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The Grain Markets... Looking Forward

Harvest is over for almost everyone and with a few exceptions; we have had a decent year.  Some folks were hurt by the drought, but in general, everyone has been somewhat surprised by their yields. 

Nationwide we have harvested the second largest crop ever.  The numbers in last week’s crop report were 11.032 Bil. Bu. of Corn and 3.043 Bil. Bu. of Soybeans.  This production level will most likely leave us with a fall 2006 carryout of more than 2.2 Bil. Bu. of Corn.  In the past, we have always felt that Corn Carryout numbers above 1.0 Billion Bushel were burdensome to the market.


 

At present, there is a $.15 to $.20 carry in the corn futures market going out into the summer.  One way of capturing a return to storage is to sell ahead.  With the sharp run in the corn basis in the last few days, we encourage producers to start thinking about selling some of their stored grain.  If you want to stay in the market in anticipation of a spring or summer rally, we can write you a minimum price contract that will accomplish exactly that.  If you are worried about tax liabilities, we can write you a January Pay contract, never allow tax worries to interfere with grain marketing.  Transferring tax liability is as simple as writing a January Pay contract or for any other forward month in the New Year.  Currently, we are paying $1.90 for corn and $5.88 for beans, January bids are $1.99 and $5.99.  We have a program available for on-farm pickup if you can quickly load a tractor trailer.  Call Susan to let her know if you want to merchandise some grain this way.  

Reflecting back on this past year, it is extremely clear that anything contracted last summer was a very good move from a marketing stand point.  We had a few bushels of corn contracted for $2.50 and a few soybeans above $7.00.  When you add harvest LDP payments of $.35 to $.45 per bushel, you have a very profitable sale.  The take home message is that those who made a plan and allowed it to be executed, were the big winners in this market.  As we look forward to 2006, one has to see some very large marketing challenges.  Corn carryout at 2.2 Bil. Bu. is a very large number.  We may see a final acreage shift of 2 to 3 million acres from corn to soybeans for the 2006 crop year, but even that will leave a very large amount of corn on hand in a normal crop year.  The question is…. Do you want to risk everything on a weather market?   

The soybean market has come to life!  We have seen a dramatic increase in the basis as the barge traffic problems have dissipated to some degree.  Currently, we are bidding $5.88 for nearby and $5.99 for January.  New crop beans are $6.00 and January ’07 are $6.15.  All of these prices should be considered profitable.  If you feel that you consistently need more than $6.00 for your soybeans, you had better research the growth dynamics of soybeans in the Cerrado region of Brazil.  We strongly advise starting your marketing program at these levels and use a scale-up program with target contracts.  Contact Susan for assistance in entering your targets.

 

The wheat market is softening as everyone digests the impact of the increased planted acreage.  Estimates from seed dealers range from a 15 to 30% increase in plantings.  Old crop wheat can still be sold in the $3.40 to $3.50 range.  We are comfortable with marketing plans that involve holding stored wheat up through January.  If February 1st arrives and you still have old wheat, we strongly advise an orderly exit from that position.  New crop wheat bids are in the $3.00 to $3.10 range and may offer some price protection.  The loan rate for most wheat producers is in the $2.50 to $2.60 range.  This low loan rate makes forward contracting wheat look pretty good.  Work your budgets and enter some target contracts.  

In closing, we suggest that you step back and look at how you have marketed your grain the last few years.  If you have consistently topped the market, you deserve a very large round of applause; however, our records show that many of our customers have failed to capture the opportunities that rallies have offered.  We hope to convince you that by developing a marketing plan, and sticking to it, you can become more one of those producers that is worried about his large tax liability instead or worrying about how he will cash flow next year. 

Dave Danker

 

 
 
 
 
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