Frick Services March ’17 Grain Commentary

Below is the grain market thoughts from one of our Dealers in Northern Indiana.  Contact a local Frick Services facility for more information.  Grain and fertilizer locations include Wawaka, Wyatt, and Leiters Ford Indiana with a fertilizer location in Larwill Indiana also.

For the past few years production agriculture has operated in a market environment that has seen prices pressured by not just adequate, but at times abundant supply. This supply resulted from good production years back to back in both North America and South America. With a comfortable cushion for both US and World supplies any market rally has been capped fairly quickly, with times that prices have been quite low, I.E. low $3’s for corn and mid $9’s for beans. There have been times, opportunities to sell at good levels, and many of you took advantage of those times. But the supply cushion brought prices back down each time to the lower levels.

 

The market during this period has remained focused on large supplies, and has traded as such.  US projected corn carryout this year of 2.0 to 2.3 billion bushels, bean carryout projected at 350 to 420 million bushels. South America has great crops this year, they are in the middle of their harvest. And with each day of their harvest predictions are made of higher production, especially in Brazil. These production numbers continue to support the market focus on large supplies, and the market struggles to move stronger. However, given the large supplies one has to ask why we have not seen a collapse in prices, I.E. corn with a $2 in front and beans with a $8 in front.

 

I think an answer to the above question is that although we have a significant supply cushion, we are also in a time where demand is at all time highs, and shows no sign of backing off. The underlying demand support to prices, I think, is significant. Consider the following demand factors:

  1. Ethanol production is running at capacity , any excess production over the blend wall is exported without trouble.
  2. US exports are the strongest they have been in several years, US corn is still 30 to 40 cents/bushel cheaper than Brazil to most world markets. This will narrow as Brazil harvests their corn crop but it is an indication of our position in the world market right now.
  3. World corn demand is 2.5 billion bushels greater than last year, yes that number is correct. That would represent an increase in world demand that is 17 to 18% of what we produced last year.
  4. World bean demand is 600 million bushels greater than last year.
  5. ‘17/’18 world corn use is projected to be greater than production for the first time in 8 years.
  6. In 2016 both corn and beans had record use in both the US and the World.

There are other demand factors that are also indications of a strong underlying support to the markets.

 

There certainly are headwinds, and one can not expect the market to explode upwards with the supply cushion we have. The headwinds include a stronger US $ than we have seen in years, great crops in S America that will take over supplying much of the export market, and again the supply cushion from the past few years of good production. A disruption in supply in one of the major production areas would definitely give the market a jolt however.

 

How do you market in this environment, an environment in which there is enough supply cushion right now to limit upward market moves, yet one which has such strong demand that markets are still going to move higher at times.

  1. First don’t always go for the home run. Be satisfied with selling a % of your anticipated production whenever prices get to levels that work for you. Don’t look back, and be ready to make another sale when the price is good for you.
  2. Use offers. Offers take some of the emotion out of marketing, and with the hours that markets trade now, offers can be filled at odd times.
  3. Expand your marketing tools to use options. Options are not easily understood and before you use them make sure you know what you are doing. We will be glad to discuss them with you and help you understand them. My rule with any grower is I will not trade them for him unless I am certain that grower understands what he is doing with the option trade. But if used properly options can be a great tool for setting a floor price and leaving you with upside potential.

Mar, 08, 2017

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