Grain Market Gleanings

Current market Conditions Favor Bulls
Current global market conditions suggest that hard red spring wheat prices may continue to be bullish through 2003, according to Rick Dusek, senior spring wheat merchant for Cenex Harvest States Cooperative, St. Paul, Minn.  At the North Dakota Wheat Commission’s Crop Outlook Forum recently in Minot, Dusek pointed to a significant reduction of wheat stocks in North America, Australia, and the European Union. “Unless a bumper crop is produced (in 2003) throughout North America, higher prices may continue,” maybe through the 2004 harvest, said Dusek. Prices will be volatile, with day-to-day fluctuations.  Dusek doesn’t believe hard red spring wheat acres in 2003 will increase much more than 10%. He believes that many growers will base their decisions on current cash prices at planting, not futures prices. 

Survey Indicates 2003 Winter Wheat Acres Up 8%
A survey of mostly extension agents in the top winter wheat producing counties of the U.S. indicates that 2003 winter wheat acres (planted in the fall of 2002) will increase close to 8%, according to Bill Tierney, Kansas State University ag economist. The highest wheat prices in over five years combined with better topsoil moisture supplies in some areas of the Plains resulted in the acreage increase, according to survey respondents.   USDA’s winter wheat seedings report will be released Jan 10.

Storing Soybeans Under Loan Has Some Price Risk
If soybeans are kept under loan and placed in storage, the producer will incur a storage expense but will not be exposed to price risk beyond the loan level. However, KSU’s Tierney points out that with national average soybean prices about 45 cents above loan, this strategy does expose the producer to a potential loss of 45 cents before protection of the loan becomes active, and the producer incurs storage costs as well.

Tierney has looked at the odds on whether continuing to store soybeans will be profitable. He examined the historical returns to storing soybeans until mid February and mid June over the last 21 years, using cash prices paid by Illinois processors, as reported by the USDA’s Ag Marketing Service.

On average, storing soybeans until mid-February lost money (21 cents/bushel) if stored in an elevator or on farm. Storing beans until mid-February made money just 43% of the time, according to Tierney, with the largest loss $1.66 (in 1981/82) and the largest profit 87 cents/bu. in 1996/97.

The odds of making money from storing beans until mid-June were 50-50, says Tierney, and the average loss was much smaller. On average, storing beans in a country elevator until mid-June lost 13 cents/bu, and storing beans on farm lost just 4 cents/bu. The largest loss was $1.84/bu. (in 1981/82) while the largest profit was $4.41/bu. in 1987/88.

Over that same time span, Tierney says selling soybeans and buying call options instead offered about the same profit potential as storage.  However, selling beans does end storage costs, and limits potential losses to the premium paid for the calls.  For more details, see Tierney’s report ar-chived at www.agriculture.com.   Click on the “correspondents” link, then “Bill Tierney.”

Free Grain Marketing Simulator at www.commoditychallenge.com
Hundreds of grain producers in 24 states are now participating in Commodity Challenge, an online grain marketing simulator that gives producers practical experience managing grain marketing price risk with futures, options, and cash sales in a realistic virtual environment, without any real financial risk. Participants can even test their marketing skills against others, with standings updated daily.  Participation is free; all you need is access to the Internet. 

Commodity Challenge was developed by the Montana Grain Growers Associ-ation’s MarketManager program and the Montana Cooperative Extension Service. Other cooperators in its development included the Minnesota Association of Wheat Growers and the University of Minnesota.

A livestock version of Commodity Challenge begins in January.  It can be found on the Commodity Challenge web site, www.commoditychallenge.com .