grain&cotton outlook jan 7 2013

7/30/2019 Grain&Cotton Outlook Jan 7 2013

1/49

Presented By:

DeDe JonesExtension Program Specialist III

Risk Management

2013 CommodityMarket Outlook


2/49

Tight corn supplies has lead toelevated prices in the short term.

Sustainable?? Higher wheat revenues are due

to a strong corn market andgrain substitutions.

Rising feed costs combined withdrought conditions has resultedin critically low cattle inventories,thus resulting in elevated prices.

Increased production from recentmarket strength combined withweakening demand suggestsstatic to falling cotton prices.

Pumping ethanol from corn in 1933

Commodity MarketOverview


3/49

World Days of Use on Hand, 11/9/2012

50

83

62

0

20

40

60

80

100

120

140

Days of Use 20-yr avg 10-yr avg

85

73

83

0

20

40

60

80

100

120

140


94

106

92

0

20

4060

80

100

120

140


80

99

75

0

20

40

60

80

100

120

140


Corn

RiceWheat

Soybeans


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CornOutlook


5/49

Marketing Year Average Corn Prices

0.460.78

1.29

2.38

5.175.72

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1866

1869

1872

1875

1878

1881

1884

1887

1890

1893

1896

1899

1902

1905

1908

1911

1914

1917

1920

1923

1926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

SAFP Pre WWI WWI to WWII Post WWII

World Trade Biofuel Era Dec '13 Futures

$/bu

Price changes due to a change in demand are usually sustained for longer periods of time.

Price changes due to a change in supply are usually short lived.


6/49

U.S. Corn: Disappearance, 12/11/2012

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

80/81

81/82

82/83

83/84

84/85

85/86

86/87

87/88

88/89

89/90

90/91

91/92

92/93

93/94

94/95

95/96

96/97

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98/99

99/00

00/01

01/02

02/03

03/04

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/12

12/13

Million Bushels

Feed & Residual

Exports

Food Seed Industrial

Source: USDA WASDE

Fuel

Ending Stocks


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Feed Use

0.0

0.5

1.0

1.5

2.0

2.5

0

10

20

30

40

50

60

70

80

90

100

Dairy Cattle on Feed Other CattleHogs Poultry Other LivestockFeed per GCAU Plus DDGs

GCAU mil mt/GCAU

USDA Feed Grain Database and Agricultural Marketing Resource Center, December 3, 2012

Since 2007, energy feed per GCAU has gonefrom 1.74 mt to 1.48 mt (-19%)


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JULY 1 FEEDER CATTLE SUPPLIESResidual, Outside Feedlots, U.S.

30

35

40

45

50

55

1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Mil. Head
http://agrilifecdn.tamu.edu/communications/files/2012/08/TAMAgEXT.png


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http://agrilifecdn.tamu.edu/communications/files/2012/08/TAMAgEXT.png


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U.S. Ethanol Consumption

600

700

800

900

1,000

1,100

1,200

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2010 2011 2012

Mil gallons

EIA, Short Term Energy Outlook, December 11, 2012http://www.eia.gov/


11/49


12/49

U.S. Corn Export SalesCommitments, 2012/2013 MY

0

200

400

600

800

1,000

1,200

Mil bu

Weekly Net Sales

Cumulative Net Sales

Sales as of December 27, 2012


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U.S. Export Share: Corn Production

0

100

200

300

400

500

600

1960/1961

1961/1962

1962/1963

1963/1964

1964/1965

1965/1966

1966/1967

1967/1968

1968/1969

1969/1970

1970/1971

1971/1972

1972/1973

1973/1974

1974/1975

1975/1976

1976/1977

1977/1978

1978/1979

1979/1980

1980/1981

1981/1982

1982/1983

1983/1984

1984/1985

1985/1986

1986/1987

1987/1988

1988/1989

1989/1990

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

1998/1999

1999/2000

2000/2001

2001/2002

2002/2003

2003/2004

2004/2005

2005/2006

2006/2007

2007/2008

2008/2009

2009/2010

2010/2011

2011/2012

2012/2013

US Foreign

mmt

USDA Foreign Agricultural Service, PSD 11/12/2012


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U.S. Corn Yield

0

20

40

60

80

100

120

140

160

180

1866

1870

1874

1878

1882

1886

1890

1894

1898

1902

1906

1910

1914

1918

1922

1926

1930

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010


15/49

Percentage Change in U.S. Corn Yields

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

1866

1870

1874

1878

1882

1886

1890

1894

1898

1902

1906

1910

1914

1918

1922

1926

1930

1934

1938

1942

1946

1950

1954

1958

1962

1966

1970

1974

1978

1982

1986

1990

1994

1998

2002

2006

2010

92-94 07-09 10-12


16/49

Corn Yield, % Deviation From Trend

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012p

2013e

Total corn use in years following short crop:

+13% +17% +5% +7% +17%


17/49

U.S. Corn Yields

122.0

157.2149.1

60

80

100

120

140

160

180

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012p

2013

Yield Trend 10-yr avg

Bushels per acre

WASDE, 12/11/2012


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U.S. Corn Supply and Demand

12.8% 13.9% 13.1%

8.6% 7.9%5.8%

11.0%

0%

10%

20%

30%

40%

50%

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14e

Ending Stocks Production

Domestic Use and Exports Stocks:Use

Mil bu

Source: WASDE 12/11/12 and personal estimate


19/49

December Corn Futures and 2013 Marketing Plan

500

550

600

650

700

750

9/4/2012

9/14/2012

9/26/2012

10/8/2012

10/18/2012

10/30/2012

11/9/2012

11/21/2012

12/4/2012

12/14/2012

12/27/2012

1/9/2013

1/22/2013

2/1/2013

2/9/2013

2/17/2013

2/25/2013

3/5/2013

3/13/2013

3/21/2013

3/29/2013

4/6/2013

4/14/2013

4/22/2013

4/30/2013

5/8/2013

5/16/2013

5/24/2013

6/1/2013

6/9/2013

6/17/2013

6/25/2013

7/3/2013

7/11/2013

7/19/2013

7/27/2013

8/4/2013

8/12/2013

8/20/2013

8/28/2013

9/5/2013

9/13/2013

9/21/2013

9/29/2013

10/7/2013

10/15/2013

10/23/2013

10/31/2013

11/8/2013

11/16/2013

11/24/2013

12/2/2013

12/10/2013

20% 20% 20% 20% 20%

/bu

Early seasoncrop

condition and

weatheroutlook

South American cropconditions

Battle for AcresPlanting Intentions

Tassel and AugustCrop Report

Cashsales atharvest

AcreageReport/Grain

Stocks

avg

trend


20/49

ENSO-neutral conditions continue.Sea surface temperatures are near average across the Pacific Ocean.ENSO neutral is favored through the Northern Hemisphere winter 2012-13 and into spring 2013.

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

Actual Measurements Predicted

C

El Nio/Southern Oscillation (ENSO) Diagnostic Discussion, December 31, 2012http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/

El Nino

Neutral

La Nina

Oceanic Nino Index (ONI)

Latest actualweekly SSTdeparture


21/49

WheatOutlook


22/49

Marketing Year Average Wheat Prices

0.901.12

1.77

3.33

6.53

8.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1908

1911

1914

1917

1920

1923

1926

1929

1932

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

MY Avg Price Pre WWI WWI to WWII Post WWII

World Trade Biofuel Era Jul '13 CFC

$/bu


23/49

IGC 2012/2013 World Wheat Estimates

0

50

100

150

200

250

300

350

400

450

500

500

520

540

560

580

600

620

640

660

680

700

Ending Stocks Production Consumption

mmt Stocks, mmt

S:U 26.8% 30.7% 29.4% 28.3% 30.5% 30.3% 28.0% 26.7% 27.0% 26.5% 25.8% 25.3% 25.5%

International Grains Council, Grain Market Report, 29 November 2012

2012/2013


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2012/2013 Wheat Production, Major Countries

01020304050607080

90100110120130140

150

U.S. Argentina Australia Canada EU-27 China Pakistan India FSU-12

2011/2012 May June July August September October November

mmt

-1.4 = +0 +0 -2 +0 +0.2 +0 +0.3 +0 +0.1


25/49

Russian Grain Production

0

10

20

30

40

50

60

70

80

2010 2012

RyeOats

Corn

Barley

Wheat

mmt

+25%


26/49

U.S. Wheat Use

0

250

500

750

1,000

1,250

1,500

1,750

2,000

80/81

81/8

2

82/83

83/8

4

84/85

85/86

86/87

87/88

88/89

89/90

90/91

91/9

2

92/93

93/9

4

94/95

95/96

96/97

97/98

98/99

99/00

00/01

01/0

2

02/03

03/0

4

04/05

05/06

06/07

07/08

08/09

09/10

10/11

11/1

2

12/13

Million Bushels

Ending Stocks Feed and Residual Exports Food and Seed

WASDE, 11/9/2012


27/49

U.S. Wheat Planted Acres

56.0

58.3

50.0

55.0

60.0

65.0

70.0

75.0

80.0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Actual Predicted

Million acres

Planted acres = 63.09 + (2.51 * pricet-1) + (-1.39 * trend)R^2 = 92.4%

Updated 12/11/2012


28/49

2013 U.S. Winter Wheat Crop Condition Ratings

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

60

70

80

90

100

10/28/2012

11/4/2012

11/11/2012

11/18/2012

11/25/2012

12/2/2012

12/9/2012

12/16/2012

12/23/2012

12/30/2012

1/6/2013

1/13/2013

1/20/2013

1/27/2013

2/3/2013

2/10/2013

2/17/2013

2/24/2013

3/3/2013

3/10/2013

3/17/2013

3/24/2013

3/31/2013

4/7/2013

4/14/2013

4/21/2013

4/28/2013

5/5/2013

5/12/2013

5/19/2013

5/26/2013

6/2/2013

6/9/2013

6/16/2013

6/23/2013

6/30/2013

7/7/2013

7/14/2013

Very Poor Poor Fair Good Excellent 2013 2012

%CCI


29/49

2013 Texas Winter Wheat Condition Ratings

100

150

200

250

300

350

400

450

500

0

10

20

30

40

50

60

70

80

90

100

10/28

11/4

11/11

11/18

11/25

12/2

12/9

12/16

12/23

12/30

1/6

1/13

1/20

1/27

2/3

2/10

2/17

2/24

3/3

3/10

3/17

3/24

3/31

4/7

4/14

4/21

4/28

5/5

5/12

5/19

5/26

6/2

6/9

6/16

6/23

6/30

Very Poor Poor Fair Good Excellent 2013 2012

% CCI


30/49

July 2013 KC Wheat and Marketing Plan

500

600

700

800

900

1000

4/2/2012

4/13/2012

4/25/2012

5/7/2012

5/17/2012

5/30/2012

6/11/2012

6/21/2012

7/3/2012

7/16/2012

7/26/2012

8/7/2012

8/17/2012

8/29/2012

9/11/2012

9/21/2012

10/3/2012

10/15/2012

10/25/2012

11/6/2012

11/16/2012

11/29/2012

12/11/2012

12/21/2012

1/4/2013

1/16/2013

1/29/2013

2/6/2013

2/14/2013

2/22/2013

3/2/2013

3/10/2013

3/18/2013

3/26/2013

4/3/2013

4/11/2013

4/19/2013

4/27/2013

5/5/2013

5/13/2013

5/21/2013

5/29/2013

6/6/2013

6/14/2013

6/22/2013

6/30/2013

7/8/2013

7/16/2013

Early Season Price Rally / Early Crop Conditions Emerging from Dormancy/Late Season Conditions Harvest

/bu


31/49

Cotton MarketOutlook


32/49

Discussion Points

Supply/Demand numbers

Major variables

Chinese reserve policy

Fund/Fed influences

Weather

Dec13 between 65-85 cents per lb.


33/49

2008: Post Mortem


34/49

$1.50 COTTON!!!


35/49

1. Cotton acreage and carryover stocks declined from 2006through 2009, i.e., cotton repeatedly lost the annual battle foracreage.

2. The fund sector jumped on the commodity bandwagon in Julywith the Russian wheat situation and ramped up cotton buying..

3. New crop supply reductions (e.g. major Pakistan floods,cold/wet weather in China)

4. Late-season uncertainty about delayed harvests in China andIndia (who imposed export restriction)

5. Foreign (especially Chinese) cash prices climbed towards $2.00

on fears of lower-than-forecasted carry-in stocks, fears ofinadequate new crop supplies. Mill buyers may have alsogotten caught in a corner with on-call contracts that were due.

6. Inflationary money policies in U.S. and China until earlyNovember

Will/Can all these factors all line up again?????

What Gave Us VERY High CottonFutures?

C tt F d t l


36/49

Cotton Fundamentals:The Return to Normalcy

Increasing U.S.ending stocks,year over yearfits pattern ofweakening

prices.

Historicallyhigh worldending stocks

do too, butdistorted byChinese reservestocks policy.

U S C tt St k t U Sh F d t l


37/49

0

20406080100

120140160180200220

Dec-95

May-96

Oct-96

Mar-97

Aug-97

Jan-98

Jun-98

Nov-98

Apr-99

Sep-99

Feb-00

Jul-00

Dec-00

May-01

Oct-01

Mar-02

Aug-02

Jan-03

Jun-03

Nov-03

Apr-04

Sep-04

Feb-05

Jul-05

Dec-05

May-06

Oct-06

Mar-07

Aug-07

Jan-08

Jun-08

Nov-08

Apr-09

Sep-09

Feb-10

Jul-10

Dec-10

May-11

Oct-11

Mar-12

Aug-12

Marketing Year

Cen

ts/Lb

.an

dPercen

tage

U.S. Stks/Use Nearby Futures

U.S. Cotton Stocks-to-Use Show FundamentalRationale for Price Movements

(except too exaggerated in 2010/11!)

August 95 December 2012

STILL D li i h h Eff f $2 00


38/49

105.00

107.00

109.00

111.00

113.00

115.00

117.00

119.00

121.00

123.00

125.00

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Feb-12

Mar-12

Apr-12

May-12

Jun-12

Jul-12

Aug-12

Sep-12

Oct-12

Nov-12

Dec-12

Million480L

b.Bales

Production

Consumption

STILL Dealing with the Effects of $2.00Cotton in Early 2011


39/49

European sovereign debt problem

Implies slow to negative economic growth in U.S. andEurope

Historically this is associated with reduced demandfor cotton

Weak Demand Outlook


40/49

World Per Capita Cotton Use

6.00

7.00

8.00

9.00

10.00

1970/1971

1971/1972

1972/1973

1973/1974

1974/1975

1975/1976

1976/1977

1977/1978

1978/1979

1979/1980

1980/1981

1981/1982

1982/1983

1983/1984

1984/1985

1985/1986

1986/1987

1987/1988

1988/1989

1989/1990

1990/1991

1991/1992

1992/1993

1993/1994

1994/1995

1995/1996

1996/1997

1997/1998

1998/1999

1999/2000

2000/2001

2001/2002

2002/2003

2003/2004

2004/2005

2005/2006

2006/2007

2007/2008

2008/2009

2009/2010

2010/2011

2011/2012

Lbs./

Pop

ulation

Shaded bars represent periods of economic recession. Cottonconsumption tends to drop during those periods due to fewer

purchases of clothes, home furnishings, etc.

Source: USDA/ERS/WASDE


41/49

The Chinese govt has been stock-pilingcotton reserves since 2011

As long as this Chinese cotton remainsout of circulation, world prices havebeen supported higher than theyshould have been

But Chinese govt reserves represent a

big uncertainty1. Kicking the supply response can down the road2. Recent indicators that some releases may commence

fewer U.S. exports and lower prices.

China Influences

China to Release Cotton


42/49

NEW YORKChina has decided to release cotton in its state reserves, a move that has the potential toshake up the global market for the fiber. The country's National Development and Reform Commissionsaid it planned to release the stocks to meet demand from the domestic textile industry, according to anotice on its website dated Dec. 28. However, the NDRC didn't give any details as to how much cottonwould be released, or when.

China is the world's largest producer and consumer of cotton. The news helped push cotton futures toa three-week low of 73.72 cents a pound during Friday's trading. The contract for March delivery on theICE Futures U.S. exchange later settled 0.5% lower at 75.05 cents a pound. China, the world's No. 1cotton producer and consumer, has been stockpiling the fiber since late 2011, and the U.S. Department

of Agriculture forecasts that China would possess 47% of the world's raw-cotton stocks byJuly 31.

Its purchases of U.S. cotton had supported futures prices. Selling cotton from its reserves could meanfewer imports and less demand for U.S. cotton, analysts said. The release of cotton from China's

reserves "would be bearish to cotton futures, but we suspect they will only sell small amounts untilafter planting season passes in the late spring," said John Flanagan, president of Flanagan Trading inFuquay Varina, N.C. If China released a lot of cotton, domestic prices could fall and discourage farmersfrom planting the crop. However, there are also rumors that China could link the release of reserves toimports of tax-free or low-tax cotton. Mills that buy from the stockpiles could be allowed to also bring inan equal amount from overseas. This year's cotton crop in China was of poor quality, so mills may wantimported fiber to blend with domestic stocks, according to industry participants.

China to Release CottonReserves; Futures Decline

By ALEXANDRA WEXLER Jan. 4, 2013


43/49

Fund Sector was an early catalyst, but notthe main force behind the 2010/11 rally.

In 2011/12, the Specs contributed tovolatility, more in a semi-weekly risk on/offmoney flows.1. Changing expectations of economic growth =

demand for commodities

2. Often following euro/$USD shifts3. Changing expectations/reactions of QE

Fund/Fed Influences


44/49

The demand picture will remain weak fromreduced consumption and poor/sloweconomic growth.

The main thing supporting prices has beenChinese Govt reserve stock policy

Futures spreads show little incentive to storecotton

If China starts releasing from govt reserve, pricescould weaken more

Treat old crop price rallies as selling opportunities

Outlook for 2012 Crop


45/49

What About 2013?

60

70

80

90

100

J F M A M J J A S O N D

Cen

ts/L

b.

December 2012Settlement Price

December 2013Settlement Price

January 3, 2012 December 6, 2012

U S Planting and Production Situation will


46/49

U.S. Planting and Production Situation willbe Uncertain

Not enough fora supplyshock

More like a littleuncertaintypremium intoNovember.


47/49

What About 2013?

Consider 2007 when the 4,900,000 planted acres of

Texas cotton was 23% less than in 2006 and prettymuch for the same reasons. So lets assume that U.S.planted acres of all cotton decline to 9.5 million..

With avg. abandonment and yields, could still see 15Mbales of production. Adding in likely 2012/13 carryovergives a 20 million bale supply. If we export 11 million anduse 3.4 million, that gives a roughly similar ending stocksfor 2013/14 and 2012/13.

Little fundamental rationale for significantly higher cotton pricesthan this years range of the Dec 12 contract.

Assumes no demand or policy shock in 2013/14. Bigvariable is whether Chinese cotton reserves replace my

assumed level of U.S. exports.


48/49


49/49

Final Thoughts

Utilize Extension Resources to Aid in Decision Making Drought Spreadsheets, Commodity Budgets, Market

Outlook Reports,

http://agecoext.tamu.edu/

FARM Assistance (Like Us on Facebook) QuickBooks Premier 2012

Questions/Thanks

DeDe JonesExtension Risk Management Specialist IIIAmarillo, Texas806-677-5600

[email protected]
http://agecoext.tamu.edu/http://agecoext.tamu.edu/

grain&cotton outlook jan 7 2013

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