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Farmers Grain Market Letter  03/18/14 8:20:00 AM Printer Friendly VersionPrinter Friendly Version

Market Letter

            The last six years of crop production in the Mississippi River Delta have been an amazing journey.  In February 2008, wheat went to an all-time high of $13.34. In April 2008, rice went to a high of $24.68. In August and September 2012, corn and soybeans put in highs of $8.43 and $17.94, respectively.  Calling it a wild roller coaster ride would be putting it mildly. The rest of the country has been going through an economic slowdown of enormous proportions, while production agriculture has been riding a wave of success not seen since before the Depression. And while the rest of the country has been going through recession, Ag has experienced run-away inflation (e.g., land prices/rent). Must all good things come to an end?
            The past two seasons have seen some of the highest yields ever in the Delta. 2012 got off to a good start, and with timely rains, turned into a banner year. 2013 got off to a rough start, with rains weekly during planting season, and many crops were planted in less than ideal conditions. Then the summer turned cool and the rest is history—the highest yields ever for many in the South.
            We have been blessed these past few years and it seems like just a bad dream to remember the damaged soybeans of 2009. We’ve had good opportunities to clear up previous shortfalls in production.  We are entering 2014 without having all of the “easy” answers of the past few years. There are questions for which we need answers … “What do we need to plant?” and “2. How low can I get my input costs?” and “3. When do I need to sell my crop?”
            In the years following Y2K (remember that?), we were experiencing low prices from supply over-abundance.
            The statement that “low prices solve low prices” is correct. Tremendous demand was created during the years of over production. This led to China being the biggest customer in most all commodities.  For the past six years, we have not been able to catch up with demand, because either Northern or Southern hemisphere came up with a short crop.  Starting with South America’s second crop of corn in 2012, things started to change. They pushed up the date on early crop soybeans as much as allowed (no planting soybeans before September 15 to prevent Asian Rust). This allowed them to plant the second crop corn earlier, which allows for more rain and increased yields. 2013 followed with both commodities, in both hemispheres, yielding above average. 
            The only tight supply was U.S. soybeans on reduced planted acres, and China continuing as a huge buyer.  Since January 1st, they bought over 1 billion bushels (1.029 bbu) of soybeans from us and have taken delivery of 86% of what they bought. No cancellations on what has already been delivered, so if there are going to be some cancellations...they better hurry.
          What to plant? The only prices that looks good are old-crop beans...more group III’s and IV’s?  Or can I cut cost enough to make corn prices work?
Breakeven            Management       Commodity
180 BPA @ $4.44    + $800 / A                Corn
150 BPA @ $4.00     - $600 / A                Corn
65 BPA @ $10.77    + $700 / A             Soybeans
30 BPA @ $13.33     - $400 / A             Soybeans
            When do I need to sell?  When prices are above the cost of production for your yield history, you may want to consider a hedge or forward contract. The September cash price of $4.90 or better recently, allowed some farmers to lock in profits above the cost of production. The fear of Russia/Ukraine tensions has led to our corn market trading 30-40 cents higher than previously thought. The over-bought conditions might need to be rewarded with some sales, when you can lock in profits.
USDA Report
            Times are changing. We have not had a limit move, up or down, in grains so far this year. The January report is usually a major market mover, but not this year. They lowered yields, acres, and carryout; all in small increments on the corn balance sheet. Soybeans use is up for the quarter, at a recent 1.28 billion bushels. That is up 4% from last year. The increase comes from stronger than expected U.S. crush and exports. USDA raised exports to 1.495 billion, which if we ship what we have booked, will cover the number and we have over half the year to go. The February and March reports have come and gone, with very little attention. All eyes will be turning to the March Planting Intentions report at the end of the month.
The March long grain Supply/Demand Report was neutral—no changes from February. USDA did raise the average projected price by $.20/cwt.  Medium grain imports were increased 1.0 mln cwts., which raised Ending Stocks by the same 1.0 mln cwts., but still a very small carryout number.  The World Supply/Demand Report shows a tremendous increase in Ending Stocks, up 6.4% from the month earlier.  However, 2/3 of that increase can be attributed to Indonesian “Beginning Stocks”, (going back to 2011) being modified or updated to reflect lower population statistics and lower annual consumption rates.
            In general, the U.S. long grain Supply/Demand Report over the last four years shows a gradual decline in Ending Stocks and “Stocks to Use Ratio”. Also, it shows diminishing acres and lower Usage due to lost export business, some due to price sensitivity and some to quality issues. The 2013 crop has, however, been a better quality crop. Plus, for the first time in recent years we have had moderate success selling rice to Iraq.
            With most of the old crop sold now, new crop is on most everyone’s mind now. What direction will rice prices go now?  How much additional (over 2013 crop) long grain acres get planted in the south this spring? There are a number of variables at work that will impact long grain acres this spring:
1) How big of a decrease in corn acres will we have?
2) Price comparisons between corn, beans & rice.
3) Ex-rice growers getting rice back in their rotation.
4) California drought issue significantly reducing CA medium grain acres, pushing medium grain prices to significant premiums over long grain, adding medium grain in Arkansas at the expense of long grain acres.
5) Medium Grain seed availability.
            There seems little doubt that we will plant higher long grain acreage this spring.  If that increase holds below 250,000-300,000 acres over last year’s acres, the price hit may not be so bad.  If long grain acreage increase goes significantly higher, then we will have to discount export prices more severely to move our rice out.
Sights and Sounds
            Winds howl over cold, wet soil
            Planters roll in fits and starts as
            Farming plays its own March Madness game
            Spring Breakers soak up sun—or snow
Customer support of the coop does pay.  The more bushels FGT’s owners sell to the coop, the better it can be for all owners. See Rebates/Equities above.
FGT News
            Rebates—FGT mailed rebate checks in early January, totaling 26.7 cents per bushel for soybeans; 31.6 cents for wheat; 25.3 cents for milo; 23.1 cents for corn; and 24.4 cents per bushel for rice. These are the largest rebates in FGT’s 44 year history.
            Equities—FGT mailed equity checks in early March, redeeming in cash 100% of the qualified and nonqualified equities from fiscal 2000; and 100% of the nonqualified equities from fiscal 2001. Current plans are to redeem additional equities in September 2014.
            Flatbed Trucks—Effective May 1st, FGT will no longer lift trucks at any of its elevators. We have laid the groundwork for four years regarding this impending decision, so that it would not be a surprise for our customers.  Almost all other grain companies stopped lifting trucks years ago. We are sorry for any inconvenience, but this action is necessary for efficiency, safety, and insurance reasons.
Improvements—FGT continuously looks for ways to improve operations, in order to turn your trucks faster at the elevators. With that goal in mind, we are adding new, separate outbound truck scales at Mound, Waverly, and Waterproof; overhauling the inbound truck scale at Mound; and replacing the older truck scale at Lake Village with a longer dump-thru grate scale. Also, several truck probes are being replaced with newer models. Keeping up with our customers’ needs is an ongoing process.
The Lighter Side
          Sherlock Holmes and Matthew Watson were on a camping and hiking trip. They had gone to bed and were lying there looking up at the sky. Holmes said, “Watson, look up. What do you see?
            “Well, I see thousand of stars.”
            “And what does that mean to you?’
            “Well, I guess it means we will have another nice day tomorrow. What does it mean to you, Holmes?”
            “To me, it means someone has stolen our tent.”
1 John 1:5-10
This then is the message which we have heard of him, and declare unto you, that God is light, and in him is no darkness at all. If we say that we have fellowship with him, and walk in darkness, we lie, and do not the truth: But if we walk in the light, as he is in the light, we have fellowship one with another, and the blood of Jesus Christ his Son cleanseth us from all sin. If we say that we have no sin, we deceive ourselves, and the truth is not in us. If we confess our sins, he is faithful and just to forgive us our sins, and to cleanse us from all unrighteousness. If we say that we have not sinned, we make him a liar, and his word is not in us.
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