Grain Angles: Soybeans try out new limits

April 11, 2008 03:06 pm

— The stakes get higher and the roller coaster ride is not any slower.
The planting intentions report is the first report of the new season. The report gives us numbers to work from but there is a lot to come. Actually getting the crop planted timely and a good growing season are as important. Can we hang on to trendline yields during the growing season will be the ultimate make or break factor in the fall.
The expanded trading limits will give the market more volatility. The first trading day the new limits were in effect the soybean market gave it a good run. The market did not quite hit the new limit on the down side but came close and did not close on the bottom that day.
The influence of the acreage report along with a large South American crop being harvested no doubt will lead to more days up and down. The corn planting season will have a big impact on soybean prices this year. The corn planting season is off to a slow start in the southern United States. Wet conditions are holding things up and it does not appear that the wet conditions will dry up soon. You could make a case for even less corn and acres and more soybeans.
The corn market did not take the new trading limits for a test run the first day they were in effect. The corn market continues to trade to the stronger side. The impact of fewer acres projected to be planted than 2007 and continued demand seem to be strong support. The planting delays in the south will be supportive also.
No matter what happens it will be important to hold trendline yields throughout the growing season. The market does not care where the corn comes from; it just knows that it will take 12 billion to 13 billion bushels of production to satisfy the current demand.
The use of a marketing plan is important in this type of market. It is important to have a plan that you can follow and refer to. It is difficult to keep this in your mind and know when to sell and how much to sell. We are faced with the fact that most grain companies are not buying grain into the future.
The volatility of the market has left companies not willing to take the risk of having to hedge and then make margin calls on that purchased grain. The capital requirements on grain have gotten extreme with many cases of having to margin $2 to $3 on corn and $5 to $6 on soybeans. Many producers have sold grain in multiple years so the grain buyer is trying to margin grain in those years also.
I have heard many suggesting that producers are now going to have to open hedge accounts and begin to hedge their own grain and take that task on. It is important to understand the margin requirements and what impact that has on the capital of a business.
The toughest part of marketing is knowing what the cost of production is. Costs have exploded which is making advanced sales in 2009 and beyond less attractive all the time. The rapidly rising cost of production forces advanced purchases of inputs in order to make sales. In many cases it will take the high commodity prices to cover the high cost of production.
This is a critical time to know your cost of production. The rules of the game we are playing have changed. It is critical to start to change the way we do business.

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