Market ready to move quickly in either direction, Hart says
DUNCAN, Iowa — Iowa State University Extension grain marketing economist Chad Hart sees corn and soybean markets ready to move quickly in either direction.
He told farmers attending the recent ISU Northern Research Farm annual meeting at the Duncan Hall in Duncan that dry soils remain a concern in the Southeast as well as in Iowa and Minnesota. A growing likelihood that La Nina could flip to El Nino and bring rain and above trend-line yields for the country.
"The market is pricing as if it doesn’t know what it will be," Hart said. "It could be boom or it could be bust. It could be staring at $7 to $8 corn or $3.50 corn, and right now it’s splitting the difference at $5.50. The market is highly volatile and ready to move on a dime. At least we’re seeing prices that are at profitable levels. As crop producers, we’re in pretty good shape. We can handle the volatility. We’ve got a profit margin because we need production. Demand has been outrunning supply the last couple years. This market is looking for long-term production."
General economic conditions are a concern, with continued worldwide economic recovery a major key for crop prices, Hart said. U.S. job recovery and European financial concerns weigh on the economy as do worries about China’s economy. China has been exporting huge amounts of soybeans and has bought corn as well.
"We’ve got that pressing down on the market," Hart said.
At the same time= supply and demand concerns exyst. Worries about dry conditions exist in both South America and the United States. Biofuel growth and energy demand have been strong, but will that continue? Corn currently has the upper hand in the acreage competition with soybeans.
"Right now the risk is in your favor,'' Hart said. "You have ways to manage the risk."
Crop insurance is an important tool. Hart encouraged farmers to look at options to set a price floor above production costs.
"Now is one of the few times in the last four years that you could lock in a floor that guaranteed well-above production costs," Hart said. "You’re in a good spot but don’t let it slip away."
For the 2011 to 2012 marketing year, USDA is projecting season average prices of $6.20 for corn and $11.70 for soybeans. Season average prices based on futures as of March 7 were $5.96 on corn and $12.10 on soybeans. For the 2012 to 2013 marketing year, season average prices based on futures as of March 7 were $5.42 and $12.41.
After USDA’s March 9 supply and demand estimates, Hart said traders were expecting USDA to tighten up corn and soybean supplies as planting season nears, based on thoughts of higher than expected ethanol production and recent increases in soybean exports.
"But neither of these demands was changed in the report," Hart said. "U.S. corn supply and use remained as it was projected last month, with 2011 to 2012 ending stocks at 801 million bushels. U.S. soybean supply and use also remained as it was projected at 2011 to 2012 ending stocks of 275 million bushels. The only substantive change domestically was the midpoint of the soybean season-average price, now at $12 per bushel, up 30 cents from last month."
Internationally, numbers were mixed, Hart said. Corn production in Brazil was raised about 40 million bushels, based on improving conditions for the second corn crop. World corn production was raised about 37 million bushels. For soybeans, the South American crop continued to shrink. Argentina’s production was lowered 48 million bushels and Brazil’s production was reduced by 129 million bushels. While the U.S. soybean situation did not tighten, the world situation did.