2017 Hypothetical Revenue Projections for Corn

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

In my September market update, I discussed some modeled revenue projections based on the WASDE numbers and projected yield (169 bu/acre) as well as some analyst estimates (167) and what yield it would take (163.5) to get prices back to $4/bu.

To supplement that analysis I have put together a hypothetical budget for corn based on University of Missouri extension estimates.

Using this spreadsheet I could make revenue projections for the three different yield and national average price projections assuming on farm yields of 200 bu/acre for a 2,000 acre operation:

Projected National Yield:	169.9	167	163.5
Projected Stocks to Use:	16.40%	14.70%	12.65%
Projected Price:	3.36	3.62	4.04
Revenue-Returns to Labor:	$44,000.00	$148,000.00	$316,000.00

Bear in mind this does not consider basis or specific marketing strategies and crop insurance tools that many producers may be using. However it gives an idea, based on the cost, yield, and price assumptions, the revenue implications that this can have for producers.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

EU Court Rules in Favor of GMOs

EU Court Rules in Favor of GMOs

"From a scientific standpoint, today's ECJ ruling is a comforting one. The Court's decision reverses the 'precautionary principle,' which has been the EU's longstanding default argument that, in the absence of proof that a product is absolutely safe, unverified concerns about its safety are sufficient to ban either importation or cultivation," says Ron Moore, ASA president and farmer in Illinois. "Unfortunately for the last 20 years, this unscientific approach has given rise to an equally unscientific patchwork of restrictions or prohibitions on EU imports and cultivation of biotech crops by member states"


http://www.agweb.com/article/eu-court-rules-in-favor-of-gmos-NAA-sonja-begemann/

(Via AgWeb)

2016-17 Corn Marketing Scenario

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Corn Production 2016-17 Marketing Plan September 23, 2017

A: 9/23/17 Harvested grain previously hedged with December futures at 3.99/bu. Bought back December futures at 3.53 and sold cash (-.25 basis) at 3.28 giving a net price of $3.74/bu

B: Sold December futures at 3.53/bu to hedge next 25% of crop to be repurchased and sold on cash in December.

C: Will store next 12.5% of crop unhedged and priced with a .33/bu cost of carry (to July) and sell on a rally.

this will leave at least a portion of the crop at risk but in a position to take advantage of a rally in the cash or futures market.

D: Will store last 12.5% of crop hedged with a 9/23/17 July futures hedge at 3.81/bu and .33 cost of carry.

Reasoning for Futures Hedges:

Fundamentals: WASDE yield estimates of 169/bu indicates a projected price bottom of 3.36/bu with some analyst projects of 167 bu/acre national average capping the projected price around 3.62. This price range does not indicate huge opportunities for big rallies and some potential risk for more loss of value. 

Technicals: Although there seems to be a slight uptrend toward the fundamental cap around 3.62 in the weekly chart, with ADX < 20, RSI 46 indicating neither overbought or oversold, volume and open interest plunging don't indicate additional momentum for moves higher. The MACD also has been trending bearish. In the monthly chart, for the last 2 years prices have been trading in a channel with support and resistance very close to the fundamental levels of 3.36 and 3.62. 

Given both technical and fundamental indicators aren't reassuring of higher prices + expected post harvest lows, sales and futures hedges + storage made the most sense.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

GMOs and Fractional Reserve Banking

I recall a few years back being part of a Facebook discussion group supposedly dedicated to 'food and farm freedom.' In general discussion was related to reducing taxes and government regulation in agricultural production. However, there was a lot of anti-tech anti-biotech anti-corporate sentiment. The idea was that big business (like biotech companies) were conspiring with big government to control the food supply. The solution was...wait for it...more government regulation. Never mind this was a libertarian focused group and never mind that existing biotech regulations make production and release of biotech varieties 20x costlier than conventional crops despite being substantially equivalent in terms of risk (of course in-plant pesticides might necessarily require additional testing from an environmental standpoint).  So here was a free market discussion group with discussants arguing against government regulation of raw milk but calling for more stringent regulations if not actually banning biotech crops and other modern technologies in the name of safety and food access.

Changing subjects, recently George Selgin wrote an interesting piece regarding fractional reserve banking. Anyone familiar with libertarian and especially some Austrian leaning thinkers might have an idea of how much some abhor fractional reserve banking. The piece is a rather long historical look at fractional reserve banking and common law traditions going back a few centuries. But toward the end he notes:

"by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary banking transactions, the myth that fractional reserve banking is inherently fraudulent strengthens the hand of officials and others who want to hamstring bankers for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise."

I could not have put it better concerning raw milk drinking libertarians opposed to biotechnology:

by encouraging people who might otherwise be inclined to oppose heavy-handed government regulation of private industries to favor, on ethical grounds, the outright prohibition of many ordinary modern agricultural practices the myth that modern agriculture is inherently harmful or unsustainable strengthens the hand of officials and others who want to hamstring producers and others in the ag industry for quite different, but equally unsound, reasons, not excluding a general dislike of free enterprise.


References:

The "Bagging Rule" – Or Why We Shouldn't Arrest (All) the Bankers

BY GEORGE SELGIN SEPTEMBER 6, 2017 https://www.alt-m.org/2017/09/06/the-bagging-rule-or-why-we-shouldnt-arrest-all-the-bankers/

Henry Miller and Gregory Conko. 'Bootleggers and Biotechs.' Regulation. Summer 2003

September 16, 2017 Market Commentary (Corn)

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****  

Back in July I wrote:

"prices picked up through the July 4th holiday (following USDA acreage reports) with a 12 month and year to date high on July 11th at 4.17. Much of this was reaction to weather vs fundamentals in those reports.

However, interest and volume were not at the elevated levels we saw back during the June high of 4.09. Also, the RSI was near 70 on the 10th and 11th approaching levels giving a potential technical indication of being overbought. This of course may just be the kind of volatility we expect in a weather market while  there is probably somewhat firm fundamental support based on the late plantings, replants, and current crop conditions and lack of uniformity in the crop progress across the corn belt compounding the uncertainty about weather."

I'm not a technician but the market has been downhill since then. USDA has continued to release disappointing WASDE reports indicating strong yields despite the early spring fundamentals and crop conditions being less than stellar across key cornbelt states. Current good to excellent ratings for corn are at 61% vs. 74% a year ago. Additionally the crop is behind, with 75% denting vs 81% 2012-16 average and  21% mature vs 31% 2012-16 average.

The latest WASDE report  actually raised the national average corn yield slightly to 169.9 bushels per acre, and based on estimated planted and harvested acres and usage gives an ending stocks to use ratio of about 16.4%. While not a record yield this would be one of the best (2nd best) yields in the last 5 years. Current December futures puts price just above $3.54/bushel with some carry going  into March and May at 3.67/3.75/bu.

Many producers and analysts are having a hard time taking these numbers to the bank. But industry analysts on average are putting yields in the 165-167 bushel range. These alone are not entirely favorable for price conditions.

Year	Stocks to Use	Price	Yield
2012	0.0740774159	6.89	123.1
2013	0.0915712799	4.46	158.1
2014	0.1259092232	3.7	171
2015	0.1271223653	3.61	168.4
2016	0.1873713109	3.45	174.6

My basic projections based on this data implies that to get any where near $4/bu, taking all other USDA estimates on usage and harvested acres, corn yields need to be in the 163-164 bu/acre range. More complicated estimates and some adjustments with the usage numbers may be a little friendlier.

Projected Yield:	169.9	167	163.5
Projected Stocks to Use:	16.40%	14.70%	12.65%
Projected Price:	3.36	3.62	4.04

Things to look forward to might be technical indicators for an upward trend in price, as well as fundamentals related to actual harvested acres and yields once more progress is made in key corn producing states and those on the outlying areas that have seen better crop and growing conditions.

***This commentary is provided for descriptive and entertainment purposes only and is not intended to be used for specific trading strategies or interpreted to be investment advice. *****