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Markets: Grains move higher

Wheat

Wheat traded back and forth last week, but the up sessions were stronger than the down sessions. For the week ending Sept. 24, December Minneapolis wheat was 3 cents higher, December Chicago was 10.5 cents firmer and December Kansas City gained 7.75 cents.

Wheat started the week with gains, as both the commercial and technical traders came to town. Not even a sharply higher U.S. dollar could slow the wheat exchange down. Part of the push was associated with reports that China imported 12.6 million bushels of wheat in August. This helped ignite the idea that China is in need of wheat and its demand will continue to remain strong. Light support also spilled over from the other grains.

The Sept. 22 session had wheat slipping lower, with selling tied to a stronger U.S. dollar. Additional selling was tied to an overall lower session in the commodity markets, in general. Weather forecasts are close to ideal for planting progress with most of the major growing regions seeing warm, dry conditions. This will allow combines and planters a chance to roll with little disruption.

Gains returned to wheat Sept. 23. Support came from weather concerns in Australia and Russia. Traders are starting to pay a little more attention to these regions as dry conditions continue to expand. It is still early to be overly concerned about dry conditions in these regions, but this is a market that is looking for anything to help it push higher. Wheat has seen little ability to hold strength as world supplies remain adequate.

Some things are just too good to be true, and wheat posting two straight higher days is one of those. Heavy selling took charge early and never let up. All three wheat exchanges were actually having a decent week, but all of that changed quickly.

USDA’s export sales estimate was disappointing, and that started the selling. In addition, the International Grains Council estimated world wheat stocks to be at record levels, another signal wheat supplies are more than plentiful. Russia is reducing its export tax in an attempt to stimulate wheat sales.

Corn

For the week ending Sept. 27, the corn market chopped around, and in a small range. As of close Sept. 25, December was up 4 cents. Corn was able to close with small gains on Sept. 21 and Sept. 23. Early support in the week came from the U.S. Department of Agriculture’s announcement of a 487,680-metric-ton sale of new-crop corn to Mexico. Additional support came from news that Informa thinks USDA is overstating the corn acres by 500,000. A stronger wheat complex helped add strength.

The futures lost some ground Sept. 22 and Sept. 24. Pressure came from traders expecting the crop conditions to drop (they were unchanged).

A larger crop is being estimated in Brazil as Safras pegged Brazil’s corn crop at 88.6 million metric tons, compared with 86.2 million metric tons last year, also 9.6 million metric tons above USDA.

The export inspections and sales estimates were disappointing and below the needed amount to meet USDA’s estimate. The ethanol report showed production down and stocks up. Harvest pressure is in place and the next two weeks look open for progress in the Corn Belt with no sign of frost in the North.

Soybeans

For the week ending Sept. 27, the soybean market started off choppy but ended up with some bullish export sales news. November beans were unchanged.

Soybeans got a boost at the beginning of the week after USDA announced an export sale of 240,000 metric tons of soybeans to an unknown destination and an export sale of 487,680 metric tons of corn to Mexico. The soy market also got additional traction from Informa’s estimate of 1.3 million fewer soy acres.

The Sept. 22 session had soybeans giving back Sept. 21 gains on news of favorable yield conditions. Soybeans traded lower throughout the day, with losses tied to higher crop condition ratings on Sept. 21, and a favorable weather outlook for maturing and harvesting the soybean crop.

An extended growing season for most of the Midwest took frost out of the forecast, which is helping the later planted soybeans reach maturity. Good soybean harvest weather was projected for the next two weeks, giving soybeans some bearish news.

Soybeans could not find any momentum Sept. 23, as the market was in a wait-and-see mindset to see more yield numbers as harvest progressed. Early indications are looking at slightly above-average yields in the Midwest.

Trade found some strength on export sales on Sept. 24 that came in above the trade’s estimates. The Chinese delegation also signed a yearly export sales agreement for 13.8 million metric tons of soybeans for this marketing year. This was above the analysts’ estimates of 3 million to 10 million metric tons, and gave support to soybeans during a down day for wheat and corn.

Harvest is progressing at a steady pace, and yields are coming in slightly above average, which is limiting the gains in the soy market.

Margin protection

We still encounter great misunderstanding among growers, insurance agents and company representatives about this margin protection. Make no mistake, this is a product that all wheat growers in eligible areas should buy the 70 percent level of margin protection for $4 to $5 per acre, and Iowa soybean growers should buy the 70 percent level of protection for $2 to $3 per acre. They get an equivalent of 82 to 85 percent Area Risk Protection without harvest option coverage, and that costs at least three to five times more than the 70 percent margin protection. This is a great deal.

Iowa corn growers have a more difficult decision as the 70 percent margin protection costs about $10 to $12 per acre, depending on county (it is similar to the 82 to 83 percent ARP coverage without harvest option). That compares with ARP without harvest option at 80 percent (about $30 per acre) or 85 percent (about $40 to $50 per acre). It is a far better priced product than ARP, but farmers must decide if they will buy 70 percent margin protection and drop their Revenue Protection 80 to 85 percent enterprise coverage a level to pay for it, or simply keep their 80 to 85 percent coverage (estimated cost $15 to $20 per acre).

It does diversify the risk, but for corn growers they have to think about the coverages they want and whether they want to spend the extra $10 to $12 per acre on margin protection (in corn, it is not a no brainer like wheat and soybeans, but one that will take some thought).

But with wheat and soybeans, it’s a no brainer to buy it and then, if you want to keep your premium paid the same as last year, just adjust your RP coverage about 5 percent lower at the March 15 deadline for that product.

Remember, margin protection must be signed up for by Sept. 30.

Below are some specific details about margin protection on Iowa corn and soybeans, with Boone County, Iowa, as my example.

We note that Iowa soybeans are only $2 to $3 per acre for the 70 percent level of margin protection across Iowa, so that is a no brainer to buy it (the equivalent of an 82 percent revenue guarantee).

My example in Boone County cost $3.56 per acre, but there will likely be a premium credit of 10 to 30 percent for other coverage bought so that the net cost is under $3 per acre. The margin guarantee is $181.66 per acre, which is the revenue total ($423 per acre) minus the costs ($164) which is $259, times 70 percent equals $181.66 per acre.

Note that 70 percent margin protection is $182, but when you add the $164 costs (which you are guaranteed 100 percent of) it’s the equivalent of $346 per acre revenue coverage, which is about 82 percent of the full revenue of $423 per acre.

In corn in Boone County, the 70 percent level costs $13.28 percent acre, but there will likely be a 10 to 30 percent discount for other insurance purchased, so you can probably count on roughly $10 to $11 per acre that you are paying.

That guarantees a margin of $279 per acre, which is 70 percent of $398 (revenue of $717 minus costs of $319). So a 70 percent margin is like a revenue guarantee of $598 ($279 plus $319) or about 83 percent revenue guarantee. You will be paid if the county margin (based on county yields, varying prices of products and fertilizer, fuel, interest cost inputs) declines more than 30 percent (which is similar to if revenue drops 17 percent).

Note that revenue and margin are two different things, and 70 percent margin insurance is basically the same in Iowa as 82 to 83 percent of revenue insurance.

You cannot buy any other type of revenue insurance for as low as it costs to buy margin protection. This is a good policy and should be bought on every soybean acre in Iowa, while corn should be bought on most acres (it is a little bigger premium pill to swallow).

So far, Progressive Ag hears of almost no activity by the Iowa corn and soybean producers (the only state the coverage is available for in corn and soybeans), and also little to no activity in the wheat areas approved (North Dakota and parts of Minnesota and South Dakota). That is a shame, because Pro Ag sees the 70 percent level as a steal, and a great benefit to diversifying the farmer’s risk management program.

The 70 percent level in wheat provides the equivalent of 85 percent group risk income protection or ARP insurance at a premium of about the 70 to 75 percent level. It covers not only revenue (price times yield), but also covers any adverse movement in input costs (fertilizer, fuel and interest rates). Pro Ag recommends producers buy at least the 70 percent level in wheat at a cost of about $4 to $5 per acre in most counties its available.

Then, to keep your premium about unchanged from last year, drop your RP coverage by 5 percent, or so. You will have diversified your risk management portfolio quite a bit (now covering inputs as well as a higher level of revenue coverage) for little or no cost. And you can collect on margin protection (if the county has a loss) even though your personal farm yields have no loss. And you can collect much more than the actual dollar amount of the protection (if margins go negative you collect that amount, too). This should essentially double insurance indemnities for those farmers who farm the best land in the county, or simply are the best farmers in the county.

If you fit that category, make sure you check out this program.

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