Grain Marketing Commentary

David Reinbott
Agriculture Business Specialist
University of Missouri Extension

Last week’s USDA supply and demand report did not have any major surprises.  Most U.S. and world production and ending stocks estimates were within the trade ranges.

Supply and demand tables for can and soybeans can be found at the following link:

http://extension.missouri.edu/scott/S&DTables.aspx

Wheat post-harvest marketing strategies can be found at the following link:

http://extension.missouri.edu/scott/Wheat-Marketing.aspx

Corn

In the June 11 report, USDA made no changes in the supply or demand for the U.S. 2013-14 or 2014-15 crops.   World ending stocks were increased 1.0 mmt based on production increases in the FSU-12 and the Ukraine.   USDA will update planted acres and quarterly stocks at the end of the month on June 30.  

The fast planting progress and good moisture over most of the Corn Belt has pressured prices lower.  The last crop conditions report had the good/excellent ratings at record levels.  While there is still a question on the number of acres planted, the good start for the corn crop and possible record yield will make up for any major short fall in acres.

This year’s corn crop ending stocks are projected at 1.726 billion bushels an increase of 580 million bushels from last year with a $4.20 season average corn price.  This is based on 91.7 million acres planted, 84.3 million acres harvested, 165.3 bushel yield, and use at 13.385 billion bushels.   If use is increased 250 million bushels to 13.635 billion bushels, the same as 2013-14, ending stocks would drop to 1.471 billion bushels.  With the better use and 1.0 million less acres due to cool and wet conditions at planting, ending stocks would fall to 1.32 billion bushels.   If the yield is trimmed back 2 bushels/acre due to possible adverse weather, ending stocks would be 1.1 billion bushels the same as 2013-14.  As you can see, it will take several very positive marketing developments to cut ending stocks and result in a significant rebound in prices.

On the other hand if we keep the stronger use at 13.635 billion bushels, but increase planted acres 500,000 and the yield comes in at a record 170 bu/acre, ending stocks jump to 1.95 billion bushels and corn prices dip below $4.00.

Technically, both old and new crop future contracts need to hold Tuesday’s lows or prices could fall another 20 – 30 cents.  For both July and December contracts the lows are $4.36. The prices are very oversold, therefore a bounce in prices is always possible.  The price resistance is at the daily moving averages.  For the July contract, $4.45 at the 8-EMA, followed by $4.69 at the 200-SMA, and $4.87 at the 50-SMA at $4.85.  For the December contact, the price resistance at the same moving averages are $4.45, $4.74, and $4.81.

If you still need to make some sales, I would use closes below the lows mentioned above to make sales or buy put options.  The market has dialed in almost perfect weather and record yields. Therefore, any adverse weather or production problems over the next 8 – 10 weeks should give us a bounce in prices.  At this time, I would use any rebound in prices to the 50 and/or 200 day moving averages as an opportunity to make some sales.

Soybeans

The only change USDA made for soybeans was a 5 million bushel increase in crush for 2013-14 which resulted ending stocks for 2014-15 to be cut 5 million bushels to 325 million bushels.   Season average price was left unchanged at $10.75.  World ending stocks for 2014-15 was up less than 1.0 mmt.

For the 2014-15 crop, if USDA makes no changes to the demand at 3.45 billion bushels and yield at 45.2 bu/ac but acres are increased 500,000 to 82.0 million acres, ending stocks would jump to 357 million bushels.  If acres go up 1.0 million acres then ending stocks would climb to 380 million bushels.  This would project a national average price below $10.00/bushel.

Technically, just like corn futures, soybean prices need to hold Tuesday’s lows or prices can fall another 40 - 50 cents.  For the July contract, Tuesday’s low is $13.95 and the next support level is at the 200 Day MA at $13.42.  For November futures, Tuesday’s low is $12.02 and the 200 Day MA is at $11.76.   Price resistance is at $14.50 in the July contract and $12.32 in the November contract.  For new crop sales, I would use a close below $12.02 to make sales or buy put options or rallies back to $12.32.

Wheat

Wheat had the most updates in the supply and demand balance sheets.  For 2013-14, the ending stocks were increased 10 million bushels based on a 15 million bushel cut in Use and a 5 million bushel cut in imports.   For the 2014-15 wheat crop, ending stocks were increased 34 million bushels to 574 million bushels.  This was based on a 10 million bushel increase in beginning stocks, a 21 million bushel cut in production due to a 0.4 reduction in the yield, and a 45 million bushel cut in use.  The season average price was trimmed 30 cents to $7.00/bushel.  World ending stocks were up 1.0 mmt with production increases in the European Union, China, and Russia.

Technically, July futures continues to move lower after breaking below the 8 day EMA On May 14.   Support is at $5.56.

Wheat harvest is just beginning and harvest should be in full swing by the end of the week.   The post-harvest marketing strategy that has given the most consistent returns over the years is the storage hedge using on-farm storage to capture the basis improvement.     

In this strategy, a short hedge (Sell March Futures) is placed at or soon after harvest with the wheat being stored on the farm.  By placing the hedge the goal is attempting to take advantage of a strengthening basis where the appreciation of the basis is the return to storage.

The storage hedge has given a positive return every year for the past 12 years.  In this strategy, the wheat is placed in storage on June 15 and held in storage until December 1, January 1, February 1, or March 1.  Storage costs are calculated using 5% interest plus 1 cent per bushel per month. The stored wheat is hedged using March Futures and the hedge is lifted when the grain is sold.  The 10 year average net returns are the following:  December 53 cents/bu., January 55 cents/bu., February 57 cents/bu., and March 58 cents/bu.

Another strategy is to store wheat unhedged into December – March.  This strategy has given mixed results over the years.  The goal of this strategy is to take advantage of both basis and futures price appreciation.  The 10 year average net returns are the following:  December 46 cents/bu., January 50 cents/bu., February 44 cents/bu., and March 47 cents/bu.  While the average returns are slightly less than the storage hedge, the year to year returns varied wildly from +$4.92/bu. to -$2.59/bu.

The major disadvantage of the two storage strategies that it requires tying up the grains bins for six months or longer so they are not available for corn and soybean storage.  Shorter term strategies of storing wheat either hedged or unhedged until August or September has given mixed results.  The 10 year average net returns for a storage hedge to August 1 was -13 cents/bu and for September 1 was -26 cents/bu.  The 10 year average net returns for storing the wheat unhedged to August 1 was +8 cents/bu., and to September 1 was -4 cents/bu.

Another strategy that has a 10 year positive return is to sell the wheat at harvest and buy March futures to take advantage of any appreciation in the futures prices until August 1 or September 1.  The 10 year average net returns for this strategy to August 1 was +21 cents/bu., and to September 1 was +22 cents/bu.  While the net returns are positive, there was a wide variability in returns from year to year from +$2.29/bu. to -$1.49/bu.

Cotton

Cotton ending stocks for 2013-14 were decreased 0.1 million bales to 2.7 million bales.  For 2014-15, harvested acres were increased 300,000 to 8.75 million acres, yield was cut 1 pound to 823 pounds/acre, and production is projected to increase 0.5 million bales to 15.0 million bales.  Total supply was bumped up 0.4 million bales to 17.71 million bales and ending stocks were increased 0.4 million bales to 4.3 million bales.  The season average price was cut 3 cents/pound to 70 cents.   

World ending stocks for 2013-14 and 2014-15 were both up 1.0 million bales to 99.0, and 102.7 million bales respectively.  While world cotton demand continues to slowly rebound, world production continues to grow faster.

It is important for a cotton producer to remain in close contact with his cotton buyer to get the most current price quotes.

Technically, July futures has had a nice rebound from 84 cents to 90.5 cents the past week or so.  Price resistance is at 95 cents.  December futures continues to look weak with support in the 75 to 76 price level.  First price resistance level is at 78 cents.  If you are willing to take some risk, I would hold off making any additional sales to see if prices can make a rebound back into the 78 – 80 cent price range.    However, if prices do break 76 cents, buying put options to set a price floor may not be a bad idea.

Rice

Rice ending stocks for 2013-14 were increased 3.0 million cwt to 32.3 cwt.    Exports were cut 3.0 million cwt to 92.0 million cwt.  For 2014-15, ending stocks are projected to increase 3.0 million cwt to 37.3 million cwt.  World ending stocks for 2014-15 are projected at 110.67 million cwt. up 1.0 million cwt from last month.

For cash rice quotes, contact your rice buyer to get the most current price quotes and cash price outlook.  

Technically, July futures have had a nice rebound from 14 cents to 14.6 cents the past few days.  Price resistance is in the $15.40 - $15.60 price range.  September futures have support at $13.70, and initial resistance at $14.30, and price resistance back in the $14.50 - $14.60 range.  I would look to make some sales, if prices can rally back to $14.50 or close below $13.70.

Source : missouri.edu