The month of AUGUST saw the OC WHEAT futures move
to new all time high's in Chicago DEC at $7.77 a bushel and DEC K.C.
futures are at a record high price at $7.33 a bushel as of 8-30-08.
World wheat production concerns and no major change in the size of the
U.S. 2007 wheat crop are all contributing to this excellent price advance
in OC futures. NC futures have lagged behind and are nearly ($1.60)
lower in Chicago (DEC - JUL) and ($1.40) lower in K.C. as well. Export
sales of U.S. wheat have exploded due to the record high price of EU
wheat and the current lack of supply from Argentina and Australia. Canada
also lowered their wheat crop size adding fuel to the fire. SOYBEAN
futures also advanced the past month as the USDA crop report showed
no major changes in the projected 2007 production and lowered the ending
2007/2008 carryout to below a 30 day ending supply. Weather in August
was fair for soybeans but weather related problems remain a concern
to the market. Some soybeans were helped by the moisture but some flood
concerns and late season disease pressure may occur. The CORN market
came under pressure the past month as USDA raised their production estimate
to over 13 billion bushel based on a 152.8 average 2007 U.S. corn yield.
The crop was rushed to maturity in many areas and with many varied yield
reports (some estimates are the same field showing production up to
100 bushel different in one part vs. the other). There are just a few
areas in the U.S. that did not encounter some type of weather issue
this year. It started with too wet of conditions for some in the spring,
to well below normal rainfall for several weeks followed by well above
normal rainfall and flooding concerns - in some cases both in the spring
and again now with the late season heavy rainfall in some areas. With
almost everywhere in the major corn producing areas seeing some type
of concern for the corn crop this is - NOT conducive to a high national
average yield such as USDA is projecting. The Chinese bail out the
corn market in the July crop report was followed up by a large decline
in EU and FSU nation corn production in the August report which lowered
ending world stocks back down. For a look at the key players in the
world markets go to our USDA
World Info. found under USDA Info. on the website or click on
the highlighted link.
MDI's projections for the 2007/2008 marketing year
are found in the PROSPECTIVE
PRODUCTION report found at the link to the left or under USDA Info.
on the website. We have also updated our 2007 corn, sorghum, and soybean
state by state outlooks based on the USDA planted and harvested acres
figures from the June 29th report and the August 10th USDA yields with
our MDI adjustments. This is found by going to to the Grain
Estimates sub menu under USDA Info. and clicking on the pull down
year box below the crop heading and moving the cursor up to the top
of the selection area and clicking on the word MDI.
GOVERNMENT and OTHER NEWS:
USDA's SEPTEMBER 12th U.S. crop report MAY
SHOW: WHEAT: 2007/2008 U.S. acreage of 60.5 million,
harvested acres at 86.45% or 52.1 million harvested acres, with a U.S.
yield of 40.7 bushel (up .1) per acre for a 2007 U.S. wheat crop
of 2.120 billion bushel - up 6 million from last month. Exports
could increase 25 million to 1.100 billion bushel, domestic seed use
of 81 million, feed use should stay at 180 million,
and food use at 930 million. This when combined with imports of 100
million and ending 06/07 wheat stocks of 456 million bushel, would leave
ending 2007/2008 U.S. carryout at 385 million bushel or a 61.4 day
ending supply - 38% below the fifteen year average of 620 million.
World wheat production for 2007/2008 could fall 1.4 MMT to 609 MMT.
on a smaller EU crop, and world wheat demand might grow 1.5 to 622 MMT,
beginning stocks should be around 125 MMT which would leave ending world
2007/2008 world stocks down 2.8 to 112 MMT or a 65.8 day ending supply
- a record low level. This would be a FRIENDLY wheat report - with the
U.S. export sales figure the key item to watch. CORN/SORGHUM: USDA
could eventually lower their 2007 U.S. corn yield to around the
150.3 bushel per acre, and use a 91.92% harvested % for 85.4 million
acres of the 92.888 million acres planted in 2007 for a 12.845 billion
crop. Their 07/08 domestic feed use could fall 50 million to 5.700
billion, ethanol use should stay at 3.400 billion with total domestic
use of 10.540 billion. Exports should hold at 2.150 billion due to less
wheat feed available in the world and lower U.S. corn prices. Combining
these with imports of 13 million and ending 06/07 stocks of 1.137 billion
bushel it leaves the U.S. carryout at 1.355 billion bushel (down
205) - a level 6.35% below the fifteen year average of 1.447
billion and a 39 day ending supply. World 07/08 corn production
could fall another 5.5 MMT (if the U.S. crop size is lowered) to 770
MMT with the U.S. at 326.28 MMT (down 5.3), and China up 1 to 149 MMT.
World corn demand should hold in the 770 MMT area, and with beginning
stocks of 100 MMT, it leaves the 2007/2008 carryout down 6.2 MMT to
96 MMT or a 45.5 day ending supply. This would be a FRIENDLY
corn report with the U.S. yield estimate the key. SOYBEANS: USDA
could lower its 2007/2008 U.S production to around 2.600
billion bushel based on 64.5 million planted acres, a harvested
percentage of 98.15% or 63.3 million planted acres, and a 2007 U.S.
yield of 41.1 bushel per acre. Their export demand could drop
by 20 million due to the higher prices and good available supply in
South America to 1.000 billion bushel, crush use should stay at 1.800
with total domestic use of 1.963 billion. Add in 4 million of imports
and with beginning stocks of 575 million bushel, it leaves the ending
U.S. stocks for 2007/2008 at 215 million bushel or just a 26.5 day
ending supply. World production for 2007/2008 may fall .3 MMT (lower
U.S. production) to 221.3 MMT and with d world use up .8 to 234 MMT,
and beginning stocks of 64.5 MMT, it leaves ending world stocks of 51.8
MMT or a still above average 80.8 day ending supply (the average
since 1990 has been 70 days of ending supply). The U.S. 2007 crop
should be around 70.75 MMT, Brazil at 61 MMT, Argentina at 47 MMT, and
the Chinese crop at 15.2 MMT.. This would be a SLIGHTLY FRIENDLY
soybeans report due to the drop in the ending world and U.S. carryouts.
AUGUST 10th U.S. crop report SHOWED: WHEAT:
2007/2008 U.S. acreage of 60.5 million, harvested acres at 86.11%
(down 400,000 acre from last month due to reduced KS acres) for
52.1 million harvested acres, with a U.S. yield of 40.6 bushel per
acre (down .1) for a 2007 U.S. wheat crop of 2.114 billion
bushel - down 24 million from last month. Exports increased 25 million
to 1.075 billion bushel, domestic seed use was left at 81 million, feed
fell more than we expected as it was down 35 million to 180 million,
and food use stayed at 930 million. This when combined with imports
of 100 million and ending 06/07 wheat stocks of 456 million bushel,
left ending 2007/2008 U.S. carryout at 404 million bushel or a 65.1
day ending supply - nearly 35% below the fifteen year average of 620
million. World wheat production for 2007/2008 fell 1.87 MMT to 610.4
MMT. on smaller EU and U.S. crops, and world wheat demand
grew by .64 MMT to 620.51 MMT. Beginning stocks were up .75 to 124.9
MMT which left ending world 2007/2008 world stocks down 1.77 to 114.78
MMT or a 67.6 day ending supply - a record low level. This
was a SLIGHTLY FRIENDLY wheat report. CORN/SORGHUM: USDA
raised their 2007 U.S. corn yield by 3.7 bushel per acre to 152.8
bushel per acre, and used a 91.92% harvested % for 85.4 million
acres of the 92.888 million acres planted in 2007 for a 13.054
billion corn crop. Their 07/08 domestic feed use rose 50 million
to 5.750 billion (less wheat feeding), ethanol use stayed at 3.400 billion
with total domestic use of 10.540 billion. Exports rose a large 150
to 2.150 billion due to the less wheat feed available in the world and
lower U.S. corn prices. Combining these with imports of 15 million and
unchanged ending 06/07 stocks of 1.137 billion bushel left the U.S.
carryout up slightly to 1.516 billion bushel - a level 4.77% above the
fifteen year average of 1.447 billion and a 43.6 day ending supply.
World 07/08 corn production actually fell a surprising 5.6 MMT to
771.5 MMT with the U.S. at 331.58 MMT (up 5.43), China at 148
MMT, but the EU-27 down 6.8 to 48.43 and the FSU-12 down 1.3 to 12.18
MMT.. World corn demand held at 769.48 MMT, and with beginning
stocks of 100.2 MMT (down .75) , it left the 2007/2008 carryout down
6.13 MMT to 102.23 MMT or a 48.5 day ending supply. This was
a mostly NEUTRAL corn report with the U.S. production increase offsetting
the drop in ending world stocks. SOYBEANS: USDA left its 2007/2008
U.S production the same at 2.625 billion bushel based
on 64.1 million planted acres, a harvested percentage of 98.75% or 63.3
million planted acres, and an unchanged 2007 U.S. yield of 41.5 bushel
per acre. Their export demand held at 1.020 billion bushel, crush
use stayed at 1.800 with total domestic use of 1.965 billion. Add in
4 million of imports and with beginning stocks of 575 million (down
25) bushel, it left the ending U.S. stocks for 2007/2008 at 220 million
bushel or a - LOW - 26.9 day ending supply. World production
for 2007/2008 fell .43 MMT to 221.62 MMT and with world use down .96
to 233.21 MMT, beginning stocks of 64.52 MMT (up .35), it left ending
world stocks of 51.63 MMT (virtually unchanged) or a still above
average 80.9 day ending supply (the average since 1990 ha been
70 days of ending supply). The U.S. 2007 crop was left at 71.45 MMT,
Brazil at 61 MMT, Argentina at 47 MMT, and the Chinese crop dropped
.4 to 15.2 MMT.. This was a SLIGHTLY FRIENDLY soybeans report
due to the drop in ending U.S. carryout to less than 30 days of supply
which is partly offset by higher than average ending world stocks.
In August USDA raised their 2006/2007 U.S. soybean
crush estimate up by 5 million and exports by 20 million for a 25 million
drop in ending 06/07 U.S. stocks to 575 million bushel. They left their
ending 06/07 U.S. corn carryout the same at 1.137 billion bushel but
could drop it next month due to the slow export shipments pace. Their
2006/2007 WORLD figures did not have many major changes and should be
considered neutral for the market.
The new farm bill has passed the House and is
now waiting on the Senate to act. President Bush (in typical fashion)
is not satisfied with the bill due to it not dropping the Adjusted Gross
Income (AGI) level low enough - the House version is using a three year
average of $1,000,000 as a cap, the Bush administration and Ag Secretary
Johanns also object to the addition of a tax on foreign corporations
to offset some added nutrition (food stamp) spending. Many of the existing
provisions of the farm bill are included in the House version. It is
now in the hands of the Senate and then a final compromise bill will
need to be developed - look for more details in the September newsletter.
The Senate plans to make some major changes to the House bill especially
in the area of crop insurance, etc..
Congress passed and the President signed $3 billion
of disaster aid in funding tied to a war supplemental spending bill
in May. USDA is now saying that livestock producers can start enrolling
in the program around September 10th with grain producers having to
wait until around October 15th for signup. The grain payments will
be like previous disaster aid calculations except the amount of aid
will be down from 65% to 42%. Producers must have had crop insurance
to qualify for payments and the target price used will be the average
of prices for each commodity from 2001 to 2005 (why 2006 is not included
is a mystery- probably because prices were higher) with the high and
low year thrown out. MDI is still looking for the target prices but
has entered $3.25 to $3.40 on wheat, $2.10 to $2.20 on corn, $5.30 to
$5.50 on soybeans, $9.0 to $9.5 per CWT on sunflowers and $2.00 to $2.10
a bushel on grain sorghum into our review. Producers must choose either
2005 or 2006 on each unit and for all crops in that unit but can switch
years from unit to unit. It is estimated it will take a couple of months
to finalize the application process and for producers to begin applying.
Livestock producers can apply for indemnity payments of at least 26%
of the market value of livestock deaths based on the price the day before
the date of death of the livestock and the county they are located in
must have been declared a natural disaster county (or be a contiguous
county to one declared a disaster). MDI has updated its DISASTER
REVIEW found under USDA Info.. This will give producers an estimate
of what payment they MIGHT expect but is not guaranteed as the key is
the target price that USDA sets which is not known yet. To fill this
out you will need your crop insurance APH information for 2005 and 2006,
your crop insurance premiums and settlement dollars received (if any),
your actual acres (matching the acres reported to the crop insurance
company) and your actual production (or assigned yield as a part of
a crop insurance settlement). Remember this is an ESTIMATE only.
WHEAT INFORMATION AND ANALYSIS:
K.C. WHEAT: Spot OC futures in our similar
years historically averaged 98.72% of the starting price the next 30
days so look for DEC 07 K.C. futures to average around $6.88 this month.
DEC K.C. futures were $6.87 a bushel as of 8-27-07. The market tends
to trade technicals or trends so we are going to review some historical
FACTS to see what we might expect going forward. DEC K.C. is our
OC futures for making sales of the 2007 crop that remains unsold or
priced. The average DEC K.C. futures price since 1970 as
of August 27th was $3.59 a bushel and in our similar years it was $4.59
a bushel so the current price of $6.87 is MUCH HIGHER. Secondly,
the average futures move DOWN from August 27th to November 22nd from
1970 to 2006 was ($.19) and in our similar years was ($.50) for a $6.40
to $6.70 DEC K.C. futures target low this year. Next we looked at
the average move UP which was up by $.28 from the starting price since
1970 and in our similar years it was up by $.39 which is a futures
target high on DEC K.C. in the $7.15 to $7.25 area. We also looked
at the average November 22nd ending futures price and found it to be
about $.04 above the starting price since 1970 and ($.02) lower in our
similar years for a possible ending price of $6.80 to $6.90 on November
22nd this year.
WHEAT SIMILAR and ALL YEARS REVIEW: The HIGHEST
price DEC K.C. futures hit during the 8-27 to 11-22 period since 1970
was $5.46 (on 10-16-2006) with a similar years $4.98 average high and
the LOWEST price reached in our similar years was $3.45 with and average
low price of $4.09. The average futures price in our similar years was
$4.57 a bushel on DEC K.C. futures during this timeframe. Our similar
years had an average U.S. carryout of 431 million bushel with an average
cash price of $4.00 a bushel - an estimated average U.S. cash wheat
basis of a ($.45) equals an average futures price of around $4.45 or
WELL below the closing prices on 8-27-2007. The ending U.S.
stocks to use in our similar years were at a 77 day supply vs. the August
USDA figure of 65.1 days for 07/08. The average export sales in
our similar years were 1.120 billion vs. USDA's 1.075 million figure
with domestic use of 929 million vs. USDA's 1.191 billion figure for
07/08. The average export sales figure since 1970 has been 1.144 billion
bushel a year, with ending stocks of 849 million or a 142 day average
ending stocks figure with an average U.S. cash price of $3.13 a bushel
or an average futures price of $3.58 using the ($.45) cash basis figure.
Ending world stocks averaged 106 days of ending supply since 1970 vs.
the current 67.6 day figure at the end of 07/08. DEC futures
made a high in September in 13 of the last 37 years, and
they made a low the next month in 24 of the last 37 years - nearly
65% odds of a low the next month and only 35% of a high being set.
QUICK CHECK REVIEWS - based on price levels hit 50%
of the time or movement up 40% of the time. You can use the upper ranges
of these as a guide for getting the biggest share of the crop price
protected or cash sold and the lower range for starting pricing. You
should combine the two in order to get a clear picture of price potential.
OC - K.C. DEC WHEAT: futures normally move up
by $.35 to $.72 up from now to the end of November which would
be to the $7.33 to $7.70 area. A futures price of $3.80 to $4.05
was hit at least one day, 50% of the time in the last 3 to
35 years. Use $6.95 on DEC K.C. for 100% pricing of the 2007 crop
with at least the use of put options costing around ($.14) to lock in
NC- K.C. SEP WHEAT: futures normally move around
$.48 to $.84 up by the end of August which would be to a price around
$6.35 to $6.75 based on the last 10 to 35 years and a 40% move
odds review. They also hit a $3.96 to $5.20 price at least one time
- based on the last 3 to 35 years and a 50% odds review. Target
SEP futures in the $6.00 area for 40% pricing and $6.50 for 60% pricing
of your 2008 crop using options on anything over 40%.
SEP 08 K.C. wheat futures closed at $5.78 on
8-27-2007 vs. an average futures price on that date since 1970 of $3.53
a bushel and in our similar years the average was $4.36 a bushel so
the current price is MUCH HIGHER. Secondly, the average futures
move DOWN from August 27th to August 22nd from 1970 to 2006 was ($.46)
and in our similar years it was ($.83) for a $4.95 to $5.30 SEP K.C.
target low this year. Next we looked at the average move UP which
was up around $.66 from the starting price since 1970 and in our similar
years it was up by $.78 which is a futures target high in the $6.45
to $6.60 area. Move 2008 NC pricing to 40% with SEP futures at
$6.00 and add option protection up to 60% coverage when SEP K.C. futures
REPORTS: In August USDA lowered their 2007/2008 wheat yield
by .1 to 40.6 bushel on 52.1 million harvested acres of the 60.5 million
planted acres for a 2007 crop of 2.114 billion. Beginning stocks of
456 million bushel when combined with 07/08 domestic food use of 930
million, seed use of 81 million, feed use of 180 million (down 35),
imports of 100 million, and 1.075 billion of exports (up 25) left ending
U.S. wheat stocks for 2007/2008 at 404 million bushel (down 14) or
35% below the 620 million fifteen year average. USDA's cash price
was moved up $.30 to $5.40.
INFORMATION: The August 10th crop report showed 2007/2008 world
production falling by 1.87 MMT to a total world production figure of
610.4 MMT or 22.428 billion bushel. USDA's world 07/08 demand
rose .64 MMT to 620.51 MMT or 22.800 billion bushel and ending stocks
fell 1.77 MMT to 114.78 MMT or 4.218 billion bushel and
just a 67.6 day ending supply - this is the LOWEST figure in 30 years.
USDA left the Pakistan crop at 23.0 MMT, Australia's at 23.0 MMT, Canada
was down 1 to 21.5, the U.S. at 57.53 (down .66), China at 105, India
up 1.19 to 74.89 the EU-27 crop at 124.93 (down 1.7), and the FSU-12
crop actually rose 1.25 MMT to 85.54 MMT.. The August 23rd IGC
report lowered 07/08 world wheat production by 7 MMT to 607 MMT,
and demand fell 3 to 614 MMT and ending stocks fell just 1 MMT to
111 MMT or a 66 day ending supply - record LOW!
FUNDS: held a net long K.C. wheat
position on 8/21/2007 with 59,180 contracts net long and and
12,040 contracts short. Funds held a net long Chicago wheat futures
position with 104,347 contracts long and held short futures positions
of 78,385. In the MN futures,
they held long positions of 13,622 contracts and were holding short
positions of just 374 contracts. The CFTC futures/options
positions of 8-21-2007 showed: K.C.
Traditional funds an increased long 51,059 contracts vs. an increased
11,745 short positions and Index funds holding a decreased 31,976 long
contracts vs. just 103 short positions in the K.C. market. In Chicago
wheat the Traditional
funds held a decreased 73,314 long positions and a decreased 71,526
short positions while Index funds held a decreased 186,622 long positions
and a decreased 6,611 short positions. In MN the
traditional funds held an increased 14,100 long positions and just
365 short positions. This is a reduced 1.334 billion net long position
by the funds in all the futures and options - down 2 million
bushel from a month ago. Remember that Index Funds are ones that
take long positions in the market, then roll these forward and seldom
sell or short the market. Their sales are usually made when investors
want their money back out.
Some BULL CASE factors to consider are:
- The U.S. could see slightly lower yields on some
of the spring wheat due to the late season hot weather.
- The world ending days of supply is projected to drop
to a record low level which should help wheat prices firm.
- The world wheat production figures could drop in
future reports as many areas continue to see weather problems with
the focus now on the dry weather in Australia, Argentina and the Ukraine.
Some BEAR CASE factors to consider are:
- Australia had enough moisture for its wheat crop
to be projected at 20 to 22 MMT and they will be a major exporter
once their harvest begins.
- Many spring wheat reports are of good yields and
this may cause a slightly higher spring wheat crop estimate.
- Higher prices in the world will encourage added production
next year - BUT - not likely to affect 2007 prices until just before
the Australian harvest begins.
CORN AND SORGHUM INFORMATION AND ANALYSIS:
CORN spot futures in our similar years averaged
97.7% of the starting price during the next 30 days or a price around
$3.45 on DEC corn futures which closed 8-27-07 at $3.53 a bushel. DEC
corn futures at $3.53 were $1.05 above the average price on that
date since 1970 and $..43 above our similar years price of $3.10. The
average low price since 1970 and in our similar years was a drop of
($.33) and the drop was a ($.19) from the August 27th price since 1970
so if history repeats itself - look for a low price of $3.20 to $3.35
on DEC corn futures by 11-22. Next we looked at the potential for
price improvement during the period ending November 22nd. The average
move up since 1970 and in our similar years it was $.18 up which would
mean an average target high on DEC corn of $3.70 this year.
CORN SIMILAR and ALL YEARS REVIEW: The HIGHEST
price DEC corn futures hit during the 8-27 to 11-22 period in
our similar years was $3.95 (10-3-1974) with the LOWEST price reached
in our similar years of $2.56 and the average price in our similar years
of $3.01 and all years since 1970 being $2.45 a bushel on DEC corn futures.
Our similar years have an average U.S. carryout of 838 million
bushel with an average cash price of $3.02 a bushel - an estimated average
U.S. cash corn basis of a ($.28) equals an average futures price of
around $3.30 or below the closing average on 8-27-2007. The
ending U.S. stocks to use shows a 41 day supply in our similar years
vs. the August USDA figure of 43.6 days for 07/08. The average
export sales in our similar years were 1.906 billion vs. USDA's 2.150
billion figure with domestic use of 5.535 billion vs. USDA's 10.540
billion figure. The average export sales figure since 1970 has been
1.715 billion bushel a year, with ending stocks of 1.641 billion or
a 77 day average ending stocks figure with an average U.S. cash price
of $2.28 a bushel or an average futures price of $2.56 using the ($.28)
cash basis figure. Ending world stocks have averaged around 92 days
of ending stocks since 1970 vs. a current figure of 48.5 days at
the end of 2007/2008. DEC futures made a high
in September in 20 of the last 37 years, and they made a low
the next month in 15 of the last 37 years. Move 2007 NC pricing
to 40% with DEC corn futures at $3.40 and add option protection up to
60% coverage with $3.70 DEC futures.
QUICK CHECK REVIEWS - DEC CORN: futures
normally move up around $.07 to $.24 up by the end of November
which would be to a price around $3.52 to $3.69 - 40% of the time.
They also hit a $2.43 to $2.48 price at least one time - based on
the last 3 to 35 years and a 50% odds review. We are targeting
DEC 07 corn futures at $3.40 for 40% pricing and $3.70 for 70% pricing
on the 2007 corn crop.
INFORMATION: In August USDA increased their 2007/2008 grain
sorghum yield to 70.9 (up 6.7) bushel per acre, harvested acres
at 6.7 million of the 7.8 million planted for a 2007 crop size of 475
million bushel (up 45). Beginning 2007/2008 sorghum stocks of 38 million
bushel combined with an exports of 200 million (up 40), and domestic
use of 245 million (up 90 from 06/07), left ending stocks at 68 million
bushel (up 5) and a 56 day ending supply. SORGHUM donations stood
at 14.76 million as of the end of June and with sales are below USDA's
06/07 estimate of 150. Shipments to 8/21/2007 totaled 144 million vs.
150 million estimated by USDA for 2006/2007.
REPORTS: The August USDA report showed beginning U.S. 2007/2008
corn stocks of 1.137 billion bushel, harvested acres of 85.4 million
out of 92.9 million planted, an increased yield of 152.8 bushel
(UP 2.5) for a crop of 13.054 billion bushel. Their 07/08 feed use rose
50 to 5.750 billion, ethanol use was left at 3.400 billion for total
domestic use of 10.540 billion. Imports were placed at 15 million bushel
and 07/08 exports were raised 150 million to 2.150 billion to cause
ending 2007/2008 U.S. stocks to rise 14 million to 1.516 billion or
to 4.75% above the fifteen year average ending stocks of 1.447 billion
bushel and 43.6 day ending supply vs. a fifteen year average
carryout of 57 days ending supply. USDA left their average price
at $3.10 a bushel.
INFORMATION: In August, USDA showed 2007/2008 world corn production
falling a surprising 5.6 MMT (even with a 5.4 increase in the U.S. crop)
to 771.5 MMT or 30.372 billion bushel with the U.S. at 321.58
MMT (up 5.43), China at 148, Brazil at 50, Argentina at 24, South
Africa at 10.5, Canada at 11.2, Mexico at 23.2, and the EU-27 fell 6.8
MMT to 48.43 MMT and the FSU nations fell 1.3 MMT to 12.18 MMT. World
corn demand fell by .22 MMT to 769.48 MMT or 30.292 billion bushel and
ending stocks were down by 6.13 MMT to 102.23 MMT or 4.025 billion
or a 48.5 day ending supply. USDA's coarse grain figures for 07/08
showed world production at 1,059.83 MMT (down 5.8), demand was placed
at 1058.85 MMT (down .36), and ending stocks were down 6.43 MMT to 130.86
MMT for a 45.1 day ending supply. The August IGC figures
for 2007/2008 on maize production was 3 MMT to 755 MMT and maize demand
fell 1 to 762 MMT with ending stocks 4 to 96 MMT or a 46 day supply.
The IGC ending TOTAL
GRAINS carryout is at a record low 52.9 day ending supply.
FUNDS: Non-commercials on 8/21/2007 held an decreased
long corn futures
positions of 309,245 contacts, and held short futures positions of a
decreased 126,208 contracts. The breakdown by the CFTC in
futures and options showed Noncommercial (traditional
funds) holding decreased long positions of 193,933 vs. decreased short
positions of 82,257. Index Funds held long positions of a reduced 363,974
contracts and short positions of a reduced 9,946. This makes the
combined futures and options of the funds a net long position of an
increased 2.329 billion bushel - up by 50 million (2.2% up) from
a month ago.
Some BULL CASE factors to consider are:
Some BEAR CASE factors to consider are:
- The ending 2006/2007 days of supply of world corn
and coarse grains are at low levels and the U.S. crop should end up
smaller than the last USDA estimate. Many areas of the U.S. saw either
planting problems (too wet), initial dry weather problems (causing
some reports of smaller ears and less kernel rows), or suffered from
dry weather later in the season. All of these should keep the average
yield estimate below 152 bushel per acre.
- Demand for U.S. grain for ethanol use remains strong
and the recent corn price / gas price relationship should keep this
expansion on track and may cause even more demand in 2008.
- The drop in world wheat production should cause added
corn export demand with the U.S. the likely source for most of this
demand which will help offset part of the higher 2007 production.
- The USDA acreage figure of 92.888 million corn acres
means a higher harvested than normal percentage and with any yield
over 154 bushel per acre could cause carryout to rise above 2.0 billion
bushel on 9-1-2008 which would mean sub $3.00 DEC 07 corn futures.
- Sorghum crop condition ratings are very good and
this crop should provide added competition to corn this year.
- South American corn production is projected to rise
significantly which will provide added U.S. export competition.
SOYBEAN AND SUNFLOWER INFORMATION AND ANALYSIS:
SPOT NOV soybean futures in our similar years
averaged around 98.92% of the starting price during the next 30 days
which would be around $8.64 a bushel on NOV beans which closed at $8.73
on 8-27-07. The futures price on NOV soybeans on 8-27-2007 of
$8.73 was $2.73 higher than the average price since 1970 and $2.01 higher
than in our similar years on that date. The average move down from 8-27
to 10-22 in our similar years was ($.74) and since 1970 was a ($.37)
or to a target futures low around $8.00 to $8.35 on NOV soybeans.
The average move up since 1970 has been $.38 and in our similar years
it was around $.20. This makes the average high move on NOV soybeans
this year to the $8.90 to $9.10 area. NOV futures made a high
during September in 27 of the last 37 years and the low
for this period was next month 15 of the last 37 years.
SOYBEANS SIMILAR and ALL YEARS REVIEW: The HIGHEST
price MAR soybean futures hit during the 8-27 to 2-22 period
in our similar years was $8.27 (9-12-1996) and the all time high for
MAR futures during this time of year was $9.68 on 10-4-1974. The LOWEST
price reached in our similar years was $4.55 with the average price
in our similar years being $6.41 a bushel and in all years since 1970
it was a $6.11 average on MAR soybean futures during this timeframe.
Our similar years had an average U.S. carryout of 237 million
bushel with an average cash price of $6.45 a bushel - an estimated average
U.S. cash soybean basis of a ($.65) equals an average futures price
of around $7.10 or WELL below the price on 8-27-2007. The
ending U.S. stocks to use in our similar years showed a 44 day supply
vs. the August USDA 07/08 figure of 26.9 days. The average export
sales in our similar years were 730 million vs. USDA's 1.020 billion
figure with domestic use of 1.240 billion vs. USDA's 1.965 billion figure.
The average export sales figure since 1970 has been 748 million bushel
a year, with ending stocks of 251 million or a 45 day average ending
stocks figure with an average U.S. cash price of $5.69 a bushel or an
average futures price of $6.35 using the ($.65) cash basis figure. Ending
world stocks have averaged around 70 days since 1970 vs. a current
figure of 105.4 days for 06/07 and a 80.9 day figure for the end of
07/08 - a still not bullish supply situation in the world. MAR
futures made a high during September in 19 of the last 37
years and the low for this period was next month in just
6 of the last 37 years.
QUICK CHECK REVIEWS - OC MAR 08 SOYBEANS:
futures normally move around $.18 to $2.08 up by the end of February
which would be to a price around $9.16 to $11.06 and they hit
a $6.32 to $6.68 price at least one time - based on a review of
the last 3 to 35 years and a 50% odds review. Use the $9.20 area
on MAR for 60% pricing on OC and $9.50 for 80%.
NC - NOV SOYBEANS: futures moved up by $.17
to $.89 up by the end of October which would be to the $8.89
to $9.61 area and a futures price of $6.14 to $6.37 was hit at least
one day, 50% of the time in the last 3 to 35 years. We are looking
at the $8.50 area for 60% pricing and $8.80 for 70% pricing of the 2007
REPORTS: In August USDA showed beginning U.S. 2007/2008 stocks
of 575 million bushel (down 25), 2007 U.S. harvested acres were 63.3
million out of 64.1 planted and with a yield of 41.5 bushel
to show a 2007/2008 U.S. crop of 2.625 billion bushel. They left 2007/2008
imports at 4 million, 2007/2008 U.S. exports were left at 1.020 billion,
and domestic use was placed at 1.965 billion for an ending U.S. 2007/2008
carryout of 220 million (down 25) or just a 26.9 day ending supply.
This is 84% of the fifteen year average ending stocks figure
of 268 million bushel when ending days of supply averaged 36 days
and the 36 year average is 45 days ending supply. USDA left the
2007/2008 average U.S. cash price at $7.75.
INFORMATION: The 2007/2008 USDA figures in August showed 221.62
MMT of world production (down .43) or 8.143 billion bushel. World use
was placed .96 MMT lower at 233.21 MMT or 8.569 billion bushel, and
ending world stocks are shown falling .24 MMT to 51.63 MMT or 1.897
billion bushel or a still above average 80.9 day ending supply.
The U.S. crop was placed at 71.45 MMT of production, China's crop at
15.2 (down .4), Brazil at 61, and Argentina at 47 MMT.. The sixteen
year average ending world stocks figure is 61 days and the average since
1970 is 70 days.
FUNDS: On 8/21/2007 the CFTC showed funds with
a reduced long futures
position of 139,380 contracts long and short positions of an a decreased
43,261 contracts. In futures
and options, Noncommercial Funds (traditional funds) were
shown with a decreased 95,046 long futures/options contracts and a small
decrease of short contracts to 26,276. The Index Funds showed long futures
and options positions of a decreased 159,716 and short positions of
an increased 8,772 contracts. Remember that Index Funds take long
term positions in the market and usually only sell to roll their positions
forward only if investors request a withdrawal from the fund. The
total net long positions by the funds was a fairly large decrease of
141 million (down 11.4%) to 1,099 million bushel.
BULL CASE factors to consider are:
- The projected drop in U.S. soybean 07/08 carryout
to just a 26.9 day supply has the markets attention. This makes any
late season weather or rust event will be that much more bullish this
- The USDA projection of a drop in the U.S. carryout
to 220 million bushel by 9-1-2008 is very supportive to prices.
- The U.S. 2007 sunflower acres are projected to be
down again this year which should help support both OC and NC prices.
BEAR CASE factors to consider are:
- Fundamentally this market has large carryout figures
in both the U.S. and the world at the end of 06/07 and the reduced
U.S. acres and $8.85 NOV 07 soybean futures should stimulate more
South American acres for next year.
- The commodity funds still hold a net long positions
of over 1.0 billion bushel in futures and options. They could liquidate
these positions on any negative news which would press futures prices
- We look for USDA to add more double crop soybean
acres and more acres behind failed wheat in future reports. High prices
should have encouraged these activities to occur.
producers should make NC sales of 50% at a price $8.00 per CWT
above your local loan rate. The 2007 U.S. sunseed acres are
shown at 1,864,000 vs. 2006 when 1,950,000 acres were planted or DOWN
by 4.4% which should help prices remain firm all summer long. Check
out the 2007 contracts now available with ADM in Goodland reaching the
$.176 a lb. recently and - with an Act of God clause.
LIVESTOCK ANALYSIS: Feed purchases for
80% of the fourth quarter of 2007 needs should be covered if DEC
futures break to the $3.20 area or else just buy as needed. Forward
coverage for 50% of first quarter 2008 needs could be made based on
MAR 2008 futures when they drop into the $3.35 area. First
half 2008 coverage could move to 40% with MAR 08 futures in the $3.45
USDA REPORTED: January 1 Inventory of cattle
and calves vs. shown at 97.0 million head - up slightly from 96.7 million
on January 1, 2006. The USDA February 2nd U.S. cattle inventory
report showed all cows and heifers at 42.0 million head or 1/4 of 1%
lower than the 42.1 million head a year ago. Beef cows as of January
1, 2007 were 32.9 million head or slightly lower than a year ago and
milk cows were up 1% at 9.13 million head. The August 17th Cattle
on Feed report showed 10.3 million head of cattle on feed or 5%
below 2006 but 2% above 2005. Other disappearance in July was
up 5% from 2006 but unchanged from 2005. The
August 10th Meats supply and use report showed beef supply for 2007
of a projected 30,054 million pounds with 1,364 million of exports,
3,270 of imports, and 28,140 of consumption for a per capita consumption
of 65.1 lbs. vs. 65.7 lbs. in 2006. The supply figure is 1.005% of the
previous year. Production of U.S. beef is shown at 26,154 vs. 26,258
a year ago or at 99.6%.
The Quarterly Hog and Pigs report of June 29th showed
all hogs and pigs on June 1 of 62.8 million head or 2% above a year
ago and 2% above March 1, 2007 - so much for high priced grains causing
liquidation of hogs. The hog breeding herd number of 6.12 million
head was up 1% from a year ago and 2% above the March 1st level.
The August 21st CFTC Commitment of Traders report
showed funds net long a decreased net long 10,735 live cattle contracts
- down from 22,782 contracts net long a month ago. The Noncommercial
(traditional) funds were net short Live Cattle futures and options
by a 30,479 positions to 31,558 short position's. Index Funds held a
decreased 113,784 long live cattle futures and options and were short
just 724 total contracts. Feeder Cattle futures saw the funds holding
a net long futures position of an increased 1,047 contracts to 7,450
futures contracts and Noncommercial funds held futures and options
long positions of 7,932 contracts long and short positions of a decreased
3,203 contracts. Index funds are shown holding long futures and options
of 8,237 contracts (down 100) and 5 short contracts.
QUICK CHECK SHOWS 40% OF THE TIME that FEBRUARY
Live Cattle moved up in price $3.82 to $11.05 from August 29th to the
end of January based on a 3 to 35 year review. This means those looking
to sell finished cattle by then should use FEB 08 Live cattle futures
in the $104.50 to $111.70 area for pricing. November Feeder cattle
futures have 40% odds of moving up by $2.95 to $7.33 based on a 3 to
35 year review so look for pricing in the $122 to $126 area.
We ran our Livestock review on feeder steers put on feed at 500 #,
costing $127 and fed to 850 # @ a cost of gain of $.58 a #, and
the cash break-even was $103.38, and with a cash basis of a ($12.0)
the futures break-even was $115.38 on March 2008
feeder cattle and a $30 per head profit meant that futures would need
to go to $118.91 - the 30 year move odds show 33.3% odds that this large
of move could occur. August 2008 Live Cattle futures had 50% odds
of moving up enough to reach a $30.00 profit on these cattle if
they are taken from 850# to 1350# using a cost of gain of $.70 a lb.
for a break-even finished of $95.39 and a ($.49) basis equals a $95.88
futures target for a break-even and a $30 profit could be reached at
$98.19 futures and these futures were $94.50 on 8-29-07. Heifers weighing
475 lbs and costing $120 had 83.3% odds of locking in a $30 per head
profit using June 2008 Live cattle futures at $97.36 (they were already
at $95.87 on 8-29) using the same cost of gain figures as on the
500 # steers.
U.S. and WORLD WEATHER
THE U.S. Palmer
Drought Index shows all of TX, most of OK, most of the eastern 2/3
of NE, eastern IA, southern WI, eastern SD, the northern fourth of IL,
and most of KS (not the NW area) with very moist to extremely moist
conditions but most of the rest of the U.S. with almost all of the western
U.S. in drought conditions along with much of the southeastern U.S.
up into the southern half of IL, southern OH, most of MN and northern
WI and southern IN are dry. The Crop
Moisture Index shows all of IA, northern IL, southern MN, southern
WI, northern IN, northern OH, central areas of TX and southwestern OK
with above normal topsoil levels BUT most other areas including western
areas of the U.S. and northern MN, western ND, and southeastern MO show
dry topsoil levels as of August 25, 2007. Above normal temperatures
are forecast for September for the western areas of the U.S. starting
from northwestern CO and northwestern UT north and west o the eastern
edges of OR and WA including all of NV. Above
normal moisture in September is forecast for most of KS, southeastern
NE, all of OK, and northeastern TX, western half of MO, and most of
AR. MARKET IMPLICATIONS of these forecasts are: The market may
maintain some concerns about soybean diseases but harvest should proceed
at a fairly good pace in the next month.
INTERNATIONAL WEATHER (according to DTN) or OsterDowJones:
The dry weather in parts of the Ukraine and Russia continues and could
be a problem for wheat planting conditions and is adding stress to fall
crops. Australia needs some added rainfall as its crop is growing slowly.
Argentine weather problems (dry areas and lack of rainfall in some areas)
could cause a smaller wheat crop from this export supplier. Russia has
been making many wheat sales to places including Egypt this past week
but the U.S. should be competitive on several other tenders. China is
seeing some dry weather during soybean crop filling which may be reducing
their yields. Dry weather concerns for Australia, Argentina and the
Ukraine are part of the driving force behind the bull wheat market.
EXPORT AND FOREIGN INFORMATION:
Review Area (in million of bushels)
USDA estimates & monthly change
Sales &/or Donations to 8/23/2007
Sales per month to meet USDA
Shipped through 8/23/2007
Shipments per month to meet USDA
Sales and Shipments since the
1,075 mb. - up 25
80 mb.(30 flour)
160 & 139 mb.
17 & 150 mb.
1,100 mb.- up 10
11 & 47 mb.
Export sales of U.S. wheat remains very strong and it
looks like USDA could raise their export figure by another 25 million
bushel. Corn shipments for 2006/2007 may exceed the 2.100 billion figure
if over 24 million bushel is shipped the last week of August - note
that 71 million bushel of corn has been shipped but not inspected according
to the export sales report. The spot month dollar index rose slightly
to sit at a price of $80.87 this month vs. a price of $80.66 a month
ago and is keeping U.S. grains competitive in the world markets.
In August USDA showed ending 2007/2008 U.S. stocks of
the major commodities with a year to year increase in days of supply
on corn going from 36.5 days to 43.6 days, soybeans project to drop
from 68.5 days down to 26.9 days, and wheat was down a large 16.2 days
to an ending supply of 65.1 days from 81.3 at the end of 2006/2007.
Ending world stocks are projected to fall in 07/08 on corn from 50.5
days to 48.5 days of supply, soybeans were projected to fall 24.5
days to 80.9 days from 105.4, and wheat goes from 73.9 days supply down
to a 30 year low of just 67.6 days ending supply at the end of 2007/2008.
OTHER MARKET INFORMATION AND TECHNICALS:
8-30-2007 figures on FUTURES for
SEP 07 Futures Price and Change
Estimated Support Area
Estimated Resistance Area
9 day Relative Strength Index
30 day Relative Strength Index
$7.21 - up $.88
85 - up 25
71 - up 10
$3.23 - down ($.03)
38 - down 8
43 - up 1
$8.70 - up $.29
67- up 20
55 - up 4
Note that a Relative Strength Index (RSI) over 70 may
be a sign of a topping market and a rating under 30 may be the sign
of a bottoming market. We feel the 30 day RSI rating should be used
for long term trends and the 9 day rating may be considered when making
short term decisions on when to price grain. If the rating is low (under
30) and you do not have to sell right away, waiting may be prudent or
if the rating is high (over 70) and you are debating on whether or not
to make sales this may help you to make a decision as a topping market
may be set to go lower.
FUND POSITION review 8-21-2007:
NONCOMMERCIAL FUNDS LONG
NONCOMMERCIAL FUNDS SHORT
INDEX FUNDS LONG
INDEX FUNDS SHORT
The above positions are futures and options.
Funds held a net long Chicago wheat futures position of an increased
1.33 to 1.0 margin, held a 4.92 to 1 net long position in K.C. wheat,
held a large net long position in MN wheat, held an increased net long
corn futures position of a 2.45 to 1.0, and held a decreased net long
soybean futures position of 3.22 to 1 as of August 21, 2007.
COMMODITY INDEX FUNDS - WHAT ARE THEY AND HOW WILL
THEY AFFECT THE FUTURES MARKET? According to a CFTC report these
funds are said to have well over $100 BILLION dollars involved in the
commodity markets vs. a figure of around $7 billion in 2001 and $40
billion in 2004. These larger funds often buy a broad cross section
of commodities and figure that a majority of them will move higher thus
they place less reliance on fundamentals of individual commodities.
A new class of funds called sub-index funds allow investors to select
single commodities not just the market as a whole. They are called
"exchange-traded funds" or ETF's and their investment
in the market is NOT included in the figures mentioned at the
start of this paragraph. This type of buying may cause a shift away
from short term fundamentals and might cause higher prices than fundamentals
dictate should occur. Of course these funds will eventually sell to
get out of their long positions which may cause some swift market price
declines. The price decline is more likely to be from higher or profitable
price levels for most producers.
The past month saw INDEX FUNDS decrease
their net long WHEAT futures and options positions by 1.4%,
decrease their net long SOYBEANS futures and options
positions by 2.1%, and decrease their net long CORN futures
and options positions by 3.44%. The futures markets saw DEC 07
corn futures fall around ($.03) the past month, NOV 07 soybeans rose
$.29 the past month, and wheat prices moved over $.85 higher on OC futures
which was clearly not tied to Index fund buying. The TRADITIONAL
FUNDS were not a major driving force behind the wheat price advance
as they increased their net long wheat futures and options positions
by just 2,620 contracts or by 5%, decreased their net long soybean
futures and options positions by 25,042 contracts or by 27.7%, and
increased their net long corn futures and options positions by 22,036
or up 24.6% - all as of August 21, 2007 vs. July 24, 2007. A FACTOR
to watch this month is what the Index Funds do with their positions.
With crude oil in the $73.35 per barrel area, gold prices down just
a little at $667 an oz, and the stock market up just 50 points at around
13,250 on the DOW and the NASDAQ up 40 points to 1,963 from a month
ago, investors may feel comfortable with leaving their money in the
Index funds as inflation may still be a factor in the market place.
Index Funds should have ample reason to hold, not liquidate their long
positions. Their selling usually occurs when investors request withdrawal
of funds and/or at the end of the month or when they need to roll their
It is the TRADITIONAL FUNDS (including the large
grain and exporting firms) that are having the greatest influence on
commodity futures prices. They are now holding a major long WHEAT
futures and options position and could be a factor in driving prices
down in September if the weather improves in some of the key producing
nations. They have also increased their long corn positions without
triggering a market price advance the past month. They have lessened
their soybean long futures and options positions yet the market has
risen the past month.
MARKET DATA'S AREAS TO WATCH THIS MONTH ARE:
WHEAT: The key items to look for in the
September 12th USDA crop report is to see what USDA does with
their 2007 U.S. spring wheat yield and how much (if any) they increase
the U.S. export figure. The 2007/2008 carryout could fall to a
new record low bushel level (the low since 1970 was 376 million bushel)
from the current 404 million bushel figure. If exports were raised
by 35 million and all other demand figures held the same, new physical
bushel low would occur and we end up with ending 2007/2008 carryout
of 369 million bushel. The world carryout figures should remain
friendly as the weather problems continued the past month in many
areas and should cause another drop in world production estimates
for 2007/2008. The EU has continued to lower their estimate by as
much as another 1 to 2, Argentine wheat acres should end up lower
than expected, Canadian wheat production should fall 1 MMT, and the
Ukraine and Southern Russia continue to suffer from drought. World
production estimates could drop more than the market expects but world
feed demand may fall as well to offset part of this - BUT - be replaced
with higher corn feed demand. Ending world stocks are
FALLING in 2007/2008 from their already low levels to new
RECORD LOW ending days of supply.
SUMMARY on U.S. WHEAT: Based on the strong
export sales due to a shift in world demand to the U.S. and others
which has fueled the higher prices, increased export sales cause a
new record low ending stocks figure here in the U.S.. WORLD WHEAT
production could fall to 610.4 MMT (or lower) and with world demand
of 620 MMT (up 3.2), ending world stocks could fall to 114.8 MMT or
a record low 67.6 days of ending supply. The world figures should
remain friendly for the wheat market all year long!
A 2007 WHEAT MARKETING PLAN based on these outlooks
is: TAKE ADVANTAGE OF THESE RECORD HIGH PRICES and at the least
purchase $6.70 DEC put options for a cost around ($.16) to cover any
remaining crop in the elevator or in storage on the farm. Be sure
to check your target prices carefully to see what profit level is
available as we are at price levels we have NEVER seen at this time
of year on OC futures. MDI has a post harvest TARGET
PRICE worksheet found under Special Reviews that can be used to
enter your expected price, yield and bushels vs. your actual figures
to arrive at a NEW target price. REMEMBER THAT IT NEVER HURTS
TO SELL AT A PROFIT and we are sitting at very attractive price levels.
See our targets below for pricing that should be considered to this
point in time - regardless of whether the crop is stored on the farm
or taken to an elevator. Producers should use put options to place
a floor under their wheat they are holding for cash basis improvement!
Producers could also look at pricing 35% of 2008
production with SEP 2008 K.C. futures in the $5.90 area
($5.35 cash) - which closed at $5.94 on 8-30-2007 - up $.30.
The JUL 2009 K.C. futures closed August 30th at a price of $5.83 (up
$.27) and sales of 35% of your 2009 production could be made at
the $5.80 futures area on this crop.
CORN/SORGHUM: The September 12th USDA crop
report U.S. keys are where USDA places their 2007 U.S. corn
yield. Reports are in the market of a 2007 U.S. corn yield as
high as 156 bushel have been thrown around in some market talking
points - BUT - FC Stone figure announced a month ago of a 148 average
yield could still be accurate. The highest national average yield
ever was 160.4 bushel per acre in 2004 when growing conditions were
generally good from start to finish over most of the U.S. and total
acres planted were 80.929 million. The second best yield ever was
in 2006 with a 149.1 average yield on 78.327 million acres. The facts
are that at least part of each of the top 6 producing states (with
just a little bit of IL), IN, MN, IA, NE, and OH have ALL seen some
crop production problems during the year. It is unlikely that any
of these states (except perhaps IL) will see a record high yield and
many of the other states do not historically have any chance of pulling
the national average up. USDA is doing some in field survey's for
this report and IF they see the lower kernel counts, or lower populations
in some of the key states, the market may actually see a LOWER national
average yield. Crop conditions are just a little above 2006 when the
149.1 yield occurred and the current USDA 152.8 yield appears to be
too high with these ratings. With the world wheat problems and very
high world wheat prices, added world corn feeding could occur and
a great deal of that will probably be covered with U.S. exports thus
raising demand and possibly lowering ending stocks.
MDI's WORLD FIGURES FOR 2007/2008 may show: World
CORN production holding at a record large 771.5 MMT due to the
much larger U.S. and Chinese crops. The U.S. could fall from the
current level of 331.58 MMT - 13.054 billion bushel used by USDA in
the August report. China's production should not rise from their current
148 MMT and could fall slightly, Brazil at 50 MMT, the EU-27 should
be about the same, and Argentina at 24 MMT. and Mexico at 23.2 MMT..
The keys are China and the U.S. crop sizes. World demand is
projected by USDA to rise to a record high 769.48 MMT and it is unlikely
that this figure will drop but it could increase slightly on a shift
of feed demand from high priced wheat. The bottom line of all this
is that ending world stocks could fall slightly from the current 102
MMT figure. The current ending days of supply on corn is 48.5 which
is slightly lower than the previous year even with record large U.S.
and higher Chinese crops. These two nations produce over 60% of the
world's corn. As it stands now, around 1.4 million acres of corn
land CRP is coming out in 2007 and 4 million over the next three years
which will lessen the need for added corn acres in 2008 - BUT - if
the ethanol expansion continues (plants are now making good money
again with lower corn prices and higher fuel costs), we will NOT have
enough acres for corn, soybeans (if the stocks are drawn down to the
level currently projected), and wheat acres may need to increase if
stocks fall to record low levels. Look for a bidding war to start
soon and DEC 2008 corn futures could start rising to try and hold
acres from being shifted to wheat.
A 2007 CORN or SORGHUM MARKETING PLAN based on
these outlooks is: MDI feels that cash sales of 2007 NC corn or
sorghum should be made on 40% of the crop with DEC 2007 corn futures
in the $3.40 area and move to 50% at $3.70, switch to a MIN-MAX plan
(if you can stand margin calls) on 20% of the 2007 crop (not to exceed
90% of your crop insurance bushels) to no more than 60% priced with
the purchase of a DEC $3.60 corn put and the sale of a DEC 07 $4.30
call for a cost of ($.17 to the buy side). Finish your marketing with
JUST put options on anything over 60% of the expected production up
to 100% of your target bushels with the purchase of DEC $3.60 put
options for a cost of ($.14) a bushel.
Producers could also look at pricing up to 20%
of 2008 production with DEC 2008 CORN futures in the
$3.90 area - which closed at $3.90 on 8-30-2007 - down ($.03) on the
month. The DEC 2009 CORN futures closed at a price of $3.99 (down
($.03) as well on the month) and sales of 25% of your 2009 production
could be made at the $3.90 futures area on DEC 2009 corn futures.
Cash basis levels have weakened some so a MIN/MAX plan of buying a
DEC 2008 $3.80 put and selling a $4.80 call could be considered for
those who can handle margin calls.
SOYBEANS: Might have mostly unchanged 2007/2008
U.S. figures again in the September 12th crop report but eventually
we look for their estimated 2007 yield to fall due to the low pod
counts and late season weather and disease problems. U.S. ending stocks
could fall another 10 million as less demand could offset any lower
production estimates. The record large ending U.S. days of supply
was 104 days in 1986. The 06/07 world ending stocks are bearish
at a record large ending 105.4 day supply with large South American
production providing a great cushion for the world market. It is lower
ending U.S. stocks in 2007/2008 that contains the bullish U.S. fundamental
numbers. MDI believes that USDA may now be overstating their 2007
U.S. soybean yield but understating total planted acres and that 2007
U.S. production could fall to near 2.60 billion bushel. If the dollar
vs. real situation ever becomes more attractive, the U.S. may struggle
in the export market.
WORLD PRODUCTION in 2007/2008 could rise significantly
in South America due to higher prices caused by the lower U.S. acres.
The U.S. crop at MDI's estimate would be 70.75 MMT, Brazil could rise
to 62 MMT, Argentina to 47 MMT, China at 15.0 MMT and total world
production of 222 MMT (vs. 236.1 MMT in 2006/2007). World demand
should grow from the current 224 MMT level to a figure around 234
MMT and ending world stocks could fall o around 51 or 52 MMT but
still an above average 80 day ending supply - even with 11.442
million less U.S. acres!
A 2007 SOYBEAN MARKETING PLAN based on this outlook
is: MDI feels that pricing on 70% of your 2007 NC soybeans MUST
BE DONE NOW (if not made at our earlier targets) with NOV 07 soybean
futures in the $8.80 area, if you have not done anything you could
use a MIN-MAX plan (if you can stand margin calls) on 50% of the 2007
crop (not to exceed 90% of your crop insurance bushels) by purchasing
a NOV 2007 $8.60 soybean put and the sale of a NOV 2007 $9.60 call
for a cost of ($.19 to the buy side). Finish your marketing with
just put options on anything over 50% of the expected production up
to 100% of your target bushels with the purchase of NOV $8.60 put
options for a cost of ($.25) a bushel. With current basis levels POOR
in many areas, use of the futures and options is the preferred marketing
strategy. The MIN/MAX plan is a good one in today's environment.
Producers could also look at pricing up to 40%
of 2008 production with NOV 2008 SOYBEAN futures in the
$9.00 area - which closed at $8.93 on 8-30-2007 - unchanged.
The NOV 2009 SOYBEAN futures closed at a price of $8.63 (down $.22
for the month) and sales of 40% of your 2009 production could be
made at the $9.00 futures area on NOV 2009 soybean futures.
You will probably need to look at straight hedges or a MIN/MAX plan
as the cash basis levels are POOR in most areas. Why are they poor
- it is because the U.S. and world have adequate OC supplies and end
users do not need to pay up for cash beans at this time.
Market Data, Inc. P. O.
Box 90 Oberlin, KS 67749
Phone: (785) 475-3322 or
(800) 867-8289 Gregory K. Lohoefener,
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