Friday, February 25, 2011

Grain Market Musings



Corn still tight, But Opportunities Abound

By Clark Johnston, Idaho Farm Bureau market consultant

Pocatello-With the stocks-to-use ratio in corn now standing at 5%, it leaves us with very little room for error. The market has always found a way to buy the acreage needed to produce a corn crop and things are lining up for us to do the same this year.

With the winter wheat crop looking poor at best in some areas, producers will be looking at planting corn where feasible. If everything works out this could put some pressure on December corn thus widening the spread in the May December Futures. Even though we currently have a good supply of wheat the corn market, will still impact the direction of wheat as well as the amount of the move.

When looking at the Minneapolis May futures over the past ten years we see that the trend is definitely lower over the next 30 days with 7 of the past 10 years moving 15 to 30 cents lower. The big exception to this would be 2008 which moved $3.50 lower by the 5th of April. All three up-years traded 25 cents higher at onetime with none of them finishing the time frame more than 15-cents higher.

The biggest difference between the past 10 years and today is the corn market. The lack of corn could keep wheat supported over the next few weeks. Leaving corn out of the equation, wheat could be setting up to break from corn and trade on its own.

At this time it looks as though we will be reducing winter wheat acreage. The spring wheat crop isn’t a slam dunk yet and exports could remain good through the end of the year. On the other side of the coin we see that South America did receive some timely rains improving their wheat crop along with rain falling in China relieving some of their concerns. But, they still have all of those people to feed. I hesitate to even mention your budget for the fear of sounding repetitive but, I’m going to anyway. If you haven’t finished your budget it isn’t too late. Oh I know that it is important to merchandise your crop for the most money every year but I also know that it is easier to pull that trigger and sell once you know where you stand on costs.

Let’s switch gears and talk cattle for a minute. When looking for a seasonal trend from March 5th through April 5th there really isn’t one. The May futures contract traded a range of $8 higher to $8 lower with 4 years higher and 6 lower. The real interesting chart is when we move further out in the year. When we take the August Feeder Cattle contract from March 5th through the end of July we see a definite trend higher with 9 out of the past 10 years finishing higher.

When we take the past 5 years the trend is all 5 years finished this time frame higher. Whether you are a seller or buyer now could be a good time to implement a strategy to manage your risk in the market. Even though everything is pointing higher you producers need to manage your downside risk against the unknown. In the June Live Cattle futures the historical trend is definitely lower over the next 30 days. When we stretch the time frame we get the same trend as with feeder cattle. The historical trend from now to the first week in September is higher with the past 5 years all trading even to higher by the time we get there.

If you still need to buy diesel fuel it isn’t too late for an opportunity to save some money. Looking at March 5th forward heating oil futures have increased in price through June in all of the past 5 years by as much as 40 cents per gallon.

Clark Johnston started his 31 year career in 1979 working in Ogden, Utah.He went on to work as a Commodities Broker and cash grain merchandiser. He currently is 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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