January 7, 2022
Out of all the USDA reports that are released during the year, the January World Agricultural Supply and Demand Estimates report is one of the most important.
Rated as one of the most volatile reports USDA issues, the agency will be giving us final production estimates for the 2021 crop and a measured estimate of annual demand and quarterly stocks, which traders can use to calculate the last quarter's usage. These are all important numbers that will dictate how sensational an acreage change or weather impact will be in the coming crop year.
Producers and end users will typically review all risk management plans prior to these reports. With prices now above $14.00 for beans and $6 for corn, it is in the producer's best interest to have the downside exposure of old crop inventories protected.
We have been advocating being protected with the upside open all winter. If you are not in this position, we highly suggest that you visit with one of our consultants or brokers to work out a strategy that fits your operation. The 2022 crop acreage will soon be planned on most farms, and it is not too early to be locking in a marketing strategy that eliminates potential financial stress.
Soybean acres and South American production
If the South American crops come through with good yields and we see a shift toward U.S. soybeans as a result of high fertilizer prices, it is possible carryover could be back to 600 million bushels.
The last time that happened we were trading at $8.50 beans. We are not suggesting beans will go to $8.50, as we believe there's a new inflationary price economic value we're trading. However, moving back towards $10 does not seem unrealistic if the U.S. farmers increase soybean acres and have good yields.
Contrasting this potential situation, if South America continues to experience adverse weather, total South American production could drop below 136 million metric tons. Then, demand will be shifted to the U.S. and could absorb a modest acreage shift. That situation would accentuate the need for good weather and yields in the United States. Market volatility could provide producers with even better pricing opportunities than what exists today.
Given the two-sided length of the volatility described in these scenarios, it makes good sense to have about 50% of the 2022 crop sold with 30% or more flexible with built-in option programs.
Keep an eye on corn supply
The situation in corn is most likely more neutral unless, once again, South American weather remains adverse into the key growing season of the Safrinha crop. With an expected decline in U.S. corn acres, any world reduction of supplies could sensationalize price potential of corn and could attract speculative dollars looking for an inflation hedge.
However, this does not mean a producer should gamble the farm. We continue to work with our consulting clients to test strategies that manage the risk properly for each farm and optimize the number of bushels required to accomplish profit targets.
A good way for you to get a fast analysis of the upcoming USDA report is to follow our research videos. You can do that by going to our website at www.AgMarket.Net, click on commentary and sign up for our reports.
You can also learn about the tools we use for risk management from Matt Bennett and see how we use charts for marketing signals from Brian Splitt by attending the Farm Futures Business Summit January 20-21 in Coralville, IA. Featuring industry experts and in-depth training sessions, it’s an opportunity to gain clear insights for a profitable future. Learn more and register here!
Matt and Brian will be happy to visit with you personally at the Summit, and it is a great way to see for yourself the tools we are using.
In the meantime, be prepared for these reports and feel free to call us 844-424-6758.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. AgMarket.Net is the Farm Division of John Stewart and Associates (JSA) based out of St Joe, MO and all futures and options trades are cleared through ADMIS in Chicago IL. This material has been prepared by an agent of JSA or a third party and is, or is in the nature of, a solicitation. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading information and advice is based on information taken from 3rd party sources that are believed to be reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades. The services provided by JSA may not be available in all jurisdictions. It is possible that the country in which you are a resident prohibits us from opening and maintaining an account for you.
The opinions of the author are not necessarily those of Farm Futures or Farm Progress.
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