Partners : Grain Market Update: Jan. 6

January 06, 2016

ARE YOU PREPARED?

On Tuesday, January 12, the USDA will release their latest World Agriculture Supply and Demand Estimate (WASDE). This report is generally thought to be the final word on U.S. acreage and yield from the previous harvest. There will be adjustments on the demand side throughout the balance of the crop year, but for the most part, production numbers will be locked in, barring any errors. As discussed previously, domestic demand is already at or near record levels for both corn and beans. In my opinion, without any significant positive changes to export demand, we will most likely be in this continued slow grind, range bound market for a while.

That said, here is some information regarding the last few years' reaction to the January USDA report:

Historical Market Reactions to the USDA Report

The below chart shows historical reactions after the January USDA report comes out for the years 2009 through 2015. These movements are based on the market close from the day prior to the report through the day after the report.

As you can see, this report is typically a market mover:

• March corn has averaged a 34 cent move in the last seven years
• Although December corn has been less volatile, it has still averaged a 21. 4 cent move in the last 7 years
• Beans have had even bigger swings with an average move of 42 cents on March beans and 29.5 cents on November beans

So, the real question is: Are you prepared for what comes next week? By now, most of you have a pretty good handle on your cost of production from 2015. What are your plans for your unsold bushels? Would you like to put some protection on those bushels, or just wait it out? Regardless of your personal bias on the market, whether bullish, bearish or more middle of the road, we have risk management programs that are tailored to your outlook. Contact your local grain buyer for more information.

Finally, we've heard from a few people that are considering sealing their grain in order to generate some cash flow. If this is something you are considering doing with grain in the elevator, I'd like to point out an alternative that will generate more cash flow AND stop your storage. For example, let's look at locking in the basis on corn in Albert City. We're currently paying 28 under the March board. With a 75% advance, you'd generate around $2.40 per bushel (less any accrued storage charges). On the other hand, if you want to seal corn that is already in the elevator, it has to be put on a Warehouse Receipt at 14% moisture vs. 15%. Plus, you need to pre-pay an additional 9 months worth of storage. Using the Buena Vista County loan rate of $1.88 less 9 months of storage, you'd generate less than $1.50 of cash flow (less any accrued storage). In either situation, you're still exposed to changes in the futures market. So, if you are just trying to generate some cash flow, locking in the basis is a much better alternative. The basis can be set against the March, May or July futures using the current spreads. If you were to lock it in against the July, in this example, you'd be 40 under the July, and have until the end of June to price the futures portion. Again, for complete details, contact your local grain buyer.

-Tom Guinan, Ag Partners Grain Origination Manager