If you're at all like me, there are some years that you look forward to with great enthusiasm and then there are others when the enthusiasm level is just not quite as high.
After the release of the September Crop Report, when the USDA confirmed a much larger crop than many had anticipated, attitudes among many producers (those who had not pre-sold their grain) were leaning towards the depressed side.
The majority, if not all producers, are also down about high energy costs. The cost of putting a crop in the ground in the last couple of years has soared to levels many never thought possible.
So what is there to get excited about? Here is my list:
Hurricane Katrina put a top in the energy market. Prices rallied for two to three days after the catastrophe hit and have been headed sharply lower ever since. This was the kind of news that was needed to make a market top. Input costs related to energy will be declining this coming year.
If subscribers to my newsletter, The Brock Report, did even some of what we recommended, it has been a tremendous year. With LDPs, 55% of the crop that was forward contracted will end up with a net selling price of more than $3/bu. If the market rallies back after harvest like I think it will, we will net more than $3/bu. on the remaining 45% of the crop. Even in areas such as northern Illinois where producers were hit hard by the drought, with high levels of CRC insurance coverage combined with a good marketing program, incomes are going to be much higher than most people expect.
The shortage of corn in northern Illinois is going to result in processors in that state trying to pull corn out of Indiana, Iowa, Minnesota and far eastern Nebraska. This is corn that would have been railed in opposite directions and is going to create a tug of war on prices once the corn crop is harvested and put in the bins. Cash price basis levels will recover quickly going into the end of the year.
Acreage Shift Coming
The supply and demand balance sheet below is our early estimate of what we expect to happen this coming year. Because of high input costs, there will likely be a shift in planted acreage this year from corn to soybeans.
Our early estimate is that corn acres will be cut by approximately 2 million acres with 11/2 million going to soybeans. The numbers speak for themselves. Even with a 148 bu. corn yield, carryover supplies next year will decline. With large supplies, prices are still likely to rise between now and springtime. Any concern over weather and/or surprise purchases (possibly from China) and corn prices will jump more than most people can anticipate.
|Beginning Stocks (Sep 1)||1,308||1,787||1,718||1,899||1,596||1,087||958||2,150||2,090|
|Feed & Residual||5,468||5,665||5,842||5,864||5,563||5,795||6,140||5,925||6,050|
|Ethanol for Fuel||526||566||628||706||996||1,168||1,315||1,475||1,675|
|Carryout (Aug. 31)||1,787||1,718||1,899||1,596||1,087||958||2,150||2,090||1,704|
|Nearby Futures Price ($/Bu)||2.16||2.10||2.09||2.15||2.39||2.63||2.13||2.08||2.35|
|Farm Price ($/Bu)||1.94||1.82||1.85||1.97||2.32||2.42||2.07||1.85||2.15|
|Source: USDA and Brock Associates (* indicates Brock Associates Estimates)|
Write Your Game Plan
Remember markets peak on bullish news and bottom on bearish news. The USDA's September crop report was enough bearish news to set the stage for an early harvest bottom.
Odds highly favor that cash corn prices made their annual low during the month of September. This created very good LDP opportunities for producers who were able to get the crop out of the field early. It will also create good marketing opportunities for remaining old-crop corn as we go into late winter and early spring as well as good opportunities for next year's crop on springtime weather rallies.
As is always the case, in addition to having a plan for marketing your grain, you must also be willing to pull the trigger to implement the plan. Lack of implementation cost many producers a lot of money in the last 12 months. Write your game plan down in advance and then follow through on it. Otherwise, the emotions of the day will frequently override common sense.
Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit www.brockreport.com.