A good grain marketing plan that scales sales over the course of year, at times that are usually advantageous is a “hedge against stupidity,” says Texas AgriLife Extension economist Jason Johnson.
Johnson discussed grain marketing trends at the recent Texas Plant Production Association annual conference in College Station.
He said supply and demand remain important factors in grain prices but may not be more important than international issues, such as rising debt. He said ethanol continues to influence the price of corn as well as other commodities as crops “buy acreage” to maintain production.
Johnson said ethanol would continue to support the corn market as long as the renewable fuels mandate remains in place, regardless of the loss of the blender tax subsidy.
“Tight ending stocks,” Johnson said, “are they keys to grain prices. Ending stocks-to-use ratio that goes down from the previous year supports prices,” he said. “Scarcity brings out fear and greed.”
Both the U.S. and world ending stocks-to-use percentage is estimated to be down going into 2102, he said. “That supports prices into next year.”
Volatility, a constant factor in grain markets over the past decade, continues to influence profit potential. “In 2011 the range from the corn low to high price was $4 a bushel,” Johnson said. “That was the high price in recent years.”
Seasonal patterns show ups and downs in market prices, and weather scares, such as the 2011 drought, also affect markets.
He said wheat stocks at a 30 percent stocks to use is about equal to last year. “So the price is stable. Expect price movement only from buying acres. Look for rallies to do much pricing.”
He said soybean price increases also will come from buying acres.
Johnson said farmers no longer can look to a farm bill as their main safety net. “And that’s not going to get any better. Now, farmers are looking at crop insurance as a basic risk management tool.’
He said growers should look at crop insurance levels and guarantees to identify upside potential and then determine the best crop mix.
He said margin variability is a challenge for grain producers and input prices, as well as commodity prices, affect the bottom line. “Managing margins may be difficult. In some cases, rising input prices can eat up profit potential growers thought they had locked in earlier in the season.”
He said commodity prices are volatile but input prices, once up, take longer to come back down. “Input prices are a bit sticky,” he said.
Johnson expects oil prices to average $91.13 for 2012. He also noted that hay prices will push cattlemen’s production costs up significantly. “We saw a steep jump in hay prices in 2011. We even saw folks baling cotton stalks to feed cattle.”
He said risk management has become a key for success. “Successful farm operations are those that are able not only to produce reliable yields but also to do so while managing input prices and downside revenue risks. The integration of production, price and financial risk management tools is the logical foundation for establishing a farm safety net—once provided by the U.S. farm bill.”
He said real estate prices also increased, about 5.3 percent for Texas cropland, from 2010 to 2011. “In some areas we saw significant gains,” he said. Areas with extreme drought stress may have seen slight declines.
“Farm real estate values continue to be influenced by investors who view agricultural resources as a new asset class to diversify financial holdings.”