grain market outlook
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University of KentuckyUKnowledge
Agricultural Economics Presentations Agricultural Economics
10-2009
Grain Market OutlookCory G. WaltersUniversity of Kentucky, [email protected]
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Repository CitationWalters, Cory G., "Grain Market Outlook" (2009). Agricultural Economics Presentations. 15.https://uknowledge.uky.edu/agecon_present/15
Agricultural Economics
Grain Market Outlook
by Cory G. Walters
University of Kentucky
(859) 257-2996
Agricultural Economics
Grain Outlook
Key Issues
• Oil Price
• Renewable fuel
Ethanol
• Exports –U.S. dollar
• Potentially second largest corn crop ever
• Potentially the largest soybean crop ever
• Policy
HR 2454 Waxman-Markey Bill
Agricultural Economics
November 2009 to October 2011 crude oil
futures are trading in the 75 to 81 dollar range
Agricultural Economics
0%
5%
10%
15%
20%
25%
30%
35%
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500 1980
1981
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1989
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2007
2008
2009
% o
f To
tal U
se
.
Milli
on
Bu
sh
els
.
Marketing Year
Corn: Fuel Alcohol Use 1980-2009P
Historical-Fuel Alcohol
Projected-Fuel Alcohol
Historical-% Total Use
Projected-% Total Use
Source:
ERS-USDA Feed grain Database (http://www.ers.usda.gov/data/feedgrains/FeedGrainsQueriable.aspx)
Agricultural Economics
0
20
40
60
80
100
120
140
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07
20
07
20
07
20
08
20
08
20
09
20
09
Nominal Broad U.S. Dollar Index
Source: www.federalreserve.gov
25% decline since February 2002
7.6% incline since April 2008
Agricultural Economics
Agricultural Economics
Policy “ Trying to decipher the impact of U.S.
climate-change legislation on the
agriculture sector is like staring into a
cloudy crystal ball.”
Angie Pointer (Reporter for Barron’s)
Effects of carbon pricing on
Fuel-?
Fertilizer-?
Grain Prices-?
Agricultural Economics
CBOT Corn December 2009 Weekly
Agricultural Economics
Comparing Current Price and
Historical Price
2000-2008 2009
Future
Contract
A B B-A B/A
Corn $2.73 $3.35 $.62 1.23
Soybean $6.90 $9.00 $2.1 1.30
Wheat $4.20 $4.85 $0.65 1.15
Agricultural Economics
Acres Planted in U.S. (Millions)
Crop 2007 2008 2009 Percent
Change
2009-2008
Corn 93.6 86 86.4 +0.4
Soybean 64.7 75.7 77.5 +2.3
Wheat 60.5 63.2 59.1 -6.9
Total 218.8 224.9 223 -.8
Agricultural Economics
-200,000
-100,000
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Nu
mbe
r of
Ne
t L
on
g C
on
tra
cts
Corn Speculative Interest
INDEX TRADERS
NON- COMMERCIAL
Agricultural Economics
USDA SUPPLY/DEMAND BALANCE SHEET FOR CORN
07-08 08-09est 09-10p %D
Millions of Acres
Acres Planted 93.6 86.0 86.4 0.5%
Acres Harvested 86.5 78.6 79.3 0.9%
Bu./Harvested Acre 150.7 153.9 164.2 6.7%
Millions of Bushels
Beginning Stocks 1,304 1,624 1,674 3.1%
Production 13,038 12,101 13,018 7.6%
Total Supply 14,362 13,739 14,702 7.0%
Use:
Feed and Residual 5,913 5,231 5,400 3.2%
Food, seed, & industrial 4,387 4,976 5,480 10.1%
Ethanol for fuel 3,049 3,700 4,200 13.5%
Exports 2,437 1,858 2,150 15.7%
Total Use (Demand) 12,737 12,065 13,030 8.0%
Ending Stocks 1,624 1,674 1,672 -0.1%
Ending Stocks, % of Use 12.8 13.9 12.8 -7.5%
U.S. Season Avg. Farm Price, $/ Bu. $4.20 $4.06 $3.35 -17.5%
Source: WASDE October 9, 2009
Agricultural Economics
13,018
5,480
5,400
13,030
2,150
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Millio
ns o
f B
ush
els
Year
U.S. Corn Supply and Disappearance 1975/76-2009/10
Production
Food, Seed & Industrial
Feed
Total Use
Exports
Source; WASDE, various issues
Agricultural Economics
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
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4.50
0.0
10.0
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70.0 1
97
5
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19
93
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19
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99
20
01
20
03
20
05
20
07
20
09
Do
llars
Per
Bu
sh
el
Sto
cks/U
se (
Perc
en
t)
Year
U.S. Corn Stocks/Use and Average Farm Price 1975-2009
Stocks/Use Price
Agricultural Economics
CBOT Ethanol November 2009
Weekly
Agricultural Economics
CBOT Corn Dec 2010 Weekly
Agricultural Economics
The 2009/2010 Corn Crop
Corn Prices
• Negatively influenced by
Above average carry over
Higher Acreage
High yields
• Good growing conditions
• Positively influenced by
Recovery in ethanol industry
• Is use for ethanol going to be increased in the next
report?
Current crop concerns
Agricultural Economics
The 2009/2010 and 2010/2011
Corn Crop Corn producers are being pressured to make
harvest time sales
• Due to stronger than average basis and
• Recent rally in corn price, about $0.75 per bushel
Ending stocks may decrease in next report
• Decrease in crop size
• Increase in use for ethanol
Dec 09 is trading around $3.95 • Moderate “carry” built into market
Dec 2010 is trading around $4.30
Agricultural Economics
Marketing the 2009/2010 Corn
Crop With remaining unsold bushels, producers can
• 1) Sell
• 2) Store with grain un-priced
• 3) Store with grain priced for spring delivery
Typically, with a moderate to large carry option 3 is
preferred, especially after the current rally, however,
with the current basis option 1 is also a good strategy
July 2010 futures are trading $0.28 per bushel better
than December
Agricultural Economics
Marketing the 2009/2010 Corn
Crop With the current “carry”, above average price, and
good basis producers should
• Sell the carry with the use of a forward contract
• Or if they perceive future basis improvement
Sell the carry with the use of a Hedge To Arrive (HTA) or
futures contract
If the current carry does not cover storage costs
producers should consider harvest sales
The corn market is not telling producers to store
grain un-priced
• More times than not doing this results in a lower
price come spring time
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Soybean Speculative Interest
INDEX TRADERS
NON- COMMERCIAL
Agricultural Economics
USDA SUPPLY/DEMAND BALANCE SHEET FOR SOYBEANS 07-08 08-09est 09-10p %D
Millions of Acres
Acres Planted 64.7 75.7 77.5 2.4%
Acres Harvested 64.1 74.7 76.6 2.5%
Bu./Harvested Acre 41.7 39.7 42.4 6.8%
Millions of Bushels
Beginning Stocks 574 205 138 -32.7%
Production 2,676 2,967 3,250 9.5%
Total Supply 3,260 3,187 3,398 6.6%
Use:
Crushing 1,801 1,662 1,690 1.7%
Exports 1,161 1,280 1,305 2.0%
Seed & Residuals 92 106 173 63.2%
Total Use 3,054 3,049 3,169 3.9%
Ending Stocks 205 138 230 66.7%
Ending Stocks, % of Use 6.7 4.5 7.3 60.4%
U.S. Season Average Farm Price,
$/Bu $10.10 $9.97 $9.00 -9.7%
Source: USDA, WASDE
Agricultural Economics
3,250
1,690
1,305
230
0
500
1,000
1,500
2,000
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3,000
3,500
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Mil
lio
ns o
f B
ush
els
Year
U.S. Soybean Supply and Disappearance 1971 to 2009
Production
Crush
Exports
End Stocks
Agricultural Economics
0.00
2.00
4.00
6.00
8.00
10.00
12.00
0.00
2.50
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7.50
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30.00
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00
20
02
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06
20
08
Do
llars
Per
Bu
sh
el
Sto
cks/U
se (
Perc
en
t)
Year
U.S. Soybean Stocks/Use and Average Farm Price 1970-2009
Stocks/Use
Price
Agricultural Economics
CBOT Soybean Jan 2009
Monthly
Agricultural Economics
The 2009/2010 and 2010/2011
Soybean Crop Soybean prices
• Negatively influenced by
USDA predicts a record soybean crop
• 3.25 billion bushels
• Positively influenced by
Ongoing crop concerns
Strong exports
• Projected to be a record at 1.305 billion bushels
November 2010 soybean futures are trading
around $10.01 per bushel
Agricultural Economics
Marketing the 2009/2010
Soybean Crop With remaining unsold bushels, producers can
• 1) Sell
• 2) Store with grain un-priced
• 3) Store with grain priced for spring delivery
With little to no “carry”, a very good basis, and above
average futures, producers should consider
• Strongly – Selling soybeans for harvest delivery, maybe
re-own with options
• OR
• Weakly - Store soybeans un-priced in hope that gain in
futures is greater than storage costs
50/50 chance of futures increase (historical average)
Agricultural Economics
CBOT Wheat July 2010 Monthly
Agricultural Economics
USDA SUPPLY/DEMAND BALANCE SHEET FOR WHEAT
07-08 08-09Est 09-10p %D
Million Acres
Acres Planted 60.5 63.2 59.1 -6.5%
Acres Harvested 51 55.7 50.1 -10.1%
Bu./Harvested Acre 40.2 44.9 44.4 -1.1%
Million Bushels
Beginning Stocks 546 306 657 114.7%
Production 2,051 2,449 2,220 -9.4%
Imports 113 127 110 -13.4%
Total Supply 2,620 2,932 2,987 1.9%
Use:
Food/Seed 1,035 1,000 1,033 3.3%
Feed & Residual 15 260 190 -26.9%
Exports 1,264 1,015 900 -11.3%
Total Use 2,314 2,275 2,123 -6.7%
Ending Stocks 306 657 864.0 31.5%
Ending Stocks, % of Use 13.2 28.9 40.7 40.9%
U.S. Season Aver. Farm Price, $/ Bu. $4.26 $6.78 $4.85 -39.8%
Source: WASDE
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mb
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on
tra
cts
Wheat (CBOT) Speculative Interest
INDEX TRADERS
NON- COMMERCIAL
Agricultural Economics
The 2009/2010 Wheat Crop
Lots of wheat
Ending stocks are up 31 percent over last
year
Approved crop insurance prices
Crop Revenue Coverage and Group Risk
Income Protection
• Base price - $5.29 per bushel
Agricultural Economics
Outlook- Safety Nets Crop Insurance
• 2010 corn and soybean “base” price is likely to be
lower than in 2009
ACRE
• 90% of Guarantee Price –
Corn - $3.73 per bushel - Medium chance of payment
Soybeans- $9.04 per bushel – Low chance of payment
Wheat - $5.97 per bushel – Great chance of payment
4.1 % of FSA farms in KY enrolled in ACRE
15.7 % of FSA base acres in KY enrolled in
ACRE