December 6-7, Steven D. Johnson. Farm & Ag Business Management Specialist
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1 December 6-7, 2018 Steven D. Johnson Farm & Ag Business Management Specialist (515)
2 Learning Objectives Highlight Current Corn & Soybean Supply/Demand & Price Outlook Feature 2018 Crop Marketing Strategies & Tools using a Case Study Farm Discuss Futures Carry, Basis & Cost of Ownership (COO) Trends Provide Old Crop Marketing Strategies & Tools with Futures Price Objectives Provide 5 Crop Risk Management Web Sites.
3 U.S. Corn Ending Stocks & Average Cash Price Source: USDA WASDE, Nov. 8, 2018
4 U.S. Corn Supply and Use Area Planted (mil. acres) Yield (bu./acre) Production (mil. bu.) 14,216 13,602 15,148 14,604 14,626 Beg. Stocks (mil. bu.) 1,232 1,731 1,737 2,293 2,140 Imports (mil. bu.) Total Supply (mil. bu.) 15,479 15,401 16,942 16,934 16,816 Feed & Residual (mil. bu.) 5,280 5,120 5,472 5,298 5,500 Ethanol (mil. bu.) 5,200 5,224 5,432 5,605 5,650 Food, Seed, & Other (mil. bu.) 1,401 1,422 1,453 1,453 1,480 Exports (mil. bu.) 1,867 1,898 2,293 2,438 2,450 Total Use (mil. bu.) 13,748 13,664 14,649 14,793 15,080 Ending Stocks (mil. bu.) 1,731 1,737 2,293 2,140 1,736 Season-Average Price ($/bu.) $3.60 Source: USDA WASDE, Nov. 8, 2018
5 U.S. Ending Stocks as % of Total Use 23.2% 11.5% Source: USDA WASDE, Nov. 8, 2018
6 U.S. Soybean Ending Stocks & Average Cash Price Source: USDA WASDE, Nov. 8, 2018
7 U.S. Soybean Supply and Use Area Planted (mil. acres) Yield (bu./acre) Production (mil. bu.) 3,927 3,926 4,296 4,411 4,600 Beg. Stocks (mil. bu.) Imports (mil. bu.) Total Supply (mil. bu.) 4,052 4,140 4,515 4,734 5,063 Crush (mil. bu.) 1,873 1,886 1,901 2,055 2,080 Seed & Residual (mil. bu.) Exports (mil. bu.) 1,842 1,936 2,166 2,129 1,900 Total Use (mil. bu.) 3,862 3,944 4,214 4,296 4,107 Ending Stocks (mil. bu.) Season-Average Price ($/bu.) $8.60 Source: USDA WASDE, Nov. 8, 2018
8 10 Steps to Improve Crop Market Planning Step 1: Cost of production (good records) Step 2: Cash Flow needs (next 12 months) Step 3: Actual Production History (APH) breakevens Step 4: Reasonable profit margin (5% to 10% ROI) Step 5: Seasonal futures price trends Step 6: Track basis patterns (multi-year data) Step 7: Link crop insurance to pre-harvest marketing Step 8: Using a variety of crop marketing tools Step 9: Consider on-farm vs. commercial storage costs Step 10: Written marketing plan that is executed. Source: Johnson, ISU Extension, December 2018
9 Mike Merchandiser Case Study Farm Farm Description Breakevens Corn Soybeans 2018 Pre-Harvest Marketing Corn Soybeans Primary Marketing Tools 1,000 A row crops, 500 A corn, 500 A soybeans; shares machinery, trucks & labor with family members; fall/winter cash flow needs of $300,000. APH: 190 bu/a corn, 53 bu/a soybeans; RP crop 85% w/hail; 100,000 bushels of onfarm storage. Great 2018 yields; stored commercially 10,000 bushels of corn and 5,000 bushels of soybeans. APH $3.41 $9.15 Actual $3.29 $8.08 Average Dec. Corn Futures % APH Sold Average Nov. Soybean Futures $4.18 $ % 80% HTAs Corn delivered to a local ethanol plant; HTAs Soybeans to local processor. Bought corn and soybean put options. Source: Johnson, ISU Extension, December 2018
10 Calculating Mike s 2018 Breakeven Costs Corn Yield Expense/Acre $648 Cost/Bu $3.81 $3.70 $3.60 $3.50 $3.41 $3.32 $3.24 $3.16 $3.09 Estimated Breakeven Soybeans Actual Breakeven Yield Expense/Acre $485 Cost/Bu $16.17 $13.86 $12.13 $10.78 $9.70 $8.82 $8.08 $7.46 $6.93 Estimated Breakeven Actual Breakeven Source: Johnson, ISU Extension, December 2018
11 December 18 Corn Marketing Strategy Scale-in Incremental Sales: $4.00, $4.05, $4.10, $4.15, $4.20, $4.25, $4.30? 2018 Projected Price $3.96/bu. Source: Nov. 1, 2018
12 December Corn Seasonal Trends ( Futures Indexed) Ego Source: Usset, October 2018
13 2018 Corn Marketing Plan Summary 65,000 Pages 56 & 57 3/5/18 10,000 $4.00 Dec $3.65 Forward Contract, Harvest 4/5/18 10,000 $4.05 Dec $3.70 HTA Sale, Late Harvest 4/15/18 10,000 $4.15 Dec $3.80 HTA for Dec. Delivery 5/1/18 10,000 $4.20 Dec $3.90 HTA for Dec. Delivery 5/25/18 10,000 $4.25 Dec $4.00 HTA for Dec. Delivery 6/15/18 10,000 $4.30 Dec $4.05 HTA for Spring Delivery 5/15/18 10,000 Put $ $3.60 Floor for Unpriced Bushels $.20/bu Profit Source: Johnson, ISU Extension, March 2018
14 November 18 Soybean Marketing Strategy Scale-in incremental sales: $10.20, $10.30, $10.40, $10.50? 2018 Projected Price $10.16/bu. Source: Nov. 1, 2018
15 November Soybean Seasonal Trends ( Futures Indexed) Ego Omitting years <minimum in May (2001 & 2002) Source: Usset, October 2018
16 2018 Soybean Marketing Plan Summary 18,000 Pages 56 & 57 3/15/18 5,000 $10.20 Nov $9.75 Forward Contract to Processor 4/15/18 5,000 $10.30 Nov $9.85 Forward Contract to Processor 5/15/18 3,000 $10.40 Nov $9.95 HTA, On-Farm Storage, Delivery in December 5/25/18 5,000 Put $9.60 Floor for Unpriced Bushels, $1.70/bu Profit Source: Johnson, ISU Extension, March 2018
17 Futures Carry Corn close as of Nov. 30: = 18 Carry: March thru July Can I Store my Corn now thru June for 18 /bu.? On-Farm? Commercially? July $3.87 Sept $3.90 Soybeans close as of Nov. 30: = 39 Carry: Jan. thru July July $9.26 Can I Store my Soybeans now thru June for 39 /bu.? On-Farm? Commercially? May $9.14 May $3.81 Mar. $9.01 Mar. $3.73 Jan.$8.87 Source: Iowa Commodity Challenge, November 30, 2018
18 Basis can be Weak or Strong Example Average Basis Example Source: Iowa Commodity Challenge, ISU AgDM, November 2018
19 Corn Basis Trends, March Futures Central Iowa Elevator Source: Central Iowa Elevator, Nov. 28, 2018
20 Soybean Basis Trends, March Futures Central Iowa Elevator Source: Central Iowa Elevator, Nov. 28, 2018
21 Comparing Cost of Ownership to Cash Price Source: Iowa Commodity Challenge, ISU AgDM, November 2018
22 Determining Net Return to Cost of Ownership Source: Iowa Commodity Challenge, ISU Ext. November 2018
23 Corn: Cost of Ownership Trends (Central Iowa Elevator) October cash price anchored to elevator bid when 50% of Iowa corn harvested. On-farm Storage = 1 per bu. per month; Commercial Storage at 16 for first 90 days, then 2.8 per bu. per month thereafter. Interest rate = 5% APR Source: Iowa Commodity Challenge, ISU AgDM, November 2018
24 Soybean: Cost of Ownership Trends (Central Iowa Elevator) October cash price anchored to elevator bid when 50% of Iowa soybeans harvested. On-farm Storage = 1 per bu. per month; Commercial Storage at 16 for first 90 days, then 2.8 per bu. per month thereafter. Interest rate = 5% APR Source: Iowa Commodity Challenge, ISU AgDM, November 2018
25 Crop Marketing Matrix 1. Store & wait 2. Delayed price contract Old Crop Corn: Delivers the balance of on-farm stored corn in the spring/early summer months, cleans out grain bins. Basis 1. Hedge 2. Non-roll hedge to arrive 3. Buy put option New Crop Corn/Soybeans: Use late-winter & spring price rallies to price new-crop bushels Old Crop Soybeans: HTAs unpriced bushels stored on-farm to capture carry Futures Price Futures Price 1. Basis contract 2. Sell cash bushels and buy futures or call option 3. Minimum price contract Old Crop Corn: Sells Stored Corn as basis narrows, Stays long futures into the spring months Basis 1. Spot cash sale now 2. Forward contract Old Crop Soybeans Stored Commercially: Sells cash in December as basis narrows. Adds on the Market Facilitation Program (MFP) Payment for 2018 Actual Production. Source: Iowa Commodity Challenge, ISU Ext., December 2018
26 Basis Contract (Old Crop Corn) Advantages: 1. Capture seasonal futures prices using spring rally 2. Basis set and won t deteriorate 3. May reduce storage costs 4. Convenient contract quantities 5. Partial payment when delivering cash (usually 70% of cash) Disadvantages: 1. Accept futures price risk until the final futures price is set 2. No basis improvement 3. May need to pay partial payment 4. Unsecured creditor to buyer 5. Market knowledge needed (separating futures price and basis). Source: Iowa Commodity Challenge, ISU AgDM, December 2018
27 March 19 Corn Retracements $4.37 Fibonacci Retracements: 61.8% = $ % = $ % = $3.86 $3.54¾ Source: Nov. 30, 2018
28 July 19 Corn Retracements $4.42 Fibonacci Retracements: 61.8% = $ % = $ % =$3.97 $3.70 Source: Nov. 30, 2018
29 Advantages: Hedge-to-Arrive Contract 1. Futures price is set; timing delivery better basis 2. Time for basis to improve 3. Probably higher fees than selling futures (2 to 5 /bu.) 4. Seller may not have margin calls, but check the contract 5. May move futures price protection forward within same marketing year (nonroll). (Old Crop Soybeans) Disadvantages: 1. Basis risk is still present 2. Delivery is required 3. Must be done in specific contract size (5,000 bu.) 5. Will not get a higher futures price 6. Market knowledge needed (separating futures price and basis). Source: Iowa Commodity Challenge, ISU AgDM, December 2018
30 January 19 Soybean Retracements $10.63¼ Fibonacci Retracements: 61.8% = $ % = $ % = $9.17 $8.26¼ Source: Nov. 30, 2018
31 July 19 Soybean Retracements $10.46 Fibonacci Retracements: 61.8% = $ % = $ % = $9.33 $8.63¼ Source: Nov. 30, 2018
32 Crop Risk Management Web Sites U of Illinois Extension Farm Doc ISU Extension - Ag Decision Maker (Monthly Newsletter, Decision Tools, Iowa Commodity Challenge Videos, Marketing Tools Workbook) U of MN (Center for Farm Financial Mgt.) Purdue University (Center for Comm. Ag) Farm Credit Illinois Source: Johnson, ISU Extension, December 2018
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