University of KentuckyUKnowledge

Agricultural Economics Presentations Agricultural Economics

10-2009

Grain Market OutlookCory G. WaltersUniversity of Kentucky, cgwalters@uky.edu

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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

cgwalters@uky.edu

(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

1982

1983

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1985

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1989

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1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

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

20

00

20

00

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00

20

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20

03

20

03

20

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20

05

20

06

20

06

20

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

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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

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93

19

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19

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19

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20

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20

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20

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20

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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

Agricultural Economics -100,000

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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

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1,500

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2,500

3,000

3,500

1971

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1977

1979

1981

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1985

1987

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1991

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1995

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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

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Per

Bu

sh

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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

Agricultural Economics -100,000

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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