Friday, February 11, 2011

Grain Market Musings

By G. Clark Johnston, Commodities Broker

Burley--The spring months are always interesting to say the least. There are a wide range of variables that could and will affect the market. We have seen the USDA figures reporting that winter wheat seedings are running 10% above last year. This means that there are 3.6 million additional winter wheat acres this year than last. We could look to see where the additional acreage came from but, the fact is these acres won’t be available for spring planted crops.

The three big spring planted grain crops are going to be forced into competing for the acreage that is left. This takes place every year but this year there is the potential for the markets to be very volatile as we move into summer. First of all we have already killed the Kansas wheat once this spring as temperatures moved below freezing with little or no snow cover to protect the wheat. This isn’t new as we usually kill this crop 3 or 4 times before harvest. The winter wheat crop condition is estimated to be at 29% good to excellent compared to 69% for the same time last year. There is still time for the crop to recover but, this presents the potential for reduced yields if the condition of the crop doesn’t rebound.

The January WASDE report lowered the corn carryover giving us now a-stocks-to-use ratio of 5.5%. Corn will need to buy its fair share of acreage as well as produce better yields than this year in order to have a chance at building any stocks. The stage is set now for corn, soybeans and spring wheat to duel it out for the remaining acreage. We will see just which commodity or commodities will win when the USDA reports the planting intentions the end of March. I know that the scenario has been set that the markets have only one way to go and that way is up but, when we look at the historical trends in the market we see a different picture.

Over the past 10 years from the 25th of February to the 31st of March we see the July corn futures trading a range of 50 cents lower to 40 cents higher with 7 of the 10 years trending lower. When we narrow the field to include just the past 5 years we see that 2 of the years (2008, 2009) are years that moved higher with both years moving 40 cents higher at one point during the time frame. Of the three years that moved lower 2007 and 2010 both moved between 40 and 50 cents lower. If we look at just the prices our conclusion might be that the markets are going to be volatile but it doesn’t really tell us what is going to happen other than a range of 90 cents per bushel. In reality what we should be looking at are the trends.

In 2008 and 2009 the market rallied into the end of March and then fell from the 1st of April through the end of November with 2008 trending $2 lower. In these 2 years the market was successful in buying all the acreage that was needed. In contrast 2010 moved lower only to trade $2 higher in the fall. As we move closer to the planting intentions report let’s watch the market trend and then see if the market accomplished its objective of buying enough acres. If it does and you are a producer you will need to look at managing your price risk to the down side. If it doesn’t you feeders need to do the opposite. Also keep in mind the weather markets. The markets could have quick moves based on the weather being too dry or too wet, too hot or too cold, take your pick. Remember, volatility is here to stay. Have your plan in place ahead of time. You may not have 2, 3 or 4 days to think about it without losing your opportunity.

Clark started his 31 year career in 1979 working in Ogden, Utah. He went on to work as a Commodities Broker and cash grain merchandiser. Currently a part owner and operates JC Management in Clearfield, Utah. He is a merchandiser of small grains and is a consultant with producers and flour mills in both Idaho and Utah. At this time he is very pleased to serve as a consultant with the Idaho Farm Bureau.

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