Market Analysis: March 27

The grains are fighting for position ahead of the March 31 reports.

Corn

May Chicago Board of Trade corn had several good trading sessions before it tried to touch the $4.00 level on Thursday and then tumbled to close at $3.91.  Overall, corn remains in an intermediate neutral zone with resistance at the $.00 level and initial support at the 40-day moving average of $3.88

corn

Wheat

Kansas city May wheat saw a high on Monday that we haven’t seen since mid-January.  Prices plunged on Thursday and broke the rising trend pattern.  It is currently recovering a little of what was lost on Thursday but the overall trend is weak.  Initial support lies at $5.34 and major support is at $5.16.  Initial resistance is at the 10-day moving average of $5.56 and major resistance is at Wednesday’s high of $5.79.

wheat

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Tucker Talk: March 27

Tractor in Field

Corn

May corn futures crept extremely close to the $4.00 level on Thursday after 4 good sessions of trading.  Higher prices along with some good basis levels spurred farmer selling around the interior corn production areas.

The USDA is considering extending the sign up date for the Farm Bill programs.  Any producer who does not elect to choose an ARC or PLC programs will automatically be signed up for PLC.

Wheat

Wheat prices improved on Monday as the dollar continued to decrease from last week.  Pictures of winterkill and concern over moisture levels in the plains also drove prices higher.  The good news didn’t last long however as news of improved moisture in the western plains caused a sharp drop in prices on Thursday.  Wheat purchasers are continuing to pass on U.S. wheat in favor of less expensive wheat from the E.U. and Black Sea regions.

Soybeans

Good south American production drove soybean prices down in the later portion of this week.  Yields are excellent and result in record production that will more than offset losses from floods in some areas.  Argentinian dock unions are threatening to strike over wage increases not being as good as they wanted.  Brazilian harvest is in full swing but there is possibility of another truck strike this weekend if the government doesn’t meet their demands.

Cattle

Packers have drastically slowed down chain speed in their slaughter plants hoping to reduce demand in order to combat the high cash prices they pay.  Cash prices are still higher however.  Historical price action would suggest that cattle prices trading higher into April before trending down into late summer.  Estimates show beef production being below hog production which hasn’t happened since the 1950s.

Hogs

The quarterly hogs and pigs report comes out today (Friday 27) at 2PM.  This report will give us an indication of how quickly the hog herd is expanding.  Estimates put hog numbers at those of 2 years ago plus 1-2%.

Tucker Talk: March 20

GO POKES!

GO POKES!

As a University of Wyoming graduate all I have to say is GO POKES!!!

A busy day today at Farmer’s Coop with Kansas City with wheat trading at 568, up to 18 cents over the May futures and Chicago corn trading at 384 up to 11 cents over the May futures.  Several people sold wheat this morning when it was only up 12 cents, then the market rallied another 6 cents and more people started calling.

Grain prices improved on Wednesday as the dollar tanked from news that the Federal Reserve was not going to raise interest rates until June.  Wednesday saw an increase in the dollar as it clawed its way out of the hole it fell in on Wednesday which resulted in weaker grain prices.  The dollar fell again on Friday which spurred an increase in commodity prices.  There are concerns that the United States is still over-priced in grains.  We have seen buyers pass on high priced US grains in favor for the cheaper grain from the EU and Black Sea markets.

Wheat

The big news in Friday is that the dollar is falling, there is news of winter kill across the country, and weather is  looking unfavorably dry in the western plains.  Wheat prices saw a climb on Friday to levels that we haven’t seen since mid-February.  There are whispers that this spring looks similar to the spring of 2012 and we all know how that turned out but it is far too early to make any definitive predictions about this summer.

Corn

National Weather Service long-range maps show normal temperatures for a majority of the corn belt and a dry Minnesota-Wisconsin area in the April-May time  period.  The drought monitor shows a current subsoil moisture deficit in the Minnesota, Wisconsin, and Dakotas area.  There is uncertainty about what the acreage mix will be in the Dakotas due to the moisture limitations and planting delays.

Getting the Most “Bang for Your Buck”

Chocolate Chunk Cookie

We all like to know that we received the most for our money, that our dollar went as far as it could possibly go in working for our benefit, that the last dollar we spend provides exactly the amount of enjoyment to us as it cost us to obtain.  This brings to mind the age-old questions that all of us think about this time of year.  Which Girl Scout cookies should I buy?

I can’t help you decide which cookie is your favorite but I can help you decide which ones to buy to get the most cookies for your dollar.  In my area, the average box of Girl Scout cookies sells for $3.50.  I don’t know if you noticed but I find it irritating that there are different numbers of cookies in each box.  Shouldn’t boxes with fewer cookies cost less?  Regardless, here is a list of popular Girl Scout cookies, approximate estimates of cookies per box (actual numbers are extremely hard to find without buying a box and counting), and the cost per cookie.

Cookies

There are all sorts of arguments about which cookies are the best but from a purely “bang for your buck” standpoint, the best cookies to buy are the Trefoils® at $0.10/cookie.  Close behind the yummy shortbread cookies are the popular favorite of Thin Mints® at $0.13/cookie.  The two most expensive are the other popular favorites of Tagalongs® and Samoas® at $0.23/cookie.  The economist in me is really curious how they determine the number of cookies to put in each box.  Obviously they have a method because none of the cookies have the same amount per box except Samoas® and Trefoils®.

In the end, it is not the cookies that matter but the organization you are supporting by buying them.  Girl Scouts use the proceeds to pay for supplies, activities, and group travel for the local troop.  These cookies are are a critical source of funding for local Girl Scouts and is often what makes it possible to serve girls in hard-to-serve areas and maintain camps and properties.

Market Analysis: March 13

Corn

May Chicago Board of Trade corn maintains a tight, coiling, sideways movement within a 20 cent range.  Corn is torn between fundamentally large old crop stocks pushing price down and concerns about reductions in new crop plantings pushing price up.  There could be a major breakout depending depending on which fundamental prevails.  The longer the sideways movement, the greater the potential of a major move after a breakout.  Major resistance at the February 9th high of $4.00 and support at January 30th low of $3.73 3/4.  Minor support is at the February low of $3.80.

corn

Wheat

May Kansas City wheat saw favorable gains this week with covering of short funds continuing from Friday of last week.  On Thursday, price tested but could not close above major resistance at the March 3rd high of $5.48.  Friday is seeing a fall as the overall bearish trend of wheat is poised to continue.

wheat

Soybeans

May Chicago Board of Trade soybeans dropped from last week as the overall trend is bearish.  Prices maintained a sideways trend and tested support at $9.76 on Friday.  Declines under this support would reignite the near term bear trend with a target of $9.71 at the Feb 11 low.

soybeans

Tucker Talk: March 13

wheat; sky; blue

Wheat heads looking excellent.

Market News

Grain stocks are large as farmers are still sitting on last year’s stocks and revenues and have little interest in selling at this year’s prices.  The last few years of high prices caused complacency among producers resulting in current prices being below many break evens.  The simple reality is prices are probably not going back to the higher levels they were.  World supply is adequate and the value of the US dollar is high.  Prices are low, input prices are high, and there is still downside risk with current prices.  Farmers will need to be more active in cost management and downside risk protection if they want to make a profit this year.

Superb weather brings us news of fertilizer spreading and talk of planting spring wheat in the Dakotas.  The drought monitor indicates Box Butte county in Nebraska is abnormally dry but wetter than the last two years.

Burlington Northern railroad is indicating substantial improvement in train movement times after they pulled thousands of cars off of the lines.  Farmer’s Coop has shipped two corn trains and two wheat trains since February 17 with two shipping the first week of March.

Corn

Corn continues its sideways movement, waiting for the March 31 plantings report to come out.  Prices are still fundamentally torn between excessive old crop stocks and tightening of 15-16 production estimates.  There could be a major break out of the sideways trend after the March 31 report.  The longer the sideways movement continues, the higher the potential for a major breakout.

The USDA increased corn export and feed usage and decreased ethanol usage in Tuesday’s supply and demand report estimates.  The result was a decrease in ending stock estimates for the 14-15 crop year.  The major talk about the March 31 planting report is whether farmers will shift as many acres from corn to soybeans as predicted.

Wheat

Prices were up this week with short fund covering and perceptions of dry U.S. Plains having negative impacts on wheat production.  Short funds were near record levels after CFTC re-counted last week.  World wheat stocks are good and weather is looking favorable for new crop production.

The US dollar index touched 100 points on Wednesday night, the first time since 2003.  Grain prices are highly influenced by the US dollar.  Wheat exports looked ugly Friday morning with concerns that the rise of the US dollar is starting to impact demand for US grain.  There was a story talking about Egyptian private importers having trouble gathering enough “dollars” for wheat purchases from the U.S. because the Egyptian government has devalued the Egyptian pound and implemented new currency restrictions to combat the black market.  This is an example increasing demand for dollars driving the value of the dollar higher.

Soybeans

Talks between the government and truckers began in Brazil in response to trucker strikes over fuel taxes.  They are expected to continue into late March with no guarantee that concessions will be agreed upon.  A three day Argentina producer grain sales halt started on Wednesday to protest government export quotas.  Producers have indicated that more strikes will occur if demands are not met.

Brazil exported more soybeans in the first week of march than January and February combined.  No changes were made in soybeans in the USDA supply and demand report released on Tuesday.  Larger soybean plantings are expected in the March 31 report with plantings shifting from corn to soybeans which would result in increases in soy stock.

Tucker Talk: March 6

Corn

There is still a debate whether high old crop stocks or reductions in new crop planting acres will prevail in price direction (See February 27 entry). The sideways pattern in prices is expected to continue until the stocks and acreage report is released on March 31.

Farmer’s Coop agronomy department reports small shifts in planting away from corn but a very large portion of growers have not made a decision yet  This gives me qualms about how accurate and useful the March 31 report is going to be,

On Monday March 3, the Risk Management Association (RMA) set spring projected prices of revenue guarantee crop insurance at $4.15/bu for corn and $9.73/bu for soybeans.  For comparison, 2014 prices were $4.62/bu for corn and $11.36/bu for soybeans.  Lower guarantee prices will result in lower revenue protection for the 2015 crop year.  These prices are calculated as the average trading price of December futures in the month of February and will not change unless December futures are higher in the month of October.

Wheat

Wheat prices continue to decline as corn prices decrease.  Historically, high corn prices have caused substitution of wheat in feed ratios thus increasing the price of wheat.  Now that corn prices are lower, feed ratios are using more corn and the demand for wheat is declining, causing the price to drop.  The increasing value of the US dollar and favorable weather across the globe are also contributing to wheat’s decline.

Some other interesting news comes from India.  India’s wheat crop is down from earlier numbers due to multiple factors.  The most interesting factor is that water tables are down due to excess flood irrigation.  This may force farmers to shift to less water intensive crops and further reduce wheat acres.

Soybeans

Soybean prices dropped this week with news of the Brazil truck strike might see a conlcusion and soybean shipments to the port of Paranagua increasing to normal levels.  Concerns about shifts in planting acreage from corn to soybeans are also putting pressure on soybean prices.

Soybean export estimates from the US are up 3% from last year even though the USDA is estimating a decrease.  Devaluation of the Brazilian Real is causing farmers to hold onto soybeans in order to combat the inflation which reduces Brazilian export estimates.  However, the continuing increase in the value of the US dollar and the decrease in the Brazilian Real makes Brazilian soybeans more desirable to our export customers.

 Other News

Some good news for the future.  Historical trade notes a somewhat strong tendency for grain values to rally from March 1 into spring in large carryout stocks years (such as this one) as attitudes shift from old crop stocks to new crop production risk.

Average Nebraska agricultural land value dropped 3% in the past year due to decreases in grain prices.

http://www.agweb.com/article/survey-nebraska-agricultural-land-value-drops-3-NAA-associated-press/

Australian wheat harvest is rising as acreage expands.  Wheat production will increase next year as acreage expands and yields increase.  Exports may increase to as high as 17.95 million tons in 2015-2016 from 16.9 million tons.  This may boost global inventories to high levels and cap any potential rallies.

http://www.agweb.com/article/wheat-harvest-in-australia-is-seen-rising-as-acreage-expands-blmg/

4 Benefits of Hedging

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1) Reduce Price Risk

Prices are inherently changing. Rolling and rocking like a freighter on gentle ocean waves, or rising and crashing like a dingy in a hurricane.  Price volatility creates risk that the value of your products will decrease between when you paid for inputs and when you sell your outputs, resulting in lower profits or even losses.  Hedging is a tool you can use to remedy this.  Hedging is defined by Investopedia as “making an investment to reduce the risk of adverse price movements in an asset.”  Hedging allows for the reduction or removal of yourself from a price drop by “locking in” a favorable price.

2) Make a Profit

If you know your costs of production then it is easy to calculate your break even and determine what price you need to receive to make a profit.  If prices are at or above your break even, and an acceptable profit is available, then you can hedge and lock in those prices.  As my grandpa used to say “it’s hard to go bankrupt when you are consistently making a profit.”

3) Plan Ahead

Hedging can be done with old crop you have in storage, new crop that you haven’t even planted yet, and inputs you plan on buying.  Hedging isn’t only for protecting against decreasing prices on products you plan on selling.  You can also hedge in order to protect against price increases on things you are going to buy .  Hedging allows you to lock in a price for your inputs and lock in a price for your outputs, all for stuff that you are going to do next year.  You can have a profit locked in for a crop that you haven’t even planted yet.

4) Sleep Better

Hedging takes the guesswork out of knowing if you are going to make a profit, or the extremely unfavorable alternative.  Instead of planting a crop and hoping and praying that prices will be at a profitable level when you harvest, you can lock in a profitable price when you plant.  Hedging removes you from price volatility and helps you get better sleep at night.