Corn producers in the United States harvested nearly 14 billion bushels in 2013, a record. But after several years of increasing prices due to growing world demand, a federal ethanol mandate, drought and other factors, farmers of corn, wheat, soybeans and other commodities might be looking at a much different market landscape in 2014.
The factors shaping price moves and the way farmers do business changes from year to year, which is why ag media publisher DTN-Progressive Farmer surveys producers each year at their Ag Summit in Chicago.
Producers from about 120 operations varying in size and crop focus responded to the survey this year about their plans for the 2014 marketing year. About two-thirds named weather or grain stocks as the biggest factor affecting markets today, with foreign demand coming in third. Despite a new farm bill and a major shift in the ethanol mandate, farm policy and biofuels were only the fifth and sixth top concerns for most Ag Summit attendees.
“I’m not too surprised at that response. It goes back to the fact that we’ll always be dealing with government, and with farm policy,” says Darin Newsom, senior market analyst for DTN-Progressive Farmer. “There’s a feeling that it’s going to be what it’s going to be. It’s not overly surprising that it’s supply and demand that is at the top of people’s minds.”
The price of corn has been nearly cut in half since July 2012, while wheat has dropped almost 40 percent and soybeans nearly 30 percent over that span. And it’s not only commodity prices that may be sinking. Some economists are predicting that with an end to corn’s high prices will come an end to the U.S. farmland boom.
Despite the potential change, respondents to the survey did not change their planting outlook much for 2014. On average, they plan to plant 3 percent fewer corn acres and 7 percent fewer wheat acres compared to last year’s survey responses.
Newsom says the response that surprised him most was that hedge funds were not more of a concern for farmers since commodity markets have shifted from market fundamentals in recent years. He expects traditional fundamentals to return in the coming growing season.
This return would come at a time with a greater focus on technology in grain marketing and information. Nearly 20 percent of survey respondents said they use grain tracking software as part of their operation. Seventy-eight percent said they use a smartphone as their primary way of accessing market prices, and 50 percent said they use a tablet.
Matched with a renewed focus on market fundamentals, Newsom says these are exciting times for agriculture.
“Software will be the next big thing in agriculture,” he says. “You will see more companies use these programs to manage grain inventories. We’re returning to fundamentals, but with all these modern tools, so it will be fascinating to watch.”
Grain inventories are increasingly staying on the farm, which may allow for greater use of tracking software. Seventy-six percent of those surveyed said on-farm storage and drying are a major part of their marketing plan.
“In years to come, we’ll continue to see more on-farm storage,” says Newsom. “Operations are getting larger, cutting out the middle man and going straight to grain terminals or ethanol plants. Producers take on more risk, but it gives them more flexibility.”
Producers seem to be embracing more flexibility in their hedging strategy as well. Of those polled, 53 percent are using futures (up from 47 percent in 2012) and 36 percent are using options (up from 34 percent in 2012) as part of their grain marketing plans.
Sixty-two percent said they would consider using short-dated options with lower premiums and 51 percent said they would consider using weekly options to protect against short term events like a sudden change in weather or a USDA report.
Newsom says such products are a natural evolution in grain marketing that help address the needs of many producers in an age of fast-moving data.
“We all know what happens on USDA report days. There can be these wild swings that if hedgers leave a position unchanged, it could damage their business. Producers are looking for any way to combat the situation around USDA reports and weather events.”