Market adviser not 'a bear' on price outlooks
History suggests yield cutbacks after series of record years
Fond du Lac — When he analyzes the historical numbers, ratios, and trends, the Stewart Peterson Group's senior market advisor Bryan Doherty does “not support a bearish outlook” on prices for grain commodity crops, particularly corn, during the 2017 marketing year.
Speaking at the 2017 area soybean conference program, Doherty cited the stocks to use ratio as his key for providing an outlook on grain prices. Despite a predicted carryover of 2.355 billion bushels of corn in the United States at the start of the 2017 harvesting season, he pointed out that the stocks to use ratio would be only the 7th highest in history for the country while the world's stocks to use ratio would rank 9th on that scale.
Reasons for optimism
In the wake of record corn yields and an increase of 6 million harvested acres to a 2016 total of 94 million acres, Doherty observed that historical patterns do not support having another very high yield in 2017 after having had four consecutive years of high yields.
Although the United States holds only 38 percent of the world's corn market today compared to 67 percent as recently as 11 years ago, Doherty noted that both the sales and exports of the 2016 crop are running a bit above the volumes for 2015. He suggested that somewhat lower prices for corn are also stimulating more usage by several consumption sectors.
Doherty couldn't guarantee that the 10-year general upward run of the U.S. dollar has stopped, but it would be beneficial for export sales if it has. He pointed out that the value of the dollar typically has an inverse relation to commodity prices.
An upcoming unknown is what effect the Trump administration will have on trade policy and exports, Doherty continued. Brazil has emerged as a major new player on the world stage for corn while China holds 53 percent of the world's corn stocks today.
Price outlooks
With corn prices remaining below $4 per bushel for several months, Doherty looked to history to suggest that there is a 71 percent chance that futures prices would top $4 per bushel at some point by July of this year. If that happens, he advises owners of old crop corn to sell at above $4 per bushel.
In the year following one of record yields, that same data set shows an 80 percent chance that the price will hit $4 per bushel during at least one of the futures pricing months and a 69 percent chance that it would reach $4.50, Doherty indicated.
The statistics also show that January and February have a 57 percent chance of having the lowest corn prices of the year, Doherty reported. Those months are also the prime candidates for a 75 percent chance that the price could dip to $3.50 per bushel, he added.
Pricing for 2017 corn
As a guide for pricing direction, Doherty advises being aware of the participation of managed money funds in the market. “Follow the money,” he said.
Based on the late 2016 futures per bushel price ratios of 2.53 to 2.66 for soybeans to corn, Doherty believes this favors more soybean acres and less corn acres in 2017. He pointed out that many corn growers have not been able to cover their production costs in the past two or three years and that some of them are going to cut back on inputs, thereby probably reducing yields.
If futures prices stand at between $4.10 and $4.40 per bushel, Doherty advises growers to sell or place put options on one half of their anticipated 2017 production and to buy call options for the other half of that crop as a balanced approach to marketing.
As a best scenario, Doherty injected a thought of anticipating “a take off on corn prices. We haven't had one for a while.”
Even without a major price run, Doherty recalled what happened with corn prices in 2016 and how this affected grower/sellers who didn't have price protection in place. A $1 drop in futures prices within a span of 10 marketing days was worth a theoretical $15 billion to the economy of the corn secto.
Soybean scenario
There are also some reasons for optimism in the soybean market despite the projected August 31, 2017 carryover of 420 million bushels compared to 197 million bushels a year earlier, Doherty suggested. For both a domestic 10 percent stocks to usage ratio and a world ratio of 25 percent, both would rank only 5th highest on the all-time list, he pointed out.
Doherty cited the decision by managed money funds to stay in the market for protein products, including soybeans, as one reason for price optimism. He also noted soybean oil prices have been on an upward trend since July of 2016.
Client feedback
Based on his contacts with clients, 19 of 20 who had 2016 soybean yields of more than the 52.1 bushels per acre reported by the National Agricultural Statistics Service, Doherty wonders if the agency has been fiddling with the numbers for years in order to influence prices. He believes the 2016 soybean average yield per acre in the United States might have been 54 bushels.
As with corn, soybean yields per acre have been on the upside for four consecutive years, suggesting a down year might be ahead, Doherty remarked. Whatever the facts are about “climate change,” he quipped that the results for the past four years have been lots of weather that has been very beneficial for crop yields.
Based on yields reported by many of his clients around the country, Doherty calculated that they could expect a 2017 production value of more than $600 per acre with at a selling price of above $10 per bushel.
Keeping an eye on production in the southern hemisphere is another clue to the price outlook, Doherty pointed out. He mentioned the recent rainfalls of at least 10 inches during 30 days in 63 percent of Argentina at a time when many of its soybeans were flowering. Flooding forced some growers to decide if the would replant for a much shortened growing season.
Pricing prospects
The pricing history pattern for 2016 predicted a 60 percent of soybean futures at $11 per bushel – a number surpassed with a very brief $12 price, Doherty noted. For 2017, the data set offers a 43 percent chance of $11 futures in March, a 68 percent chance in July, and even a 71 percent chance of a $12 price at least once in the year following a record yield along with a 29 percent chance of a $9 price, he observed.
There's a 53 percent change of hitting a year's high futures price during the May through July period while January and February hold a 60 percent share of having the lowest price, Doherty added. But, given the $10.75 per bushel price in mid-January, he noted that pattern is not holding so far in 2017.
As with corn, Doherty encourages growers to sell or obtain price protection at between $10.25 and $11.25 per bushel for a major share of their anticipated 2017 production. “Use the right marketing tool at the right time,” he suggested.
Winter wheat woes
For winter wheat, an abundant world supply is keeping prices low and even creating a drag on corn prices, Doherty indicated. He said China, the European Union and Ukraine had large crops in 2016.
In the United States, where wheat prices are hovering in the $4s per bushel, not only is the condition of the new crop hurting in many areas but the planted acres of winter wheat for 2017 are the least since 1909, Doherty reported.
To contact Doherty, call 800334-9779 or go to www.stewart-peterson.com to obtain daily market updates and analysis.