Take fast look at crop futures | Agriculture

Purdue University agricultural economists Nathan Thompson and James Mintert hosted a webinar June 13 to discuss the corn and soybean outlook following the US Department of Agriculture’s June World Agricultural Supply and Demand Estimates report. They considered implications for crop-marketing strategies.

“The big wild card is what’s going on in the Black Sea region,” Mintert said. “Will they be able to get the crop planted in Ukraine? An increase of stocks in Ukraine is indicated but nobody knows what that means.

“Without the opening of ports like Odessa, nobody knows. And I’m not optimistic about seeing those ports reopened. The market’s going to react to talk but it’s just talk.

“It’s an educated guess on Ukraine corn. Planting is progressing closer to normal than we’d expect, because the corn-growing area is not as much in the war region. We know diesel fuel and fertilizer are an issue.

“Clearly we’re going to see a major drop-off in production to what we’d normally see in a year. And that’s a big wildcard. The USDA is forecasting a small decline in corn exports. I think the United States will pick up some exports.”

Thompson said, “It’s hard to imagine, with the uncertainty in Ukraine and their inability to export, it’s hard to imagine exports going down.”

As this week’s heat wave spread eastward across the Corn Belt, bringing temperatures in Wisconsin to almost 100 degrees, the economists said they expect crop conditions to decline.

“It’s going to be critical as the week unfolds, what the weather does,” Mintert said. “If the heat dome hangs in there it will be a problem. The concern is – look at that drought map – if the drought in western Iowa, Kansas and Illinois extends eastward, that’s the risk. It’s a very serious risk because of the pressure we have to have strong yields this year. … The question going forward is what happens this summer, both with Ukraine and growing conditions.”

Part of the pressure is the probable lack of grain exports coming out of Ukraine and the Black Sea region. Additional pressure is what they call the war between processors and exporters.

“The wildcard is the US economy and what happens with gasoline prices,” Mintert said. “That would be good for ethanol – unless we pull back on gas usage. … So far the reports are most people haven’t backed away yet. But as you move through the summer it wouldn’t be surprising to see some impact.”

The forecasted price per bushel of corn is not a record, he said. But that could change if demand changes.

Thompson said, “I have a lot of lines in the ethanol-plant basis because if you do an average a lot is lost. The blue line is the historical average. The black line is what going on in the current crop year. There’s a bit of a dip in March but since then it’s continued to strengthen.

“Even with strong corn prices, those ethanol plants are going to continue to dig for corn, and bid big for corn. Expect to see demand continue. We might follow the green line if there’s a shock to the system – what would it take for ethanol plants to pull corn out of grain bins? Will we see exporters become competitive?

“It’s important to keep in mind that basis has been extremely diverse. We see lots of spikes, then see the spikes go away. This year you really need to pay attention to what’s going on in individual locations. For folks who normally sell to the same person every year, this might be the year when you want to look around. When you look at individual elevators you’ll see more variability than in a typical year.”

He used data from Rabobank to color-code basis strength, creating a map that’s easily understood.

“It’s interesting to see where the strength is based on location,” he said. “We have white and yellow along the Ohio River, then strength in western Illinois. It just gives you a visual.

“Inflated feed prices are starting to have an impact; we’re seeing impact in poultry and beef. It’s something to keep an eye on going forward. Inflated feed prices are literally going to hammer the livestock industry.”

The economists use a price-discovery tool to estimate what corn prices will be throughout the crop year. They chose $6 per bushel to calculate possibilities.

“I like to pick a price that people would like to think about,” Mintert said. “And then say, ‘So what are the chances?’ There’s upside potential in this market, but we’re smack-dab in the middle when corn and soybean producers see their seasonal highs. What are the chances we see prices decrease? Is this a time when I want to at least make some pricing decisions? At least go through the exercise of thinking about it.”

They found a 25 percent chance that prices would be at less than $6 this year – and a 25 percent chance that prices will be more than $8.25.

“We’re seeing huge variability this year – a $2.25 range; that’s huge uncertainty,” he said.

Soybean prices might set records

Soybean planting is off to a decent start.

“The tug of war is much more pronounced on the soybean side, between soy processors and exporters,” Mintert said. “There really isn’t a lot of old crop sitting around. If you have old crop left in inventory, you’re going to need to pay attention. Check prices every day or every other day.

“On the map you really see key strength along the Ohio River and the Mississippi River. See that curve in north-central Illinois – those are strong soy-processor bids. The processors there are really competing with export markets.”

Thompson said, “Again for the price-discovery tool, the $14 price I just picked up arbitrarily. But it gives people something to think about. We’re at the point of the marketing year where those future prices see seasonably high. Nobody would recommend pricing everything you’ve got today, but making some decisions on some of that crop would be a good idea. It could be very very profitable.”

Minert said, “Think about crop insurance. If you have experience with double-cropping wheat, take a look at that. It can be profitable. If it’s a viable enterprise for you from a weather standpoint, it’s worth looking at. It could be very profitable. During the past couple of decades we’ve reduced wheat in the Corn Belt. This is the year when you want to think about it.

“If you live in a region where wheat can be double-cropped with soybeans, now is the time to be thinking of that. That is going to be very attractive. I realize this doesn’t fit everybody, but if it’s a viable alternative think of it.”

The two said they knew break-even prices would be challenging.

“We knew it was coming but wow,” Mintert said. “The risk perspective has really changed.

“But you have the option of locking in some of the best returns ever. This is despite input costs. From a managerial prospective, if you haven’t considered doing projections you need to do it. If you haven’t done these kind of projections for your farm, or did them back in January, you need to do them now. You probably want to manage accordingly; remember we can’t forecast with a high degree of accuracy.”

Thompson said, “But we can see where we are today. We know we’re at favorable levels. Prices could go up, but locking in those levels on portions of your farm could be a really really good idea. These prices won’t continue forever. Now is the time to be locking in profitable levels, building working capital. When this breaks, where will you be?”

Mintert said for producers who rent a fair amount of their crop land, now is the time to look at possible future results.

“You might think about talking to your landlord about how positive things have been, costs have gone up,” he said. “You might want to think about bonus payments to your landlord. Regardless, it’s an opportunity to have a more complete conversation.”

Thompson said, “This is the environment where flex leases start to have benefits. You want to control the narrative a little bit. You don’t want somebody else to come in and offer a bonus. We’ve heard stories of people coming in and offering cash. Manage the human and land risk with the current environment.”

And it’s time to think about next near, they said.

“It’s not too early to start talking to suppliers about what you want to do in the 2023 crop year,” Mintert said. “Talk about what your fertilizer requirements might be; start to put those plans into place. I can predict inputs will continue to be a challenge for at least another crop year. You need to hear what your suppliers are telling you, and what they’re hearing from their suppliers.”

James Mintert is a professor and director of the Purdue University-Center for Commercial Agriculture. Nathan Thompson is an associate professor at the Purdue University-Department of Agricultural Economics.

Julie Belschner writes on various agricultural issues; she is the managing editor for Agri-View based in Wisconsin.

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