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
Copyright © Nick Piggott
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
Copyright © Nick Piggott
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%
Copyright © Nick Piggott
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
Copyright © Nick Piggott
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
Copyright © Nick Piggott
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
Copyright © Nick Piggott
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
Copyright © Nick Piggott
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.
Copyright © Nick Piggott
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
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