Corn, Soybeans and Wheat

1
Corn, Soybeans and Wheat

• Steven K. Riggins
• University of Kentucky
• Department of Agricultural Economics
• October 2003

2
Marketing Factors for Corn

• Best corn crop ever best yield, largest crop
• Record use projected lead by ethanol use
• Exports up from abysmal 02-03 season China
  Brazil will be factors
• World stocks will be small
• U.S. stocks will build the market should pay
  carry
• What will the seasonal price pattern look like?

3
U.S. Corn Yields
4
Cash Corn Price Ohio Valley
5
Corn Basis Ohio Valley
6
Corn Balance Sheet
7
Strategies for Corn

• Grain that can be stored sell the May now
  (2.30), expected basis 12, 2.42 in April v.s.
  2.15 now, take LDP between now Oct 25, 2003.
• If price is below loan rate, hold some corn in
  storage un-priced, take LDP buy at-the-money
  calls same day(May 2.30 _at_ 12 cents)
• If price is below loan rate, hold some corn in
  storage and use the 60 day lock-in procedure to
  capture LDP

8
Marketing Factors for Soybeans

• Much smaller crop than expected in mid-summer or
  even in September yield 14 below trend
• Soybean use curtailed due to small supply in U.S.
• U.S. exports down 2nd year in a row higher
  prices
• Global supplies use record large another
  record crop predicted out of South America next
  spring. Brazil to surpass U.S. Exports for first
  time
• World stocks about equal last years record, but
  less than expected in mid-summer
• No real carry in the market

9
U.S. Soybean Yields
10
Cash Soybean Prices Ohio Valley
11
Soybean Basis Ohio Valley
12
U.S., Brazil Argentine Soybean Production
13
Soybean Balance Sheet
14
Strategies for Soybeans

• Market high may have been on October 13 _at_ 7.40
  Anybodys guess
• Market is providing more incentive to store corn
  or wheat
• During rallies price in smaller quantities with
  larger price gaps

15
Market Factors for Wheat

• Much larger U.S. wheat crop than last year
• Foreign production reduced 4th year in a row
• Sharp reduction in expected wheat production in
  several countries in last two months
• U.S. export potential much improved, weekly rates
  must remain robust to maintain price
• U.S. ending stocks forecast up 142 m.bu
• U.S. wheat prices up significantly from harvest
  lows, but weaker recently
• New winter crop going into the ground under good
  conditions

16
Wheat balance Sheet
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Strategies for Wheat

• Price some for Jan Delivery near 3.50
• What about a vertical call spread? Sell May 04
  call-- 3.80 _at_ 11 cents, buy May 04 call-- 3.40
  _at_ 22 cents
• Be ready to price 2004 production on any
  additional rally
• Have 30-50 forward priced before July 04 hits
  3.25\