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Corn+Soybean Digest

Green Shoots

Is a “green shoot” in your marketing scope? Don Batie believes it's out there and he's counting on strong world demand for corn and soybeans to transform into targets for his crop sales.

Green shoots aren't just so-called environmentally friendly production or marketing plans. It's also a term for recovery from the economic doldrums. They're being determined by an age-old economic factor: supply and demand (S&D). And according to a major agricultural lending institution, a green shoot is growing in the grains and oilseeds market.

It may come as spikes in corn and bean markets, something that S&D has helped create since commodity trading was born. That has Batie confident in strong sales ahead.

The Lexington, NE, grower has a two-thirds corn, one-third soybean rotation on about 1,200 acres. His wife Barbara is part of the operation. They ran a small feedyard until about six years ago and marketed most of their crops through the cattle.

“When we stopped feeding cattle, I had to become a grain producer as well as a grain marketer,” says Batie. “Corn has been our bread-and-butter crop, but we're getting more into soybeans. I think world S&D situations will offer opportunities to make strong sales for both.”

WORLDWIDE S&D remains a major factor in price spikes up or down. “Fundamentals will always be the foundation (of commodity prices),” says Karol Aure-Flynn, executive director of Rabobank. “Current examples are drought in Argentina, demand in China, demand for edible oils in India. Population growth, increasing per capita income, urbanization and biofuels policy remain the demand drivers to overall global consumption.”

S&D was overshadowed by last year's mass of speculative fund buying that created a run-up in prices. Many growers failed to get much corn or beans marketed when prices were near their peak. But Batie saw enough danger signs to get sales made in the upper level based on S&D situations created by the fund fiasco.

“No one will tell you that S&D numbers seen in the middle of 2008 matched the prices we were seeing,” says Batie. “Demand was strong due to the surge in ethanol production because ethanol producers feared they would run out of corn. But demand was not enough to create $7+-bu. corn and $16-bu. beans.

“When prices were at their peak, we saw that demand had probably maxed out. That's when we sold half our 2009 corn and beans, using futures and put options.”

His correct reading of S&D helped him get corn marketed for an average of about $5.50, with a high of $6.90. He wasn't as aggressive with soybean sales, but still got beans marketed at $10+.

Batie uses a regional commodity broker/consultant, Ag West Commodities. He counts on a six-step marketing program. “In general, we start by buying put options on close to 100% of our expected production,” he says. “We then sell cash grain on defined rallies.

“We roll the puts up or down as the market allows. And if an option roll-up is allowed, we bring cash sales to a minimum of 25% of expected production. To offset the cash sales, we often sell put options in quantities equal to the amount of production sold in the cash market,” Batie adds. “We then consider ‘reowning’ bushels sold with call options.”

NOT ALL OF these steps are used in every situation, he says, but combinations of all help keep marketing as orderly as possible.

He is confident in high future sales, or green shoots, based on world S&D. “Demand for corn worldwide continues to rapidly expand for feed and industrial use (for ethanol),” he says. “China is expanding its livestock production and continues to feed soybeans. And there are a lot of hungry mouths to feed there and around the world. I see a demand-driven market.”

Bob Wisner, Iowa State University economist and professor emeritus, is as astute as anyone in gauging corn and bean marketing trends. He sees better near-term marketing conditions for soybeans than for corn.

“There's a good chance for some soybean profit potential the first two or three months after harvest,” says Wisner. “We're looking at a very sharp decline in supplies that started in late spring. There was more than an 800-million-bushel drop in the South American crop and that's our major source of competition in soybean markets. Supplies are going to be quite tight until their new crop is harvested next spring.”

HE SAYS GROWERS should consider on-farm or even off-farm bean storage to take advantage of the rally potential for beans. But he sees the recovery in corn markets slower to come due to a strapped livestock industry.

“I believe it's likely that the allowable ethanol blend for cars (and other gasoline-burning vehicles) will be raised, which should strengthen demand for corn to be processed into ethanol,” he says. “But the big question mark is going to be in livestock feed demand.

“The entire livestock industry has been in a severe cost-price squeeze. So it's likely that animal numbers are going to be reduced,” Wisner adds.

Melvin Brees, agricultural economist, University of Missouri Food and Agricultural Policy Research Institute, says S&D for soybeans and corn show the need for growers to be ready to take action when markets provide profit potential. “As long as China's appetite for soybeans remains strong, soybean exports should continue at high levels,” says Brees.

“However, South American production is likely to increase (after a poor year),” he says, “especially in Argentina where some expect a significant shift from wheat to soybeans in the coming year. This would provide strong export competition in the spring of 2010 and could limit final U.S. soybean export totals.”

Brees says USDA and FAPRI projections anticipate corn feed and residual use to increase in the year ahead. “While part of the increase is attributed to the residual category, increased distillers' grains from ethanol production and the economic squeeze on livestock producers may limit any gains in feed use,” he says. “Corn export forecasts seem reasonable since world coarse grain supplies have slipped somewhat, but these supplies are not short and it is possible that corn exports might or might not meet expectations.”

Rabobank says the “pockets of optimism” illustrate that supply concerns and planting issues have given way to marketing and input management. “This is the time for being disciplined about your marketing and remembering that revenues are only half of the equation,” says Aure-Flynn. Lower fertilizer prices have helped ease input pressure on production. And credit is available to qualified producers, she says.

Batie notes that even though he made early sales on corn and beans, he also locked in fertilizer prices at higher rates seen for the 2009 crop. But his philosophy of balancing sales with purchasing inputs ties into his ability to keep greed out of his span of emotions.

“Fear and greed drive the overall prices either too high or too low,” he says. “They usually don't match the fundamentals S&D will dictate.”

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