. “That’s probably one of the biggest reports of the year,” he says.
Besides that big report, monthly and weekly numbers from USDA agencies will show demand for the old 2015 crop. Good says he watches “exports, crush, ethanol production – as well as weekly and monthly livestock inventory numbers.”
Find report release dates on the USDA’s home page under Agency Reports. The U.S. Energy Information Administration posts ethanol production weekly at eia.gov.
Winter is also time to watch crop trends in South America. “You may see, for the first time in history, that Brazil alone goes over 100 million metric tons (or 3.7 billion bushels) of soybeans if the weather’s conducive to getting the crop planted,” says Don Roose of U.S. Commodities.
Kluis visits the Weather Channel website for radar and forecasts in South America, checking on Bahia in Brazil, for example. Critical months are January for corn pollination and February for soybean pod set, he says.
February is also the month of the USDA Outlook Forum in Washington. It uses extensive global economic data on potential demand for 2016 crops, as well as issuing trendline production estimates that aren’t based on any surveys.
Because of that lack of producer input, not everyone takes the first estimate seriously.
“When I talk to farmers throughout the year, I don’t hear anybody saying, ‘Gee, those USDA outlook numbers . . .’ ” remarks Doherty.
Kluis says the Outlook has temporary importance at least. “You may not agree with it, but it is something traders look at. If you’re not aware of it, you should be,” he says.
Experts agree, however, that USDA reports are just the tip of the economic data iceberg. Looming below the surface are daily news reports on stocks, oil prices, and the dollar’s strength. (Finance.yahoo.com is a good starting point.) Kluis also tracks monthly reports on consumer confidence, not just in the U.S. but also in Europe and Asia.
North Dakota State University economist Frayne Olson says, “There are two very broad categories of information that the futures market traders follow: the U.S./world supply and demand conditions and the U.S./world economic conditions. While these two categories overlap, most farmers tend to focus on the supply-and-demand conditions because it is easier to understand the impacts on local grain prices.”
Besides January’s final USDA corn and soybean crop estimates, Olson looks at winter wheat seedings announced then. That affects acres available for corn and soybeans in 2016.
In the global economy, Olson will track economic growth in China, Europe, and the U.S.
“I don’t believe that China will adjust the imports of soybeans, but it may begin importing U.S. corn again,” he says.
“In Europe, the value of the euro has a major impact on the value of the U.S. dollar,” Olson says. “China also sells a significant amount of its products into Western Europe, so the growth in the Chinese economy is linked to the growth in Europe.”
In the U.S., the economy won’t change domestic food demand much, Olson believes, “but the growth of the U.S. economy, relative to the rest of the world, is a major driver for the value of the U.S. dollar. Higher U.S. dollar values create problems for grain and meat exports.”
Crude oil prices also are crucial because they affect U.S. consumer spending on food, ethanol plant profits, geopolitics in Russia and the Middle East, and China’s economy.
“I know this is a lot of information to follow, but that is the world we live in,” Olson says.
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