Tag: soybeans

March USDA Prospective Plantings and Grain Stocks Summary

Ann Johanns

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the March 31, 2021 USDA reports.

For most of the March 31, 2021 stats, USDA’s new numbers were below expectations and that was good news for the markets. Corn and soybean plantings are above last year’s levels, but below trade guesses. Corn stocks were below both last year’s level and trade expectations, while soybean stocks were below last year, but slightly above expectations. The acreage change will drop USDA’s projected corn production by 141 million bushels (now setting at 15 billion bushels) and soybean production by 121 million (new estimate for 2021 is 4.4 billion bushels). The changes will further tighten 2021/22 projected ending stocks. For soybeans, if I held soybean usage to USDA’s earlier estimates, ending stocks fall to 24 million bushels (an incredibly low number). Thus, expect some major shifts in both crop usage and price estimates for the 2021 crops, once USDA starts the monthly projections in May (until then, USDA’s last complete set of estimates is from the Ag Outlook Forum in February).

Chad shares insights on these numbers and more in his latest Ag Market Outlook video. Latest slides on Ag Market Outlook.

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Consider Use of a Basis Contract to Market Corn

Ann Johanns

Steven D. Johnson, Ph.D., Farm Management Specialist, Iowa State University Extension and Outreach, shared marketing tools and tips for the 2016 crop.

Johnson_Steve_smKeep an eye on your local basis to see if you should continue to store or price some of your corn. Farmers who have unpriced corn might consider using a basis contract to market at least a portion of those bushels. An attractive basis in late December and the need for cash will be the main drivers for farmers to move some of those stored bushels. Most of the cash price movement in late fall and early winter months typically comes from better basis being offered as farmers slow grain movement. In addition, two 3-day weekends in late December increase the odds of potential “quick ship” bids to meet processor demands for additional bushels.

Seasonal futures price trends indicate corn futures prices don’t typically rally in the fall and winter months. That’s because most everything is known about the Northern Hemisphere feed grain crops by then, and that’s where nearly 85% of the world production takes place. However, most farmers will be reluctant to give up ownership of bushels at sub-$3.50 per bushel cash corn prices.

Farmers need to pay attention to the costs of ownership

Chart of storage costs, on farm vs. commerical
Cost of 2016 Corn Ownership

Compare the cost of storing corn at a commercial elevator to your own on-farm storage costs. The ISU Extension and Outreach Iowa Commodity Challenge website can show you how. It uses the following 2016 crop assumptions: cash corn is valued at $3.11 per bushel at a central Iowa elevator when about 50% of the Iowa harvest was complete. Interest is accruing on stored grain at a rate of 5% or 1.75% if the USDA marketing loan is used. On-farm storage is 1 cent per bushel per month while commercial storage is 16 cents for the first 90 days and 2.8 cents per bushel for each month thereafter. Note the cash prices (dotted line) are below the typical cost of corn ownership as of late November.

Cost of 2016 Corn Ownership

Once you store corn, imagine how much cash prices will need to improve each month to justify storage. Commercial storage could easily be 3 to 4 times more expensive per bushel than on-farm storage costs. The cash price received for commercially stored bushels will also reflect the basis offered at that commercial storage facility. If history is any indication, the likelihood of selling those cash corn bushels above the cost of storage probably means a significant futures price rally is needed (more likely in the spring months)and improvement in the basis.

How does a basis contract actually work?

Most grain merchandisers offer a marketing tool called a basis contract. A farmer delivers cash corn and eliminates storage costs and basis risks. The merchandiser buys a corn futures contract (goes long) in a deferred month on behalf of the farmer. The merchandiser will likely charge a small service fee of 1 to 2 cents per bushel subtracted when the basis contract is settled, likely in the spring.

Upon delivery of the cash bushels, a farmer can collect 70% to 80% of the corn’s value. The merchandiser holds the remaining 20% to 30% balance of the cash value to make potential margin calls should futures prices decline. Any excess funds minus the 1- to 2-cent service fee are returned to the farmer upon settling the basis contract.

Eliminating storage costs and basis risk

The farmer needs to convey to the merchandiser a date and price at which the farmer wishes to have this long futures position lifted. Consider being “long” the May 2017 or July 2017 corn futures contracts when using a basis contract to increase the chance of benefiting from a spring futures price rally.

Discuss risks and rewards with your merchandiser when you’re initiating cash sales and basis contracts. Be sure you understand the risk of being “long” futures and the flow of cash funds involved in the transaction. The farmer isn’t able to take advantage of the carry offered in the futures markets with a basis contract. However, there are several advantages a basis contract provides. Those include providing cash to help pay expenses and meet your farm operation’s cash flow needs, elimination of storage costs and basis risk, and minimizing the concern for on-farm stored corn quality.

Take the Iowa Commodity Challenge and learn new marketing skills

The website featuring the Iowa Commodity Challenge has related crop marketing information including 14 videos and a 65-page Marketing Tools Workbook.

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How accurate and useful is the ISU Cash Rent Survey?

Ann Johanns

Alejandro Plastina, extension economist, explores results of a follow-up survey on the accuracy and usefulness of the ISU Cash Rental Rate Survey.

plastina_alejandro_photoCash rents, land values, and rates for custom work in Iowa are topics that usually attract lots of attention from a number of stakeholders in the agricultural sector. Even more so when the economic outlook for the sector is particularly promising or particularly discouraging. So it comes as no surprise that the Cash Rental Rates for Iowa Survey is received with different degrees of acceptance by different groups depending on the economic outlook. This year we requested feedback from the online respondents to the Cash Rent Survey about the accuracy and usefulness of the survey results.

Who responded?

The Cash Rental Rates for Iowa 2016 Survey had 1,585 responses, of which 320 responses were submitted through the online questionnaire (the rest were mailed using USPS). All online respondents were invited to participate in a short follow up survey about their perceptions of the Cash Rent Survey. One hundred and forty-five respondents completed the follow up survey. All of them reported being familiar with the survey (figure 1).

Comparing the participation of different categories of participants in this opinion poll versus the corresponding participation of the same categories in the Cash Rent Survey (figure 2), farm operators accounted for the same share (47%); but agricultural lenders, professional farm managers and Realtors had a greater share (21% vs. 14%, and 16% vs. 12%, respectively); while landowners had a smaller share (15% vs. 25%).

Figure 1. How familiar are you with the ISU Cash Rental Rates for Iowa Survey?Figure 2. How would you classify yourself?

How accurate are survey results?

Ninety-one percent of the respondents indicated that the Cash Rent Survey reflects typical cash rents by county moderately, very, or extremely accurately (figure 3). Forty-seven percent of the respondents indicated that the Cash Rent Survey reflects typical cash rents by county very or extremely accurately.

The most prevalent response among farm operators, landowners, and agricultural lenders was that the Cash Rent Survey reflects typical cash rents by county very accurately, followed closely by moderately accurately (figure 4). The most prevalent response among professional farm managers and Realtors was that the Cash Rent Survey reflects typical cash rents by county moderately accurately.

Figure 3. How accurately does the ISU Cash Rental Rates for Iowa Survey reflect typical cash rents by county?Figure 4. How accurately does the ISU Cash Rental Rates for Iowa Survey reflect typical cash rents by county, by type of respondent?

The accuracy of the Cash Rent Survey in reflecting annual changes in typical cash rents by county was perceived to be better than the accuracy in reflecting their levels. Ninety-six percent of the respondent indicated that the Cash Rent Survey reflects year-over-year changes in typical cash rents by county moderately, very, or extremely accurately (figure 5). Fifty-seven percent indicated that the Cash Rent Survey reflects year-over-year changes in typical cash rents by county very or extremely accurately.

The most prevalent response among farm operators, landowners, and agricultural lenders was that the Cash Rent Survey reflects typical cash rents by county very accurately, followed by moderately accurately (figure 6). The most prevalent response among professional farm managers and Realtors was that the Cash Rent Survey reflects typical cash rents by county moderately accurately, followed by very accurately as a close second.

Figure 5. How accurately does the ISU Cash Rental Rates for Iowa Survey reflect year-over-year changes in typical cash rents by county?Figure 6. How accurately does the ISU Cash Rental Rates for Iowa Survey reflect year-over-year changes in typical cash rents by county, by type of respondent?

How useful are survey results?

Ninety-seven percent of the respondents indicated that the Cash Rent Survey was at least moderately useful to them (figure 7). Seventy-six percent of the respondents indicated that the Cash Rent Survey was very or extremely useful to them.

The most frequent answer among farm operators and agricultural lenders was that the Cash Rent Survey was extremely useful, followed by very useful and in a distant third place moderately useful (figure 8).

The most frequent answer among landowners was that the Cash Rent Survey was very useful, followed by extremely and moderately useful.

Professional managers and Realtors indicated most frequently that the Cash Rent Survey was moderately useful, followed by very and extremely useful.

Figure 7. How useful is the ISU Cash Rental Rates for Iowa Survey to you? Figure 8. How useful is the ISU Cash Rental Rates for Iowa Survey to you, by type of respondent?

Summary  

Although this opinion poll about the usefulness and accuracy of the Cash Rental Rates for Iowa Survey was not designed to be representative of all stakeholders in Iowa, it shows that most farmers, landowners, agricultural lenders, professional farm managers and Realtors, and other agricultural professionals that participate in the survey find it useful and accurate.

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April Demand Update (4/12/16)

Ann Johanns

Chad Hart, ISU Extension Grain Marketing Economist, provides a summary of the latest USDA reports.

Hart_Chad-thumbThe World Ag Supply and Demand Estimates update for April contained some modest changes for the crop balance sheets. For U.S. soybeans, the only changes were a 15 million bushel bump in export demand and a slight decline in seed demand, based on last month’s Prospective Plantings report. Projected soybean ending stocks were lowered to 445 million bushels, but the midpoint of the 2015/16 season-average price range remains steady at $8.75 per bushel. For U.S. corn, the adjustments were mixed. Feed demand was reduced 50 million bushels, based on the quarterly disappearance pattern from the Grain Stocks report. Corn usage for ethanol was increased 25 million bushels as ethanol production has held near record levels over the 1st three months of the calendar year. Thus, corn ending stocks were raised 25 million bushels and the midpoint of the 2015/16 season-average price range fell 5 cents to $3.55 per bushel.

World corn production for 2015/16 was increased by 3 million metric tons, with 1 million of that going to increased imports for Mexico and Southeast Asia and 2 million projected to be held in stock. China’s feed usage of corn is projected to rise by 2 million metric tons, but that increase is expected to be met by drawing down existing internal stocks. World soybean production for 2015/16 was lowered slightly as declines in Chinese and Indian production offset an increase from Argentina. Global soybean trade was raised, based on stronger exports to China, Japan, and Mexico.

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Early Harvest Basis Opportunities

Ann Johanns

Contributed by Steve Johnson, Extension Farm Management Field Specialist,sdjohns@iastate.edu.

Johnson_Steve_smWith the heat and dry conditions from late August, Iowa corn fields are maturing quickly. Farmers might want to take advantage of an unusual marketing opportunity this in September.

By harvesting some of their corn early and delivering directly in to local corn users, such as processors, livestock feeders and ethanol plants; farmers could potentially earn a premium of 50 cents per bushel of more over cash prices offered in October. That premium price is likely to disappear quickly in early October, when the 2013 fall harvest begins to pick up more momentum.

It’s really going to be a win-win situation for grain users and farmers. Corn users are looking for corn now after last year’s short crop and farmers could use this to earn premium prices and help their fall cash flow situation.

There could also be a few marketing opportunities on early-harvested soybeans. Like corn, processors and river terminals are looking to secure a local supply of soybeans after last year’s drought-reduced harvest.

Iowa farmers are fortunate because there is a strong demand for corn and soybeans in the state. That can create marketing opportunities that are not  available in all states.

A good strategy for Iowa farmers this month is to keep a very close eye on the moisture content and quality of corn in their fields during September as well as bids from local buyers. If the moisture content of the corn drops down toward 15 percent, or if there are signs of stalk rot or other problems that could trim yields, it may make sense to harvest some of the driest fields early and try to take advantage of a cash bid premium, he said. Even if the grain is still above the target moisture level of 15 percent, the premium for early delivery may more than make up for the dockage.

In years when the crop is less than ideal, there is a tendency for Iowa farmers to store corn and wait for higher bids later in the marketing year. However, those higher bids may not materialize in the upcoming marketing year because other parts of the Corn Belt have experienced better growing weather and may have more corn to market. I think it will be good to take an aggressive marketing approach this year and to look for early opportunities.

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