Overview of Grain Marketing

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From BNSF
Econ. 338C Overview of Grain U.S. Global
Marketing
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• Major Marketing Functions
• Providing time utility
• Providing form utility
• Providing space utility
• Financing
• Price/value discovery

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Key work area for Grain Merchandisers
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Geographical Corn Price Differences
Early May 2003
3.26
2.22
2.22
2.18
2.95
2.45
2.48
2.34
2.97
3.09
2.53
3.72
2.39
2.54
3.06
2.44
2.82 Wheat
2.58
2.72
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Overview of Grain Marketing , cont.
Econ. 338 C Spring 2003

• All Activities from production to final user
  Marketing
• First receivers of grain-- elevators, processors,
  feedlots
• Pricing the grain to farmers
• Offering contracts
• Merchandising finding greatest value for the
  grain
• Economics of transportation
• Utilizing space efficiently
• Segregating specialty crops, non-GMO

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Countries requiring GMO labeling 4/04
Hungary Philippines
Brazil
U.K.

Greece

Italy
Belgium
Portugal
S. Korea
France
Spain
Japan
Netherlands
Sweden
Czech Rep.
Germany
Finland
Hungary
Luxembourg
Austria
Saudi Arabia
Switzerland
Poland
Japan
Denmark
Australia
Mexico
Ireland
New Zealand
Russia
Paraguay
China
Ethiopia

Slovenia
Thailand
South Africa
Sri Lanka
Taiwan Malaysia
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Overview of Grain Marketing, cont.

• First receivers of grain-- Continued
• Grading grain Official unofficial grades
• Grading standards BCFM, Test Wt., Damage,
  soybeans include splits, foreign material
• Risk-management hedging, using options
• Quality control and management
• Processors--soybeans
• Managing protecting processing margins
• hedging the crush, reverse crush positions
• Merchandising products
• Sourcing the soybeans

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Overview of Grain Marketing, cont. II

• Processors--Corn (ethanol, fructose, other)
• Cant hedge in margins, may protect via. forward
  contracts with users
• Sourcing the corn contracting with farmers
• Quality control
• Dynamic industry
• About 75 new plants are being planed
• Big firms Cargill ADM (wet milling) vs. dry
  milling Distillers grain solubles vs. corn
  gluten feed corn gluten meal)
• Avoid EU unapproved GMO corn

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Iowa Corn Processing Ethanol Plant Locations,
Actual Planned
2/05/05
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Est. Corn Available for Export, 2003 and Proj.
2008, Mil. Bu.
Proj. Proj. 03 08 I 08 II 207
114 91
Proj. Proj. 03 08 I 08 II
115 10 -19
Proj. Proj. 03 08 I 08 II 178
155 147
Proj. Proj. 03 08 I 08 II
167 123 105
Proj. Proj. 03 08 I 08 II 254
138 112
Proj. Proj. 03 08 I 08 II -
248 -296 -343
Proj. Proj. 03 08 I 08 II 102
106 106
Proj. Proj. 03 08 I 08 II -24
-35 -49
Proj. Proj. 03 08 I 08 II 51
55 55
Iowa Proj. Proj. 03 08 I 08 II 803
370 205
Key Assumption Corn acres _at_ 2004 level
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Basis for Corn, Iowa Counties
Late January to late February, 2005
Corn Basis (cents/bu) under near-by futures
-36.0 to -30.2
-30.2 to -28.7
-28.7 to -25.0
-25.0 to -21.6
Notes Underlined data indicates that no data
were available averages for surrounding counties
are reported.
-21.6 to -17.4
-17.4 to 0.0
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Corn Basis Under March Futures

• Northwest Iowa
• Feb. 2005 -0.260
• Feb. 2004 -0.213
• Feb. 2003 -0.178
• Feb. 2002 -0.276
• Feb. 2001 -0.335
• Feb. 2000 -0.362
• Feb. 1999 -0.320
• Avg. 1999-02 -0.323

• North Central Iowa
• Feb. 2005 -0.280
• Feb. 2004 -0.253
• Feb. 2002 -.0218
• Feb. 2001 -0.276
• Feb. 2000 -0.310
• Feb. 1999 -0.342
• Feb. 1999 -0.280
• Avg. 1999-02 -0.302

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Mil. Bu. Change in 2002 Corn Production
vs. 2001
11/12/02
32
255
-38
-16
34
45
240
-29
-212
-238
-160
-90
-43
-76
-17
-24
-101
-49

-49
-16
-3
-16
17
6
16
1
30
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Basis Implications!
U.S. -504 814 below 2001-02 utilization
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Overview of Grain Marketing

• River terminals
• Sourcing grain
• Hedging
• Quality control
• Blending
• Incoming outgoing transportation
• Barge freight rates un-regulated, can be locked
  in
• Seasonality
• Competitiveness with processors

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Useable Bin Size
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Overview of Grain Marketing

• Transportation
• Impacts farmers, elevators, processors,
  exporters, feedlots
• Large economies of scale Shuttle trains, 110
  cars of 110 tons each, used continuously
• Have 17 hours to load and move out
• Cost savings vs. 100 car trains, to Texas
  panhandle feedlots about 0.20 per bushel
• Volume handled each trip 432,000 bu. of corn or
  403,000 bushels of soybeans
• Basis competition impacts

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Overview of Grain Marketing

• Transportation
• Implications for elevator indust. Structure?
• Changing structure of production agriculture
  farmer transportation
• Trend toward larger farm operations, multiple
  farms, less on-farm storage
• Trend toward semi-trucks
• Need for fast receiving at elevators, processors
• Basis competition impacts, where farm storage
  is large

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Overview of Grain Marketing

• Port elevators
• Major grain exporting ports, corn soybeans
  Gulf, West Coast, Duluth, Chicago/N. Indiana
• Growth markets Latin America Canada
• Port elevator ownership Cargill, Japanese firms,
  Dryfus
• Quality control Federal inspection grading,
  sampling as loaded
• Wheat requires non-GMO certification
• Checking for unapproved GMO corn

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Useable Bin Size
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Cleaning Conveyer Systems
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Overview of Grain Marketing

• Importing port Wilmington, N.C.
• The world markets
• Major grain importing countries
• Import systems infrastructure
• Major grain exporting countries
• Ocean freight (N.Y. Journal of Commerce)
• GMO trends preferences
• Trends in foreign production use
• Trade agreements NAFTA, WTO, possible Latin
  American agreement
• Foreign inspection grading

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of years out of 30 that climatic conditions are
expected to support Asian soy rust
Estimated Asian Rust Risk
Only 2.7 mil. soy A. in highest-risk S.E. U.S.
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Overview of Grain Marketing

• World futures markets (Price Discovery)
• Chicagocorn, soft red wheat, soybeans, oats
• Kansas City hard red winter wheat
• Minneapolis hard spring and hard white wheat,
  Corn Soybean cash index markets
• New York Rice
• Tokyo GMO non-GMO soybeans, corn
• Various other futures markets Argentina, China,
  Europe
• Foreign exchange futures

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For March 24 Class

• Read Chapters 1 and 3 in Managing Risks and
  Profits
• Focus will be on evaluating corn and soybean
  producers financial risk bearing ability,
  break-even prices, and other financial
  considerations in developing a grain marketing
  plan