Post on 24-Feb-2016
description
US Crop Production, 2003Grain Mil. Ac Mil. buCorn 71.1 10,114Soybeans 72.3 2,418Wheat 52.8 2,336Sorghum 7.8 411Barley 4.7 276Oats 2.2 145
Corn 2002-03
Feed/Res53%
Food/Seed/ Industrial
22%
Carryover10%
Exports15%
Soybeans 2002-03
Crush55%Exports
35%
Carryover6%
Seed/feed/res.4%
Wheat 2002-03
Food37%
Exports35%
Carryover20%
Feed/Res.5%
Seed3%
Grain Marketing Channel Local elevators
– Grading, drying, some storage– First pricing point– Some processing (particularly feed)
Subterminal elevators– Concentrate grain for shipment– Limited storage– Purchase from local elevators
Grain Marketing Channel Terminal Elevators
– Processing – Exports
Export terminal elevators– Ocean port or seaway– Limited storage
Grain Pricing Central price discovery point for grain is the
commodity futures markets. Local markets price on a basis to the futures Basis accounts for
– Location: transportation and local supply and demand conditions
– Time: storage cost relative to a futures delivery– Form: type of grain, quality and condition
Grain Pricing Global supply and demand factor in
through the futures market daily Local prices based on futures through a
basis unique to each market Basis within a market impacted by local
conditions
Grain Pricing Central Iowa corn price and basis the last
week of Nov. 1989-98Price Basis– Average $2.27-$.42– Minimum $1.88-$.32– Maximum $2.93-$.53– Range $1.05$.21
Storage as a strategy Grain must be dry and stay in condition On farm or off farm Add time utility
Storage advantages Avoid harvest time low prices Avoid lines at elevator Increases marketing period Helps management of income for taxes Same storage cost for longer storage Allows quality control for livestock feed
Storage Disadvantages Extra handling of grain Demands extra attention to marketing Risk of grain going out of condition Added investment and tax (on farm) Must finance storage
Drying and conditioning grain Corn harvested at higher moisture than
can be safety stored– No. 2 corn is 15% moisture– Store at 13.5% moisture or less– Harvest losses increase as moisture declines
Storage and drying costs Harvest mid-October at 19.5% moisture Store until mid-May and sellHarvest price (15% moisture) $2.30Extra dry @ $.015/point x 6pts +0.09Storage (on-farm) $.01/month +0.07Interest @ 9.0% x 7/12 x $2.30 +0.12May price needed to breakeven $2.58
Seasonal Price Index for Corn and Soybeans
90%
92%
94%
96%
98%
100%
102%
104%
106%
108%
Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug
Corn Soybeans
Unhedged Storage Return, Beans, On-farm, 1979-80 Through 1997-98, N.C. Ia.
(0.15)(0.10)(0.05)0.000.050.100.15
1 2 3 4 5 6 7 8 9 10Months of Storage
$ Pe
r Bu.
, Net
0%
20%
40%
60%
80%
Net Return per bu.
% Of Years w/Pos.Returns
Unhedged Storage Return, Corn, On-farm, 1979-80 Through 1997-98, N. C. Ia.
-15-10-505
1015
1 2 3 4 5 6 7 8 9 10Months of Storage
Cent
s/ B
u. N
et
0%10%20%30%40%50%60%
Avg. Gain/Loss
% of Yrs w/Pos.Ret.
Storage: Times of Risk& Opportunity
Storage: Times of Risk& Opportunity
• Opportunity: U.S. Planting Season•• High Risk:High Risk:
Late February-early MarchLast-Half July Until U.S. HarvestLast-Half July Until U.S. Harvest
• Strategy: Sell Before Others Sell• Plan to Cover Cash Needs Ahead With
Cash or Contract Sale, or Futures
Storage: Times of Risk& Opportunity
Storage: Times of Risk& Opportunity
Storage: Times of Risk& Opportunity
• Opportunity: U.S. Planting Season•• High Risk:High Risk:
Late February-early MarchLast-Half July Until U.S. HarvestLast-Half July Until U.S. Harvest
• Strategy: Sell Before Others Sell• Plan to Cover Cash Needs Ahead With
Cash or Contract Sale, or Futures
Other Cash Grain Tools
Marketing loan Loan Deficiency Payment (LDP)
– Can use one or the other but not both
Marketing Loan USDA program started in 1996 16 crops including corn and soybeans Designed to help farmers market their crop
throughout the year without interfering with basic supply and demand forces
Loan rate set by USDA Grain serves a collateral Nine month maximum loan
Posted County Price (PCP) Is calculated daily for each county by
Farm Service Agency of the USDA Based the higher of the Kansas City or
New Orleans Gulf price Accounts for transportation back to
county
Marketing Loan Repaying the loan
– Prices > loan rate + accrued interest » repay loan + interest» sell the grain at the higher price
– Price < loan rate + accrued interest» repay loan at the PCP» keep difference (loan rate – PCP)» you still own the grain
– Nonrecourse» Deliver the grain and keep the loan payment
Loan deficiency payment Difference between the loan rate and PCP LDP is not repaid Must have ownership of grain Coordinate paperwork with FSA office Unless grain is sold or priced at the time the LDP is
collected the farmer is speculating on the price of the grain
High percent of 1999 corn and beans have taken the LDP
Marketing Loan or LDP ML is a free price floor (put option)
– Guaranteed minimum price (loan rate)– Sell at higher price less storage and interest
LDP has price risk– Hope for falling prices to maximize LDP– Then hope for rising prices to sell grain– Problem arise if markets fall after taking LDP