RECAPS
GRAIN
the growing season in the corn belt.
Another key weather market to monitor
near term is South America. Following some
early weather concerns for South America,
conditions for soybeans and first-crop corn
in Brazil have stabilized and production
estimates of both crops in Argentina were
recently increased by the USDA. Planting
of second crop corn in Brazil is just getting
started, however, and several factors make
weather conditions during the next several
months critical.
Double-crop corn production in Brazil
accounts for majority of country’s output.
Since South America planting began in September, there have been weather concerns
about corn and soybean crops in Brazil and
Argentina. Periods of dryness and wetness
have been noted along with warmer than
normal temperatures. Overall, however,
most production areas were near to wetter than normal since early December. Hot
weather has also been limited. With crop
potential stabilizing, production estimates
are rising.
As we move into mid-February, there is
one more key weather market to monitor
in South America. Planting of second crop
(safrinha) corn in Brazil follows harvest of
soybeans. Several factors make this year’s
growing season important for safrinha corn.
First, safrinha corn now accounts for about
two-thirds of the country’s corn output.
Second, the domestic price of corn in
Brazil has skyrocketed since the first of year
because of devaluation of the Brazilian currency. This could increase safrinha plantings
by 10 percent. Finally, this year’s soybean
harvest is late, which has delayed planting
of safrinha corn. That’s notable because the
rainy season in Brazil typically ends in late
April or early May. Over the past four years,
the rainy season has been extended, which
has helped contribute to record large crops.
If this year’s late planting of safrinha corn is
followed by a normal end to the rainy season
and/or adverse growing weather, yields may
decline sharply.
Alternatively, favorable weather (including another extended rain season) combined
with increased acreage may result in a bumper crop that would eventually compete with
U.S. origin in the world export market.
In summary, a global glut of feed grain
supply, large South American crop expectations and questionable demand for US feed
grains (specifically Chinese milo interest)
will challenge both futures and cash prices
at least near term. Uncertainties in upcoming planting progress and conditions in the
major corn belt together with unpredictable weather this growing season may add
volatility to markets which may also create
opportunities for more advantageous pricing. In light of that, I would highly recom-
mend the establishment of option based
price floors allowing you to set a worse case
price scenario while leaving upside pricing
opportunities open for more advantageous
markets. Although the floor established today may not provide the most desirable floor
for your operation, it is a floor and nothing
permanently setting your final pricing for
that commodity. The real question to ask
yourself would be if you’d feel worse losing option premium on a market rally that
allows you to set a profitable price on your
crop, or doing nothing and watching the
market drop significantly lower than today’s
values, creating an even bigger problem for
the viability of your operation.
Uncertainties in upcoming planting
progress and conditions in the major corn
belt together with unpredictable weather
this growing season may add volatility to
markets, which may also create opporunities
for more advantageous pricing.
19