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Pricing opportunities in futures available for major 2014 crops

May 6, 2014 | 0 comments


Although they have yet to plant their crops for 2014, growers of soybeans and corn should seriously consider price protection in the futures market, said agricultural commodity hedging and marketing specialist Robin Schmahl of AgDairy at the Extension Service's spring farm management update for agricultural professionals.

Schmahl referred specifically to the 2014 crop soybean futures prices of $12.40 per bushel "as a gift" from the investor funds that have stimulated the market in recent months because of what those investors perceived as low prices. "You need to contract for floor protection at those prices," he told growers.

Soybean pricing outlooks

Although a future price of over $12 per bushel is well below what soybean cash prices have been during much of the past two years, it compares favorably to the U.S. Department of Agriculture's prediction of a $9.65 per bushel average price for the upcoming crop and his own prediction of $10 per bushel.

Another element in the picture is the lowering of the 2014 futures prices that serve as the spring numbers for the starting value on crop insurance. The average prices from the February trading in the futures market for late in 2014 were $11.36 per bushel for soybeans and $4.62 for corn — down from $12.87 and $5.65 respectively in 2013.

With those prices, growers will have to rely on a combination of crop insurance and marketing strategies in order to protect their returns, Schmahl said. He emphasized that a strong export market, which is not a guarantee, is needed to boost soybean prices if the acreage and production outlooks prove to be close to accurate.

Acreages and yields

Schmahl is looking for 80.5 million acres of soybeans to be planted with a total yield of 3.42 billion bushels while the USDA is predicting 81.5 million acres and 3.25 billion bushels. With corn, the respective acreage and average cash price predictions are 94.3 million acres and $3.50 per bushel and 91.7 million acres and $3.90 per bushel.

In his analysis, Schmahl is projecting the higher number of corn acres because he believes the USDA tabulation fails to account to 8.1 million prevented planting acres — mainly of corn — that occurred in 2013, the 1.6 million acres coming out of the Conservation Reserve Program and a likely reduction of one million in cotton acres.

Prompted by attractive prices for the crop, corn growers have steadily been increasing the number of planted acres, he said. Many of the new acres are in the Dakotas as replacements for wheat acres.

Pricing factors

As with soybeans, relatively low prices for the December 2014 corn futures attracted outside speculative money to spur a price boost in the early months of 2014 — before any concerns arose about planting delays. The United States has enjoyed a strong export market for corn — a trend that should continue, he added.

For the remainder of 2014 and the marketing year of the year's corn crop (to August 31, 2015), there are plenty of unknowns and possibilities, Schmahl said. "So volatility could be significant."

It's possible that some volatility could be set off by the pace of the 2014 corn planting, which reached only 19 percent across the country by the last week of April and between 30 and 35 percent by the first week of May, he indicated. Those numbers don't register in Wisconsin, where there was virtually no planting by then, but Schmahl reminded his audience that 45 percent of the nation's corn was planted during one week in 2013.

Dairy outlook

With milk prices hitting record highs in the early months of 2014, including the all-time single month record high Class III milk cash price of $24.31 per hundred for April, dairy farmers have been paying off debt and upgrading their facilities, he said. "They're making good money now, renovating and expanding."

Those prices are encouraging more milk production and have boosted the prices of dairy heifers, Schmahl observed.

Although the nation's milk production always seems to increase, there has been somewhat of a change from the past two years in culling practices, he said. A higher rate of culling was spurred by the combination of very high feed prices and attractive market prices for the culled animals, but the record high milk prices and lower feed costs have reduced the culling rate.

The record volume of dairy product exports also fueled the record prices, but that strong upward trend is not likely to continue due to improved weather conditions and milk production in New Zealand and Australia and the European Union's upcoming discontinuation of production cap quotas, Schmahl pointed out.

Regarding dairy exports, he said "we have a good product, but we have to compete." He advised watching the world prices for dairy products, already on a decline, as one indication of where milk prices are headed.

Price prospects

In the past, AA butter served as the predictor of milk price trends, but nonfat dry milk played that role in 2013 and early 2014, Schmahl said. He noted that the recent drop of some 35 cents per pound in the price of block cheese is setting the stage for the shaving of several dollars per hundred from the Class III milk price.

Even with how much milk prices will fall due to a combination of a softening of export demand and the increases in milk production, they will still be relatively strong and be unlikely to have dairy farmers qualify for the new, but yet to be instituted, federal price insurance program on $4 to $8 per hundred margin protections on milk price over feed cost, he said.

In recent months, that margin has been as much as $15 per hundred. Even in the past several years, there were only a few months in which payments would have been made on that new margin insurance, he added.

At the moment, it's tough to make good choices on how to protect a milk price with futures or options contracts, Schmahl conceded. He likes a strategy based on puts and adjusting them as necessary by such amounts as $1.25 per hundred — a practice that avoids having to answer margin calls should prices head back upward.

For further information, Schmahl can be reached at 877-256-3253 or 920-894-4937 or by email at rschmahl@agdairy.com.

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