Prospective Plantings & Prices
Farm Business Management Update, April 2000
By Dave Kenyon
Farmers intend to plant more corn, soybeans, and cotton in 2000 compared to 1999. The largest increase is in cotton, with acreage up 4.7 percent nationally and 4.5 percent in Virginia. Soybean production increased one million acres as compared to 74.9 million acres. Corn acres will be up 450,000 acres, a big surprise. Most analysts expected corn acres to be down. Wheat acres are down as expected. Virginia wheat acres dropped 14 percent, down 40,000 acres from 1999. (See table).
What do these acreages mean for year 2000 prices? Using these planted acres and historical relationships (from Corn, Soybean, and Wheat Pricing Guides), highly tentative Supply and Demand tables have been developed for the 2000-2001 marketing year. Of course at this time, these balance sheets assume a lot about yield, exports, use etc. in 2000-2001. But based on these tables, the following strategies seem appropriate for the next several months. All these pricing strategies are influenced by the fact that the major production areas in the Midwest, Plains, and South remain extremely dry.
Corn. With normal yields and the increased acreage, ending stocks will decline, improving price prospects. In recent weeks, December 2000 futures have traded up to $2.64. With current weather conditions, pricing 25 percent of 2000 production at $2.65-2.70 seems advisable. Remember, $2.70 December futures is in the top 1/3 of prices for the last 20 years. Producers could sell up to 50 percent at $2.70, but given current weather prospects, such a strategy should include buying an out-of-the money call option to protect against higher prices caused by a drought.
Soybeans. Acreage and stocks were expected to increase. If the current poor weather doesn't continue, prices will be substantially lower in the fall. November futures are currently trading at $5.50 -5.60 area. With normal yields, November futures might trade back down to $4.85 by harvest. Producers should consider selling 50 percent of expected production at current prices and buying a $5.75 call to protect against higher prices should the drought worsen. The possibility of lower prices at harvest are substantial.
Wheat. Wheat acres were less than expected with a decline in spring planted wheat. Ending stocks will decline if yields are 40 bushels or less. July wheat futures reached $2.95 in February, the previously recommended level to sell 25-50 percent of expected production. Do not price wheat at current prices. With any weather problems, July wheat should trade back to above $2.80. At that price, sell at least 25 percent of expected production. Price up to 50 percent at $2.95 or higher.
Cotton. Producers intend to plant 15.56 million acres in 2000, a 4.5 percent increase from last year. With normal yields, ending stocks will increase one million bales. Ending stocks as a percent of use could reach 34.1 percent. The previous high was 30.2 percent in 92-93 when average cash cotton prices were 55¢/lb. The ending stock model forecasts average cash prices of 53¢ for 2000/2001. Producers should continue to aggressively forward price cotton above 60¢. Hopefully many producers sold cotton at 62-64¢ in March based on previous advice.
All these recommendations are based on normal yields and no large changes in expected demand. Several USDA reports will help clarify the supply and demand picture for 2000/2001. The first USDA supply and demand table for 2000/2001 will be published on May 12. On June 30, actual acreage planted will be released, and on July 12, yield estimates based on surveys will be released. The supply and demand tables can be used to estimate the potential impact of yield changes on price. Given the current drought conditions, producers will need to monitor weather conditions more carefully this year.
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