U S Corn Soybean and WheatU.S. Corn, Soybean, and Wheat Situation and Outlook for 2008… · 2018....

U S Corn Soybean and WheatU.S. Corn, Soybean, and Wheat Situation and Outlook for 2008/09

March, 2008

Nick PiggottNorth Carolina State [email protected]/grain.htm

Copyright © Nick Piggott

Grain Outlook: Talking PointsKey drivers• Renewable fuels mandate (36 Bil Gal by 2022)Renewable fuels mandate (36 Bil. Gal by 2022)• Explosion of ethanol capacity• Cheap US dollar enhancing agricultural exports• Cheap US dollar enhancing agricultural exportsKey outcomes

C b d h t i ll d bl• Corn, soybean, and wheat prices are all double their long-term historical 25 yr averages2007 t f i d $87 5 billi• 2007 net farm income a record $87.5 billion

• US farmland prices and NC farmland values appreciating markedlyappreciating markedly

Corn: Fuel Alcohol Use 1980-2016P

35%

4,500

5,000

.

.

4,500 million bushels@ 2.8 gals/bu = 12.6 billion gallons

25%

30%

3 000

3,500

4,000

,

se

els

Historical-Fuel Alcohol

Projected-Fuel Alcohol

15%

20%

2,000

2,500

3,000

of T

otal

Us

llion

Bus

he Historical-% Total Use

Projected-% Total Use

5%

10%

500

1,000

1,500 %

Mi

0%0

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Marketing YearSource:ERS-USDA Feedgrain Database (http://www.ers.usda.gov/data/feedgrains/FeedGrainsQueriable.aspx)ERS-USDA USDA Agricultural Projections to 2016 (http://www.ers.usda.gov/publications/oce071/oce20071.pdf)

140

Nominal Broad U.S. Dollar Index

120

14031% decline since February 20029% decline since January 2007

80

100 Agricultural Exports a record $101 billion in 2008—up $19

60

80 billion from 2007

20

40

0

973

974

975

977

978

979

981

982

983

985

986

987

989

990

991

993

994

995

997

998

999

001

002

003

005

006

007

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20

Source: www.federalreserve.gov

Daily Nearby Corn, Soybean, and Wheat Futures 1980‐2007

10

11

12 1980‐2007

8

9

10

shel

5

6

7

ollars Per Bu

Nearby_C

Nearby_S

Nearby_W

3

4

5Do

1

2

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

1/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

81/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/19

91/2/20

01/2/20

01/2/20

01/2/20

01/2/20

01/2/20

01/2/20

01/2/20

0

US Net Farm IncomeUSDA projects net

300

350farm income to rise to $94 billion in 2008, up $7 billion over 2007

250

300

Total Gross Income

150

200

ons Dollars

Total Expenses

100

150

Billio

NET FARM INCOME

50

0

2003 2004 2005 2006 2007F

Average value per acre of farm real estate 2000 2007

y = 312.1x + 1997.4,500

5,000

2000 ‐ 2007

Average Annual Appreciation for NC is 9.5% y 312.1x + 1997.

3,500

4,000

,

e

US

y = 150.6x + 796.072,500

3,000

ars P

er Acre

NC

IA

Linear (US)y

1 000

1,500

2,000

Dolla Linear (NC)

0

500

1,000

2000 2001 2002 2003 2004 2005 2006 2007Source: NASS, USDA

Net Farm Income in 2007FIncome Statement U.S. Farm Sector 2003-2007F

2003 2004 2005 2006 2007F[b] v. [a]

[a] [b]%

C h R i t 215 6 237 3 240 7 239 3 282 2 17 9%$ billion

Cash Receipts 215.6 237.3 240.7 239.3 282.2 17.9% Crops 109.9 113.7 115.9 120.0 142.6 18.8% Livestock 105.6 123.6 124.9 119.3 139.6 17.0%Direct Govt Pay 16 5 13 0 24 4 15 8 12 1 23 4%Direct Govt. Pay 16.5 13.0 24.4 15.8 12.1 -23.4%Total Gross Income 206.0 296.0 299.6 291.5 341.7 17.2%Total Expenses 200.4 210.0 222.5 232.5 254.2 9.3%

NET FARM INCOME 59.7 85.9 77.1 59.0 87.5 48.3%Source: http://ers.usda.gov/Briefing/FarmIncome/Data/nf_t2.htm

US Net Farm Income

y = 26.69x + 206.89

300

350

y = 13.01x + 184.89250

150

200

ions Dollars Total Gross Income

Total Expenses

NET FARM INCOME

Linear (Total Gross Income)

100

150

Bill Linear (Total Gross Income)

Linear (Total Expenses)

Linear (NET FARM INCOME)

y = 2.87x + 65.2350

0

2003 2004 2005 2006 2007F

U.S. Cash Receipts 2006-2007FU.S. Farm Sector Cash Receipts 2006-2007 by CropCrop Receipts 2006 2007F %

Corn 21.7 32.9 52%Soybeans 16.9 21.0 24%

$ billion

yWheat 7.3 10.2 40%Cotton 6.2 5.9 -5%

Sub total 52 1 70 0 34%Sub-total 52.1 70.0 34%

Total Crops 120.0 142.6 19%Total Livestock 119.3 139.6 17%

Total Receipts 239.3 282.2 18%pSource: http://ers.usda.gov/Briefing/FarmIncome/Data/cr_t3.htm

Markets Do Work!

“Farmers will respond to

“Currently a fierce acreage auction for respond to

higher price signals but

acreage auction for grain plantings for 2008/2009 Grain signals but

acreage is not unlimited”

2008/2009. Grain prices are the most important variable unlimitedimportant variable

sending information and incentives toand incentives to

growers to act upon”

Stock to Use Ratios for U.S. Crops 1990-2007

55.060.0 corn

soybean

40.045.050.055.0

(%)

.

wheatcotton

22 325.030.035.0

/Use

Rat

ios

(

18.7

5 9

22.3

11.15 0

10.015.020.0

Stoc

k/

5.90.05.0

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2006

2 2 2 2 2 2 2 2

Year


Ratio of Daily Nearby Soybean and Wheat P i t N b C F t 1980 2007

3 5

4.0

Re

Prices to Nearby Corn Futures 1980‐2007Nearby_S/Nearby_CNearby_W/Nearby_C

3.0

3.5elati

2.5

ive

1 5

2.0pric

1.0

1.5

9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 9… 0… 0… 0… 0… 0… 0… 0… 0…

es

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/19

1/2/20

1/2/20

1/2/20

1/2/20

1/2/20

1/2/20

1/2/20

1/2/20

Current Prices Twice Their Historical Average

1980‐2007 01‐22‐2008Future Contract [a] [b] [b]‐[a] [b]/[a]

Nearby_C $2.58 $4.98 $2.40 1.9Nearby_S $6.26 $12.64 $6.38 2.0Nearby_W $3.55 $9.62 $6.07 2.7

RatiosNearby_S/Nearby_C $2.46 $2.54 $0.08 1.03N b W/N b C $1 39 $1 93 $0 54 1 39Nearby_W/Nearby_C $1.39 $1.93 $0.54 1.39

Soybean price has been drafting y p gthe corn price in a battle for acres

Corn Price

Soybean Price

Price

Wheat PricePrice

Its not over until the checkered flagSoybean Acres 2007 Corn Acres 2007

US Acres Planted ( Millions)

Crop 2006 2007 Δ

Corn 78.3 93.6 15.3Corn 78.3 93.6 15.3

Soybean 75.5 63.6 -11.9

Wheat 57.3 60.4 3.1

Cotton 15.3 10.8 -4.4

Combined 226 4 228 4 2 1Combined 226.4 228.4 2.1

U.S. Major Row Crop Acreage

228.4240260

U.S. Major Row Crop Acreage 1980-2007

226.4

228.4

180200220240

cres corn

wheat

78 3 93.6100120140160

Mill

ion

Ac

soybeancottoncombined

78.3 93.6

75.563.640

6080

100

020

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007


Year

USDA SUPPLY/DEMAND BALANCE SHEET FOR CORN05-06 06-07 07-08 %Δ

Acres Planted 81.8 78.3 93.6 19.5%Acres Harvested 75.1 70.6 86.5 22.5%

Bu /Harvested Acre 148 0 149 1 151 1 1.3% Bu./Harvested Acre 148.0 149.1 151.1 1.3%

Beginning Stocks 2,114 1,967 1,304 -33.7%Production 11,114 10,535 13,074 24.1% Total Supply 13,237 12,514 14,393 15.0%Use: Feed and Residual 6,155 5,598 5,950 6.3%

Food seed & industrial 2 981 3 488 4 555 30 6% Food, seed, & industrial 2,981 3,488 4,555 30.6% Ethanol for fuel 1,603 2,117 3,200 51.2% Exports 2,134 2,125 2,450 15.3% Total Use (Demand) 11,270 11,210 12,955 15.6%

Ending Stocks 1,967 1,304 1,438 10.3%Ending Stocks, % of Use 17.5 11.6 11.1 -4.6%


U.S. Season Avg. Farm Price, $/ Bu. $2.00 $3.04 $4.00 31.6%Source: USDA, WASDE Jan 11, 2008

U.S. Corn Supply and Disappearance 1975/76-2007/08

13,07414,000

.

10,50510,000

12,000

ushe

ls

Production

Food, Seed, Indust

5,9506,000

8,000

illio

ns o

f Bu Indust

Feed

4,555

2,4502,000

4,000

M Dom. Use

Export

0

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007


YearSource; WASDE, various issues

US Corn: Food, Seed and Industrial Use 2001‐2007

3,500

2,500

3,000

ls

High‐fructose corn syrup

Glucose and dextrose

1 500

2,000

ns of B

ushe

l

Starch

Fuel alcohol

1,000

1,500

Million

0

500

2001 2002 2003 2004 2005 2006 2007

US Corn Ending Stocks

4,500

5,000

3 000

3,500

4,000

shels

2,000

2,500

3,000

ions of B

us

1,438

1,000

1,500 Mill

0

500

5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7

1975

1976

1977

1978

1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

U.S. Corn Stocks/Use and Average Farm Price 1975-2007

4.50 70.0

Stocks/UsePrice

3 00

3.50

4.00

50.0

60.0

el

.

ent)

.

2.00

2.50

3.00

30.0

40.0

s Pe

r Bus

he

s/U

se (P

erce

0 50

1.00

1.50

10.0

20.0

Dol

lars

Stoc

ks

0.00

0.50

0.0

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

Corn CBOT DEC 08---WeeklyCorn CBOT DEC 08 Weekly

New High =$5.77

$2.00

Resistance @ =$3.80

Corn CBOT DEC 2010---Weekly

New High =$5.47

Marketing Corn

• At time of writing market is strengthening further– C-Mar08 trading @ $5.57C Mar08 trading @ $5.57– C-Dec08 trading @ $5.77

• For NC with nearby corn basis of -$0.10 in October, this would be a y ,current expected harvest price in NC of around $5.67 for 2008.– current new crop bids are around $5.47-5.97– opportunity to lock in profitable sales with forward contracts

• A Dec 08 put option with a strike of $5.50 is trading @ 61 cents– use puts to establish price floor but leaving upside open

might be cheaper price insurance using coverage CRC or RA– might be cheaper price insurance using coverage CRC or RA

• Can corn prices go higher? Yes. Soybeans are bidding for some of the 2007 lost acres. Corn price will try and keep pace to retain corn yacres.– Best to roll up pricing opportunities using Dec 08 put options


USDA SUPPLY/DEMAND BALANCE SHEET FOR SOYBEANS05-06 06-07 07-08 %Δ

Millions of AcresAcres Planted 72.0 75.5 63.6 -15.8%Acres Harvested 71.3 74.6 62.8 -15.8%

Bu /Harvested Acre 43 0 42 7 41 2 -3 5% Bu./Harvested Acre 43.0 42.7 41.2 3.5%

Millions of BushelsBeginning Stocks 256 449 574 27.8%Production 3 063 3 188 2 585 18 9%Production 3,063 3,188 2,585 -18.9% Total Supply 3,322 3,647 3,165 -13.2%Use: Crushing 1,739 1,806 1,830 1.3%

E t 940 1 118 995 11 0% Exports 940 1,118 995 -11.0% Seed & Residuals 194 148 165 11.5% Total Use 2,873 3,073 2,990 -2.7%

Ending Stocks 449 574 175 -69.5%Ending Stocks, % of Use 15.6 18.7 5.9 -68.7%

U.S. Season Average Farm $5.66 $6.43 $10.40 61.7%gPrice, $/ Bu.Source: USDA, WASDE various

U.S. Soybean Supply and Disappearance 1971/72-

3,500

2007/08

Production

2,585 2,500

3,000

hels

Production

Crush

Exports

1,835

1 500

2,000

s of

Bus

h

End Stocks

1,005 1,000

1,500

Mill

ions

160 0

500

71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07

197

197

197

197

197

198

198

198

198

198

199

199

199

199

199

200

200

200

200

Year


U.S. Soybean Stocks/Use and Average Farm Price 1970-2007

12.00

27.50

30.00

.

Stocks/Use

Price

8.00

10.00

20.00

22.50

25.00

shel

rcen

t)

6.00

12.50

15.00

17.50

s Pe

r Bus

ks/U

se (P

er

2 00

4.00

5 00

7.50

10.00

12.50

Dol

lars

Sto

ck

0.00

2.00

0.00

2.50

5.00

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20970972974976978980982984986988990992994996998000002004006

Year

US Soybeans Ending Stocks 1968‐2007

500

600 US Soybeans Ending Stocks 1968 2007

Average 2002‐2006= 312 million bushels

400

500

s

300

llion

Bushe

ls

160 200

Mil

0

100

0

1968 1973 1978 1983 1988 1993 1998 2003

Soybean CBOT Nov 08---Weekly

New High in Mar 2008 =$14.50 $1.50

High in Jan 2008 =$13.00

$6.50

Resistance @ =$8.50

Soybean CBOT Nov 2010---Daily

In March 2008 Touched $13.75In March 2008 Touched $13.75

Marketing Soybeans

• At time of writing market has pulled back slightly from recent $15 (+) on nearby (March 2008) contracty ( )– S-Mar 08 trading @ $14.90– S-Nov 08 trading @ $13.90

• For NC with nearby corn basis of -$0.20 in October, this would be a current expected harvest price in NC of around $13.70 for 2008.– current new crop bids are around $13.77

opportunity to lock in profitable sales with forward contracts– opportunity to lock in profitable sales with forward contracts

• A Nov 08 put option with a strike of $13.40 is trading @ 140 cents– use puts to establish price floor but leaving upside openuse puts to establish price floor but leaving upside open

• Can soybean prices go higher? Yes. With very low stocks, soybeans are bidding for some of the 2007 lost acres backare bidding for some of the 2007 lost acres back– Need at least 6 million of the acres back – 6 mil. acres @ 40 = 240 mill bu to restore depleted stocks


USDA SUPPLY/DEMAND BALANCE SHEET FOR WHEAT05-06 06-07 07-08 %Δ

Million AcresAcres Planted 57.2 57.3 60.4 5.1%Acres Harvested 50.1 46.8 51.0 8.2% Bu./Harvested Acre 42 38.7 40.5 4.4%

Million BushelsBeginning Stocks 540 571 456 -25.2%Production 2,105 1,812 2,067 12.3%I t 81 122 90 35 6%Imports 81 122 90 -35.6% Total Supply 2,726 2,505 2,613 4.1%Use: Food 915 933 945 1.3% Seed 78 81 86 5.8% Feed & Residual 160 125 110 -13.6% Exports 1,003 909 1,200 24.3%

Total Use 2 155 2 049 2 341 12.5% Total Use 2,155 2,049 2,341 12.5%

Ending Stocks 571 456 272.0 -67.6%Ending Stocks, % of Use 26.5 22.3 11.6 -91.5%

U.S. Season Aver. Farm Price, $/ Bu. $3.42 $4.26 $6.65 35.9%Source: USDA, WASDE Jan 11, 2008

3 000Wheat Supply and Disappearance 1965-2007

2,500

3,000 stocksproductionfood

2,067 2,000

f Bus

hels exports

1,200

1,500

Mill

ions

of

945

500

1,000

M

272 0

500

5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7 9 1 3 5 7

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

U.S. Wheat Stocks/Use and Average Farm

7.00100.0

gPrice 1965-2007

Stock/UsePrice

5.00

6.00

70.0 80.0 90.0

shel

cent

)

Price

3.00

4.00

40 050.0 60.0

s Pe

r Bus

Use

(Per

c

1.00

2.00

10 020.0 30.0 40.0

Dol

lars

Stoc

ks/U

0.000.0 10.0

1965

1967

1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Year

US Wheat Ending Stocks 1965‐2007

2,000

1,600

1,800

1 000

1,200

1,400

of Bushe

ls

600

800

1,000

Millions o

272

200

400

0

1965 1970 1975 1980 1985 1990 1995 2000 2005

Wheat CBOT Jul 08---Weekly

$2.50

$5.00

$

Resistance @ =$10.00

Marketing Wheat

• At time of writing market is still trying to ration demand and prices are trying to establish where that will occur Exports are attractiveare trying to establish where that will occur. Exports are attractive because of the cheap US dollar.– W-Mar 08 trading @ $10.96– W-Jul 08 trading @ $9.92

• Current new crop bids in NC are around $6.09-8.47– Basis levels should improve

• A Jul 08 put option with a strike of $9.50 is trading @ 65 cents– use puts to establish price floor but leaving upside open – might be cheaper price insurance using revenue insurancemight be cheaper price insurance using revenue insurance

coverage

• Can wheat prices go higher? Yes. The strong demand (led by t ) h t b f th ti d i th h i ki liexports) has to be further rationed given the shrinking supplies.


Some Final Thoughts• A perfect storm of factors has led to these

opportunities.

• Substantially higher prices and price volatilities means that much more at riskmeans that much more at risk – The need to manage price and production risk has

never been greater

• Key strategies to consider:– establish price floors using tools available (options,establish price floors using tools available (options,

revenue insurance) and let the upside ride– be diligent with efficient production practices to

ensure you have the yield to sell at these pricesy y p– consider purchasing revenue crop insurance (CRC or

RA) (premiums are heavily subsidized)Copyright © Nick Piggott

NC State Grain MarketingNC State Grain Marketing Homepage

www.ag-econ.ncsu.edu/faculty/piggott/outlook.html

U S Corn Soybean and WheatU.S. Corn, Soybean, and Wheat Situation and Outlook for 2008… · 2018....

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Transcript of U S Corn Soybean and WheatU.S. Corn, Soybean, and Wheat Situation and Outlook for 2008… · 2018....