In this file:
· Funds Defend the Big Short in Corn
… Estimates are that the funds sold roughly 8,000 contracts on Monday and another 14,000 contracts on Tuesday…
· U.S., South American Ag Trade Issues Stack Up
U.S. investigates Argentina’s biodiesel exports to Indonesia.
· Fear of feed expected to keep malt barley acres low
· Revenues Below $700 per Acre Possible with Corn in 2017
Funds Defend the Big Short in Corn
Ted Seifried, AgWeb.com
Apr 18, 2017
Seifried is the Chief Market Strategist and Vice President in charge of the Zaner Ag Hedge Group
TRADING COMMODITY FUTURES AND OPTIONS INVOLVES SUBSTANTIAL RISK OF LOSS ANDMAY NOT BE SUITABLE FOR ALL INVESTORS. YOU SHOULD CAREFULLY CONSIDER WHETHER TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR CIRCUMSTANCES, KNOWLEDGE AND FINANCIAL RESOURCES.
The large speculators (i.e. funds) have been carrying a short corn position for some time now. With corn showing signs of strength in the last few weeks it was a big question as to how the funds would respond. So far this week they have responded with a significant amount of selling. Estimates are that the funds sold roughly 8,000 contracts on Monday and another 14,000 contracts on Tuesday. How long will the funds defend their short position?
After buying back some of their short position last week fundswere estimated to be net short 148,000 contracts of corn coming into Tuesday when theysold another estimated 14,000 contracts. Rains in Brazil have helped their second season corn crop and put early pressure on the corn market. Also, after a strong week last week corn ran into stiffchart resistance which opened the door for technical selling.
Going forward we are getting into a time of year where corn could see a bit of a spring recovery like we have seen in each of the last 4 years. Last year corn rallied nearly 80 cents in the spring, but that had a lot to do with late season problems in South America and some weather forecaster calling for a hot and dry US growing season. While I do not believe that this is a year where the corn market needs to (or wants to after last year) put in a major weather premium I do think that maybe the worst of the fundamental news might be behind us for now until we know what this nextcrop looks like.
Weather delays are another potential issue for the corn market...
U.S., South American Ag Trade Issues Stack Up
U.S. investigates Argentina’s biodiesel exports to Indonesia.
By Luis Vieira, Successful Farming
Agriculture.com - 4/18/2017
The Trump administration, since its beginning and prior to the election, has been criticizing trade agreements and what it calls unfair practices, mostly toward the U.S. manufacturing complex and allegedly those coming from Mexico.
Nevertheless, undesired consequences have been seen, and the most affected sector is U.S. farm business.
Mexico, one of the top buyers of U.S. food, has been announcing new sources for supplies of several products from major competitors, attempting to minimize purchases from the U.S., before any type of change in the North American Free Trade Agreement (NAFTA) is made.
Argentina has been negotiating the entrance of fresh eggs. Mexican diplomats already announced future imports of Brazilian rice. Again, Argentina hopes to get its lemon juice to Mexican tables. Sourcing beef from both South American countries is also being considered, but one question remains relevant: Will Brazil and Argentina really be able to supply corn and soybeans to Mexico, replacing the U.S.?
Mexicans already say South American corn will be duty-free.
Tom Sleight, president and CEO of the U.S. Grains Council, believes...
Fear of feed expected to keep malt barley acres low
By Jade Markus, Commodity News Service Canada
via Canadian Cattlemen - April 18, 2017
CNS Canada — Concerns about weather dictating the quality of malt barley is keeping producers from seeding the crop this year, one industry participant says, while weak prices offer no extra incentive.
“Acres are definitely going to be down, because of the fear of getting feed barley, which is horrendously low-priced,” said Rod Green of Central Ag Marketing at Airdrie, Alta.
Statistics Canada is set to release its acreage estimates for principal field crops on Friday.
Average trade estimates collected by CNS Canada ahead of that report range from 4.4 million to 6.4 million acres.
That compares with the 6.4 million acres seeded in 2016-17, according to Statistics Canada. Those figures account for all types of barley grown.
Rain in Western Canada last fall led to an overabundance of feed grade grains, lowering quality of barley and pushing up supplies, which means weaker prices.
Prices for malt are low as well, further dissuading producers from growing it this year.
Canada’s crop is bigger than the country needs, while heavy production in competing growing regions cuts into export demand, Green said.
Australia grew a massive crop in 2016-17 and is exporting heavily to China, with estimates saying sales — of all types of barley — could double last year’s exports.
That cuts into the amount China is buying from Canada. “So consequently there’s a lot of malt barley on the farm,” Green said.
The U.S. has had two big crops back-to-back, he added, with prices below Canadian values, which further cuts into demand...
Revenues Below $700 per Acre Possible with Corn in 2017
Gary Schnitkey, Department of Agricultural and Consumer Economics, University of Illinois
farmdoc daily - April 18, 2017
For farmland having an expected corn yield of 190 bushels per acre, a reasonable expectation of 2017 gross revenue is $741 per acre. Obviously, revenue will vary from the $741 expectation depending on price and yield outcomes. In this article, possible 2017 crop revenues, crop insurance payments, and Agricultural Risk Coverage (ARC) payments are evaluated using the historical price and yield changes from 1975 to 2016. The analysis uses corn yields from Logan County, Illinois. For each year, the sum of crop revenue, crop insurance payments, and ARC payments equals gross revenue. The historical analysis suggests that 2017 gross revenues can range from a low in the mid-$600 range to a high of over $900 per acre.
Possible Revenues based on Historical Price and Yield Changes
Possible revenues are based on harvest prices, market year average (MYA) prices, and yields calculated given price and yield changes from 1975 to 2016. Table 1 shows harvest prices, MYA prices, and yields used in the analysis. Calculation of each price and yield are as follows:
· Harvest prices are calculated using percentage price changes for each year times the $3.96 projected price for 2017. In 1975, the projected price was $2.70 and the harvest price was $2.90, meaning that the harvest price is 7% higher than the projected price. The $4.25 harvest price is 7% higher than the $3.96 projected price (see Table 1).
· MYA prices are based on the difference between harvest prices and MYA prices. For example, the $2.54 MYA price for 1975 is $.36 lower than the $2.90 harvest price for 1975 (see appendix Table 1 for actual prices and yields for each year). To simulate 1975, a $3.89 MYA price is used, which is $.36 lower than the simulate 1975 harvest price of $4.25 per bushel.
· Logan county yields are stated in terms of 2017 yields. The average yearly increase in yields from 1975 to 2017 is 1.78 bushels per acre. This average times the years from 2017 are added to each actual yield. The 1975 actual yield, for example, as 136 bushel per acre. The year 1975 is 42 in the past (42 = 2017 - 1975) and 42 years times 1.78 result in 75 bushels per acre. Adding 75 bushels per acre to the 136 actual yield results in an estimated 211 bushel yield if 1975 weather conditions are repeated in 2017.
The above procedures results in 42 price and yield combinations. Each combination represents the price and yield that would result if conditions in the respective year occurs in 2017. For example, if 1975 conditions are repeated in 2017, the harvest price would be $4.25 per bushel, the MYA price would be $3.89 per bushel, and Logan County yield would be 211 bushels per acre (see Table 1).
From these prices and yields, the components of gross revenue are calculated:
· Crop revenue is estimated as MYA price times county yield.
· Crop insurance is calculated given a Revenue Protection (RP) policy at an 85% coverage level. The guarantee yield is 192 bushels per acre and the projected price is $3.96 per bushel.
· ARC payments are calculated for Logan County, Illinois. The estimated ARC guarantee for 2017 is $669 per acre. Note that ARC payments are based on base acres and not planted acres. Calculation of gross revenue assumes one base acre of corn for each planted acre of corn. This will not be the case on all farms.
Note that county yields are used in this study. Farm yields typically are more variable than county yields. AS a result, Use of farm yields would increase variability illustrated below. However, lowest revenues will not vary much from those shown here because crop insurance provide payments so that revenue does not decrease below the crop insurance guarantee.
Prices and Yields
MYA prices average $3.68 per bushel over the 42 simulated years, with a low of $2.65 and a high of $5.14. Again, these prices are calculating using historical price changes occurring in the past. In 12% of the simulated cases, MYA prices are below $3.00 per bushel. Therefore, historical changes suggest a chance of very low corn prices.
Logan county yield averages 190 bushels per acre over the simulated cases, with the low yield being 105 bushels per acre (occurring in a year like 2012) and the high yield being 236 bushels per acre (occurring in a year like 2014). Figure 1 shows that scatter of yields and prices for the simulated years. Each dot represents a year's yield and MYA price combination. Two of these dots are denoted by year: 2014 and 2016. These two years represent the first and third highest yield over the entire time period. Overall, yields have been high in recent years in Illinois, tempering income declines that occurred because of low prices. The historical analysis suggests continuing high yields like those in 2014 and 2016 should not be expected.
As expected, higher yields generally are associated with lower prices (see Figure 1). Logan County is in the heart of the Corn Belt and high yielding years generally indicate high corn supplies, leading to lower prices. While strong, this relationship also is not certain. There are situations in which yields and prices are not as direct, particularly when yields are within 15 bushels of the 190 bushel mean. In these cases, a wide range of prices has occurred in the past, suggesting a wide range is possible in 2017 if yields are near normal.
The average crop revenue across the 42 simulated years is $691 per acre (see Table 1). The lowest crop revenue is $485 per acre and occurs in the simulated year like 2012. In this year, the yield is 105 bushels per acre and the MYA price is $4.62 per bushel. Crop revenues in the high end are slightly over $900 per acre and occur in a year like 2006. In this year, the simulated yield is 191 bushels per acre and MYA price is $4.81 per bushel. A dramatic increase in price occurred in 2006, mostly associated with the introduction of more corn use in the production of ethanol.
An 85% RP policy makes payments in 43% of the simulated years. Average crop insurance payments, including the years in which RP does not make payments, is $28 per acre (see Table 1).
ARC makes payments in 43% of the years, a higher percentage than many may be expecting (see Table 1). Two types of situations result in ARC payments. The first are very low-yielding years. Three years in which yields were well below trend in Logan County are 1988, 2005, and 2012. Simulated ARC payments for two of these three years are at the maximum of $66 per acre, with the other year at $54 per acre. The second type of year that results in ARC payments are when MYA prices are projected to be below $3.25 (1977, 1981, 1998, 1999, 2000, 2001, and 2008). The average ARC payment for the 42 simulated years, including years in which ARC does not make payments, is $22 per acre.
Average gross revenue is $741 per acre (see Table 1). There is, however, a considerable range in possible revenues. Revenues above $850 per acre are possible and occur in six years (1987, 1988, 2007, 2007, 2010, and 2012). In all these years, MYA price is above $4.00 per bushel.
There also are 35% of the years in which revenue is projected to be below $700 per acre, with the lowest revenue projected at $631 per acre. The combination of crop insurance and ARC provides a safety net so that gross revenues below $630 per acre do not occur. The red dots in Figure 1 show the yield and price combinations associated with revenue below $700 per acre. In those simulated years, yields are not exceptionally large or small, generally within 15 bushels of the expected yield of 190 bushels per acre. Prices tend to be below $3.50 per bushel.
Commentary and Summary
As always is the case before planting, there is a considerable range of possible revenues. This analysis indicates that a reasonable expectation for corn land with expected yield of 190 bushels per acre is gross revenue of $741 per acre, with a range of possible gross revenues from around $650 per acre to just over $900 per acre. Similar ranges could be found for a different farmland productivity. Adding or subtracting the difference in expected yield times $3.70 per bushel would give a ballpark range for revenues. If expected yield is 200 bushels per acre, 10 bushels higher than used here, expected revenue would increase by about $37 per acre to $778 per acre.
Central Illinois budgets suggest non-land costs of $530 per acre for corn. Adding a $240 cash rent results in a total cost of $770 per acre. Average gross revenues of $741 per acre are below those costs by $29 per acre. If gross revenue occurs at the high end of the range, corn production on central Illinois farmland will be profitable. On the other hand, revenues below $700 would result in losses. The historical analysis suggests the likely most likely scenario resulting in low gross revenue is when yields are within 15 bushels of normal and prices fall below $3.40 per bushel.
Actual revenues will depend on price and yield changes occurring this summer and fall. As always, planting progress, growing conditions, and demand changes will be of importance in determining revenues and incomes.
more, including tables, chart