Thank you to our guest writer, Scott Stoller, Grain Merchandiser, AgPerspective Inc.
As I begin to write about the upcoming 2020 crop marketing year, I think it best to take a step back and reflect on what hand we have been dealt this past year. A year ago, we had unprecedented rain totals and lack of planting progress in Northwestern Illinois, where I live. The I-80 and I-88 corridors in particular were inundated with water and experienced some of the highest prevent plant acreages in the nation behind the Dakotas. Most growers and market analysts swore it HAD to go to $5.00.
Fast forward twelve months. The market never went to $5.00, and growers are slated to plant one of the highest corn acreage totals in history, despite depressed prices and market analyst projections of sub-$3.00 by late August or early September. Which leads us to today. So now what? Oh, and there’s this COVID-19 thing…
Economic Predictions for the 2020 Summer
Take a deep breath! We’ve lived through some unprecedented times, and the world has kept turning. The economics, on the surface, for corn and soybeans in 2020 do look a little rough. Let’s start with corn. The simple fact is that growers found a way to plant corn acres when the price of corn was $4.50 last summer and did it in a very big way. In this case, the market did what it needed to do and enticed acres to get planted. The downside to this is that we have ample stocks carrying over into the 2020 crop year with an overabundance of corn acres projected to be planted. With the ethanol industry basically shutting off the spigot for two to three months this spring, the balance sheet has ballooned to a level that we thought of as inconceivable last summer.
Positive Paths Ahead for Ethanol Profitability
And now for some good news? Beginning in mid-May, gasoline usage reached about 75 to 80% of travel prior to the COVID-19 outbreak. Peak demand for gas hits in the summer, and as states enact reopening plans, people are eager to leave their homes. Will people actually go anywhere? While unsure, a positive aspect is that ethanol profitability has swung to the black at the end of May. One highlight includes the Renewable Identification Numbers (RINs) rallying to price levels not seen since 2018.Larger, more efficient plants that were able to limp through March and April have ramped production back up as profitability returned. Unfortunately, the corn belt hasn’t seen all ethanol plants come back online, as there is fear of ethanol profitably declining in the last half of the year.
Trade Wars in the Agriculture Industry
Trade wars are tough to win, and soybeans have been snarled in one for some time. Losing our number one buyer for this commodity took a toll on our exports over the past few years. With a trade deal signed and sealed in late January 2020, things were supposed to be looking up…right? Time will tell, but there is a good amount of new crop bookings ready to go once harvest starts—We just have to get there. Looking at the past three to four crop years, beans added solid black to the bottom line of producers. It appears we will need every bit of weather, technology, and yield to scratch and claw back to the profitability line in 2020.
Looking Ahead This Summer
As we enter the summer months, seasonal rallies have historically been the norm. What is the best average opportunity in the “modern era” of grain markets? Mid-June through the 10th of July has, on average, been an excellent window to get old crop grain cleaned up, new crop grain sold, and the first chance to take a stab at locking in profitability for the following crop year.
Yes, selling three crop years at the same time is difficult and normally one of the largest hurdles most growers face. A solution to circumvent the “cancel if close” culture is to get your open orders in for all three crop years immediately. Find price levels you’re comfortable with and ones that return a profit to your operation. When looking at the 2020 crop, the new norm maybe be 20 to 30 cents below what we’re accustomed to from the previous few crop years. We would like to begin actively selling new crop between $3.50 and $3.60 December futures and continue rewarding the market every nickel to dime higher.
With a combination of current MFP payments, CFAP, ARC/PLC potential, and crop insurance floors, we see the ability to scratch and claw back to close to $4.00 cash in using a variety of different tools and payments. If achieved, chalk it up to a victory and move onto 2021. Speaking of next year, don’t be caught napping around the $3.90 to $4.00 area 18 months in advance, as we would be more than pleased with those numbers in 2019 and 2020.
Another approach when looking at 2021 risk management is using higher levels of crop insurance; namely a 95% product. Margin Protection (MP) is offered across our regions as a county product that can be paired with individual Revenue Protection (RP) coverage as well. This product will need to be purchased in the month of September for the 2021 crop year, so don’t get caught watching the paint dry on the ole picket fence.
Face Challenges Head on in Agribusiness
The government has provided farm program payments over the previous couple years that have provided good floors and adequate support when growers are in a time of need. While we do not want to rely on these in the future, the current Farm Bill does give growers a comfortable safety net. Please know how to properly utilize your crop insurance policy to maximize your protection and don’t just throw it in the filing cabinet for later viewing. These are difficult times to operate in agribusiness. The uncertainty and moving targets each of us face are obstacles we need to find ways to overcome. We all need to strive towards sharpening our skills and find ways to better our past performances. We wish you the best as we move into the summer of 2020!
About our guest author
Scott Stoller, Grain Merchandiser, AgPerspective Inc.
Born and raised on a grain and livestock farm in Central Illinois, Scott graduated from Illinois State University with a B.S. in Agribusiness and a Business Administration minor. After over three years with ADM in a variety of cities and settings, he became the grain merchant for Michlig AgriCenter in Manlius, Illinois. In ten and a half years with Michlig, he oversaw a growth from 4.5 million to 22 million bushels of grain business. In January 2013, Scott traded in his elevator hat to join the AgPerspective team. His wife is a high school counselor and are the proud parents of two girls.