Grain Market Gleanings

USDA Announces Final “Freedom to Farm” Payment

In October, USDA announced production flexibility contract final payment rates for fiscal year 2002. Producers may request to receive payments during any month from October 2001 through August 2002. Producers have the option of receiving two payments of 50% each or one payment at 100%. Those who do not choose a payment option will receive their full payment near the end of that period. Contact your local FSA office for more information regarding payment options.  FY02 payment rates include wheat, 46.1 cents per bushel; corn 26.1 cents per bushel; barley 20.2 cents per bushel.

Whether to take the one or two payments is predominantly a tax decision, in terms of whether to recognize additional income in 2001 or 2002, according to Art Barnaby, Kansas State University ag economist. Remember that under lease arrangements, the tenant must be confirmed for the 2002 crop year before any payments can be made, he notes. 

These payments are ready to be made now, so one might presume that they would not be overwritten by any new Farm Bill legislation. However, the current bill passed by the House presumes to begin with changes in the program for the 2002 crop year. What would happen if language was passed that did change the farm program details for 2002 after many of the payments had already been made? That remains a hypothetical question at the moment, Barnaby says, but the fixed payments under the current program are likely to be less than the fixed payments under the House version, so it wouldn’t force many producers, if any, to return payments after the fact.

Post-harvest Oilseed Marketing Strategies
Some recovery in the soybean futures market and basis would be expected following harvest, and targeting nearby soybean futures in the $4.45 to $4.70 range for making sales may be the best strategy, according to NDSU extension crops economist George Flaskerud. For sales in that price range, use a minimum price contract with out-of-the-money call options to capture a portion of any unexpected price increases. Consider completing the strategy on two-thirds of inventory by the end of January, he says.

The futures market was not rewarding the storage of soybeans as of Oct. 15, says Flaskerud. The carry in the futures market and a modest improvement in the basis would just barely offset storage costs in the months ahead. Unfavorable weather in South America or larger than expected exports and crush will be needed to generate price increases sufficient to justify storage, he says, noting that in October the combined production of Brazil and Argentina is projected to be just 14% less than the 2001 U.S. crop, and this second major soybean crop will be on the world market beginning in March.

Higher canola prices are expected due to limited world supplies including Canada, where canola production in Canada is down by 33% from a year ago. Targeting a price of $9 per cwt at Velva to begin sales may result in selling for at least the average price of the marketing year ending July 31. Achieving that price by mid-March would provide a return to storage of about 50 cents per cwt, says Flaskerud.

Sunflower typically shows sufficient price strength into May to justify storage, and this year should be no exception because of the tight world situation for sunflowers, says Flaskerud. He points out that industry watcher Oil World has indicated that world supplies of sunflower will decline to an eight-year low during 2001-02.

Key 2002 USDA Crop Reporting Dates
Grab a pen and write the following potentially market-moving USDA crop reports on your 2002 calendar:

Jan. 11: Crop production, Annual crop production, grain stocks, winter wheat seedings estimates

Feb. 8:  Crop production and supply and demand estimates

March 8: Crop production and supply & demand estimates 

March 28:  Grain stocks report, Prospective plantings report

April 10: Crop production and supply & demand estimates

May 10: Crop production and supply & demand estimates

June 12: Crop production and supply & demand estimates

June 28: Acreage report, Grain stocks report

July 11: Crop production and supply & demand estimates

Aug. 12: Crop production and supply & demand estimates

Sept. 12: Crop production and supply & demand estimates

Sept. 30: Grain stocks report, Small grains summary

Oct. 11: Crop production and supply & demand estimates

Nov. 12: Crop production and supply & demand estimates

Dec. 10: Crop production and supply & demand estimates

Knowing Your Breakeven Key to Accurate Grain Selling Objectives

Rick Warner, market analyst with Country Hedging, Minneapolis, says more farmers are realizing that investing more time into marketing will pay off.

“Outlook is 10% of a marketing plan, while strategy is 90% of the plan,” he said, in a marketing seminar held this fall in Fargo. The event was sponsored by the Minnesota Association of Wheat Growers, North Dakota Grain Growers Association, Minnesota Wheat Research and Promotion Council, and the Risk Management Education program of the U.S Department of Agriculture’s Risk Management Agency.

Warner said that producer price objectives need to be realistic, determined by historical price patterns, technical analysis, and market fundamentals. To establish accurate crop price objectives, it’s critical for producers to know what their breakeven numbers are. “This is one of those things that’s always talked about, but many of us still don’t know,” he says.

Warner and Betsy Jensen, marketing specialist, Northland Community Technical College, Thief River Falls, both agreed that wheat carryover and stocks-to-use numbers that have steadily declined is good news for wheat. Current stocks suggest wheat prices will climb back into the $3.00 range by winter, but stay below $4.00.

Jensen, who farms near Stephen and leads several area marketing groups, said that while soybean supplies will continue to be more than healthy, consumption is keeping pace with production. South American production will set the stage for soy prices, and while rallies may be possible, she doesn’t advise holding your entire bean crop into next spring.