New Era Marketing 2015

Transcription

1 Know how. Know now. New Era Marketing 2015 It s Not A Game Anymore Using Seasonal Trends to improve returns

2 University of Nebraska Lincoln Know how. Know now.

3 Know how. Know now. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again. The image cannot be displayed. Your computer may not have enough memory to open the image, or the image may have been corrupted. Restart your computer, and then open the file again. If the red x still appears, you may have to delete the image and then insert it again. University of Nebraska Lincoln

4 University of Nebraska Lincoln Know how. Know now.

5 Know how. Know now. Why another grain marketing program? The grain marketing industry changed in the mid s University of Nebraska Lincoln

6 University of Nebraska Lincoln Know how. Know now.

7 Know how. Know now. What hasn t changed? University of Nebraska Lincoln

8 Know how. Know now. What else has changed? University of Nebraska Lincoln

9 Know how. Know now. Rules for Forward pricing: Purchase crop insurance stay within insurance coverage Estimate cost of production Sell in increments Know penalty for nonperformance Start slow, 20%-30% is enough if you have not done it before Utilize technical or fundamental triggers University of Nebraska Lincoln

10 Know how. Know now Non-Irrigated Corn Budget Non-Irrigated Soybean Budget Item Rate Price Total Seed 3 $ $86.79 Burndown $0.00 Pre Emerge-Degree Extra/qt $32.19 $11.17 Post Emergence-Roundup 22 $0.22 WM/oz $4.84 Additive/Speedway $16.51 $1.57 Nitrogen / pound 0.2 $ $83.00 Phos, /pound 100 $0.35 $42.66 Insecticide, Permethrin 4 $0.34 $1.38 Application, Dry fertilizer 1 $7.00 $7.00 Application, Spray 2 $6.25 $12.50 Agrotain $55.40 $11.63 Machinery cost $ Cash Rent $ Crop Insurance-80 % RV $18.84 Other $0.00 APH Yield 143 Owners share variable cost $0.00 Total variable cost $ Total Cost $ Cost / Bushel $4.42 Current Bid: basis -.30 $4.34 University of Nebraska Lincoln Item Rate Price Total Seed 1.25 $52.16 $65.20 Burndown-Roundup WM22 $0.22 $4.84 Authority/oz 0.21 $56.57 $11.88 Post Emergence-Roundup 22 WM/oz $0.22 $4.84 Additive $1.57 2,4-D 8 $0.17 $1.36 Phosphate, $0.35 $34.17 Insecticide $0.00 Application, dry fertilizer1 $7.00 $7.00 Application, spray 2 $6.25 $12.50 $0.00 Machine cost $ Cash rent $ Crop Insurance-70% RV $7.07 $0.00 APH Yield 53.5 Owners share variable cost $0.00 Total variable cost $ Total cost $ Cost / Bushel $9.35 Current Bid: basis -.65 $11.02

11 Goals

12 Date Goals Meet cash flow needs Operating Loan Rent Input Expenses

13 Price Goals Know how. Know now. How much can this crop contribute to your income this year? Market Outlook Cornhusker Economic Outlook Series Marketing Service USDA (July 10th WASDE) Wheat $4.75-$5.75 Corn $3.45-$4.05 Soybeans $8.50-$10.00 University of Nebraska Lincoln

14 Know how. Know now. Seasonality still in the market University of Nebraska Lincoln

15 Know how. Know now. Establish Price Objectives Source: Chris University Barron, AgWeb of Nebraska Lincoln

16 Price Goals: CORN % of Oct. 1 Price, % 120% 120% 120% 115% 110% [VALUE] 114% 109% 114% 105% 100% 95% OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

17 Price Goals: Soybeans % of OCT 1 Price, % 115% 118% 116% 110% 105% 100%? 95% 90% OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

18 Date Goals Meet cash flow needs Operating Loan Rent Input Expenses

19 Know how. Know now. $8.00 May Soybean futures $7.90 $7.80 $7.70 $7.60 $7.50 $7.40 $7.30 $7.20 University of Nebraska Lincoln

20 Know how. Know now DEAD CAT BOUNCE $11.00 $10.50 harvest low September cents higher 8.95 futures high $10.59 Nov13 35 cash bounce $8.71 $10.00 $9.50 $9.00 CASH HIGH $9.91 On December 9 $8.50 $ trading days cash rally $1.56 for the move University of Nebraska Lincoln

21 Know how. Know now DEAD CAT BOUNCE $14.00 $13.50 $13.00 $12.50 $12.00 $11.50 $11.00 University of Nebraska Lincoln

22 Know how. Know now. MAY SOYBEAN FUTURES $11.60 $11.40 $11.20 $11.00 $10.80 $10.60 $10.40 $10.20 $10.00 $9.80 $9.60 $9.40 $9.20 $9.00 $8.80 University of Nebraska Lincoln

23 Know how. Know now. NOV BEANS yr $8.50 $8.40 $8.30 $8.20 $8.10 $8.00 $7.90 $7.80 $7.70 $7.60 $7.50 University of Nebraska Lincoln

24 Know how. Know now. November beans $14.00 $13.50 $13.00 $12.50 $12.00 $11.50 University of Nebraska Lincoln

25 Know how. Know now. MARCH CORN FUTURES $4.70 $4.60 $4.50 $4.40 $4.30 $4.20 $4.10 $4.00 University of Nebraska Lincoln

26 Know how. Know now. DEC CORN $5.80 $5.70 $5.60 $5.50 $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 MONTH-TRADING DAY University of Nebraska Lincoln

27 Know how. Know now. December corn yr $3.70 $3.65 $3.60 $3.55 $3.50 $3.45 $3.40 $3.35 $3.30 $3.25 $3.20 University of Nebraska Lincoln

28 Know how. Know now. Always/Never Strategies Always forward contract corn May 1-$4.54 Never hold unpriced old crop corn past July 10 $3.85 Always sell soybeans September 9 Always track dead cat bounce September 1 through December 31 Never sell soybeans in February ($ $11.51) University of Nebraska Lincoln

29 Know how. Know now. Sources No dedicated fax number Newsletter $30US per year All charts and graphs available free on my website University of Nebraska Lincoln

30 Know how. Know now. marketing principles University of Nebraska Lincoln

31 Post-Harvest Marking Plan A post-harvest marketing plan is a written, proactive, strategic plan to sell your harvested grain. Plans should consider Cash flow needs Financial goals Storage capacity Farm logistics Risk appetite An effective weapon against emotional sales

32 GOALS

33 Price Goals Know your cost of production Establish your own breakeven UNL Crop Budgets Bank cash flows Know common commodity trends

34 Components of a good marketing plan Goals Price Date Strategies Marketing tools Decision guidelines Exit plan

35 MARCH CORN FUTURES, years $3.75 $3.70 $3.65 SPRING HIGH 4-7 WEATHER RALLY 6-14 FROST OR DROUGHT 8-17 $3.60 $3.55 EARLY SUMMER LOW 4-19 DEAD CAT BOUNCE 11-6 WINTER RECOVERY $3.50 $3.45 JULY LOW 7-16 $3.40 HARVEST LOW 10-1 $3.35

36 December Corn Year 1-May 1-Nov Difference Positive (1)/ Negative (0) data condensed to save space Count Higher 10 Count Lower 19 Average $ (0.18) Average Higher $ 0.58 Average Lower $ (0.57)

37 YEAR May 1 November 1 +/- Total Know how. Know now UP 7/ DOWN 13/ Average +.20 University of Nebraska Lincoln

38 Price Goals: Soybeans % of OCT 1 Price, % 115% 118% 116% 110% 105% 100% 95% 90% OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEP

39 May Soybean Futures $8.00 $7.90 $7.80 $7.70 $7.60 $7.50 $7.40 $7.30 $7.20

40 Soybeans Year 1-May 1-Oct Difference Positive (1) Negative (0) data condensed to save space Count Higher Count Lower Average (0.275) Average Higher $ 1.00 Average Lower $(1.01)

41 University of Nebraska Lincoln Know how. Know now. YEAR MAY 1 OCTOBER 1 +/- NET Average +.29

42 Price Goals Establish an average target price you are willing to sell at Average Target $3.50 Sell equal units at: $3.30, $3.40, $3.50, $3.60, $3.70

43 Date Goals Meet cash flow needs Operating Loan Rent Input Expenses

44 Storage Costs Variable costs Interest on money - Opportunity cost on money Fixed costs Shrinkage - Changes in weight from in and out bin Storage facility electricity, labor, etc. Other

45 BASIS Basis Transportation and handling costs to move product from current location to point of delivery Storage costs Expected supply & demand Cattle Supply & demand of transportation services Variations in grade Unavailability of substitutes Basis = Local Price Nearby Futures Price Source: Johnson, J., T. Holman and M. Stockton. Historical Crop Prices, Seasonal Patterns and Futures Basis for the Nebraska Panhandle

46 Local Price vs. Futures Price = BASIS Basis Transportation and handling costs to move product from current location to point of delivery Storage costs Supply & demand of transportation services Variations in grade Unavailability of substitutes Expected supply & demand Source: Johnson, J., T. Holman and M. Stockton. Historical Crop Prices, Seasonal Patterns and Futures Basis for the Nebraska Panhandle

47 Basis Map - Corn

48 Basis Map Soybeans

49 Local Price vs. Futures Price = BASIS Under Cash price is less than futures price Basis is Negative Local supply is abundant compared to perceived demand Over Cash price is above the futures price Basis is Positive Local supply limited compared to perceived demand Baldwin, E. Dean, Understanding and using basis grains

50 2014 Corn Basis Omaha Over Under Closest location to Blair & Freemont To view all corn locations visit

51 2014 Corn Basis Columbus Over Under To view all corn locations visit

52 Local Price vs. Futures Price = BASIS Strong Higher or less negative than expected Market IS demanding grain Perceived demand is higher than supply Weak Lower or more negative than expected Market is NOT demanding grain Perceived demand is lower than supply Image Source: Google Naomi L. Koffman, Mixed Media Artist

53 Expected Basis Omaha vs / /2 3/2 4/2 5/2 6/2 7/2 8/2 9/2 10/2 11/2 12/ year Average 2014 Closest location to Blair & Freemont To view all locations visit

54 Expected Basis Columbus vs /2 2/2 3/2 4/2 5/2 6/2 7/2 8/2 9/2 10/2 11/2 12/ year Average 2014 To view all locations visit

55 Carrying Charge Carrying charge price difference between futures contract delivery months Future Contract Current Contract = Carrying Charge

56 Carry Charge Needs to be larger than my storage cost But also, needs to cover my opportunity cost

57 Differences Between Contracts Small or negative carrying charge Negative also called Inverted Lower demand in the future Large carrying charge More demand in the future The carrying charge must be larger than your estimated storage costs for you to hold the product until the later date!

58 Historical Carrying Charge Corn, Oct. 1

59 Historical Carrying Charge Soybeans, Oct. 1

60 Market Signals STORE Large Carry SELL Small or Inverted Carry

61 Is the carrying charge large enough for me to Sell the Carry and continue to store my grain?

62 Hedge-to-Arrive Fixed Futures Seller sets the futures level on the contract date, but the basis level is determined by the seller at a later date. Expect Basis to strengthen Futures prices to decline Risk Basis until determined Prices may rise Futures + Set Basis = Contract Price. Source

63 Exit Strategies Price Set a minimum price, stop loss Date Have corn & soybeans sold by July Have wheat sold by January 5 year price suggests

64 Strategies - Review Track your basis Compare carrying charges to interest rate >140 store until the deferred contract <140 sell Have sold by Wheat January Corn & Soybeans July

65 QUESTIONS Extension is a Division of the Institute of Agriculture and Natural Resources at the University of Nebraska-Lincoln cooperating with the Counties and the U.S. Department of Agriculture. University of Nebraska-Lincoln Extension educational programs abide with the nondiscrimination policies of the University of Nebraska-Lincoln and the United States Department of Agriculture.

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