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What's Happening
in MarketMaxx?
April 29, 2008
High prices still prevail. It was another wild week of trading in
corn and soybean futures. Chicago Board of Trade (CBOT) December corn
futures closed Friday at $6.06/bu. CBOT November soybeans closed at
$12.22/bu. Yesterday added more market moves, with December corn popping
through $6.30 and November beans dropping to $11.96. Uncertainty about
getting crops planted due to wet, cold weather has added more question
marks for prices.
The objective of MarketMaxx is to help corn and soybean growers answer
the many questions they face in marketing. The game has certainly
inspired Ralph Sangmeister, Peotone, IL, one of the leaders in the corn
marketing contest. “I have a better understanding of options by
playing since I have not used them before,” he says. MarketMaxx has
also brought out the competitiveness of Sangmeister. “It really hasn't
changed marketing of my own grain,” he says. “I like the game just
for the reason of trying to stay ahead of the players below me.”
Signup for the marketing game from Corn & Soybean Digest is at www.marketmaxx.net/. As a
MarketMaxx player, you'll have a simulated 100,000 bu. of corn
and 50,000 bu. of soybeans to trade using CBOT futures, options or
cash-forward contracts. The eligible farmer with the highest average
selling price of his or her corn or soybeans when the contest ends Oct.
31, 2008, will take home a grand prize.
Deadline for getting signed up is May 31. Go www.marketmaxx.net/ today and
start playing the game that can make you a winner in more ways than one.
(A complete list of MarketMaxx rules and regulations can be viewed at www.marketmaxx.net/.)
By signing up and playing MarketMaxx, you can learn how to use
futures and options trades and lock in good prices on your real-life
corn and soybeans -- along with your trades in the MarketMaxx game. And
you’ll have a chance to win some great prizes.
MarketMaxx Prizes
More than 8,125 players are signed up for MarketMaxx. If you’re
not playing, get signed up today. You could be a big winner. Grand
prize for the corn contest is a Gleaner R5 or A5 series combine (up to
100 combine separator hours). The soybean winner will receive a year's
use (not to exceed 250 hours) of the choice of any PowerMaxx
CVT-equipped AGCO RT or DT series tractor.
Second prize for each contest is a complete computer system plus
software from Syngenta Crop Protection. Third prize in the corn contest
is a complete Leica mojoRTK auto-steer system from Leica Geosystems.
Third prize in the soybean contest and fourth prize in the corn contest
is a DICKEY-john mini GAC Plus handheld moisture tester. Corn &
Soybean Digest is grateful for the support from our MarketMaxx
sponsors: AGCO Gleaner, AGCO Tractors, Syngenta Crop Protection, Leica
Geosystems and DICKEY-john Corp.
By signing up, you will continue receiving this MarketMaxx
e-newsletter, which keeps players updated on the game through a
complete top-10 leaderboard in the corn and soybean contests. It will
arrive in your e-mail box every other week throughout the year -- but
only if you’re signed up by May 31.
Video clips of Corn & Soybean Digest Editor Greg Lamp presenting
the keys to a new a combine and tractor to 2007 MarketMaxx
winners are available at cornandsoybeandigest.com/tv/marketmaxx-winner08/.
While you’re there, click on CSD Live where you can view
news and marketing broadcasts from various sources, including Bloomberg
and the Associated Press.
Regular market commentary from leading university and private-sector
grain marketing economists and analysts make this e-newsletter the one
you’ll want to review every time it arrives.
So go to www.marketmaxx.net/
today and get started playing MarketMaxx. You have nothing to
lose and a lot to gain.
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MarketMaxx Leaderboard
(April 25, 2008)
Top Players – Corn Contest
Roy Sangmeister, Manhattan, IL, $7.35.49
Corey Brandau, Peotone, IL, $7.23.24
Ralph Sangmeister, Peotone, IL, $6.75.17
Chris Schnell, Sully, IA, $6.71.42
Arlan Shelly, Atmore, AL, $6.65.62
David Bitto, Elberta, AL, $6.62.62
Ed Krelo, Elkville, IL, $6.57.47
Brian Roh, Dodgeville, WI, $6.57.05
Charles Bonner, Summerdale, AL, $6.56.38
Top Leaders – Soybean Contest
Roy Sangmeister, Manhattan, IL, $18.33.16
Corey Brandau, Peotone, IL, $17.91.46
Ed Krelo, Elkville, IL, $15.81.52
Steve Mercer, Kearney, NE, $15.75.62
Rick Lemke, Mequon, WI, $14.78.72
Arlin DePatis, LaMoille, IL, $14.59.22
Jeremy Svitak, Howells, NE, $1451.8
Andy Bensend, Dallas, WI, $14.45.9
Holly Utterback, Robinson, IL, $14.15.28
Jim Spahr, Seward, NE, $14.11.43
Market
Commentary
Funds, Large Speculators Role In Grain Markets -- A
Bad Soap Opera
By Ed Usset, University of Minnesota Grain Marketing Specialist
Grain marketers, I was in Washington D.C. to attend last week’s public
forum held by the Commodity Futures Trade Commission (CFTC) to discuss a
number of hot issues affecting commodity markets. If you read some of
the national media coverage from this day, you might be asking yourself,
“What was the point of this meeting?” After two days of pondering
this question, I think the players are trying to figure out whether or
not these hot issues are related to each other.
The answer, of course, depends on your point of view. For me, the story
has developed into a bad soap opera with one too many subplots, but a
story of great importance to your ability to price grain. The subplots
discussed on Tuesday can be divided into four Cs: commodity funds,
convergence, credit crunch and cotton. Let me attempt to outline each
issue.
Commodity funds: The funds have been in commodity markets for years.
They continue to grow, as the financial world has come to view
commodities as a distinct investment class of asset, like real estate,
stocks and bonds.
But “funds” is a broad term, and not an accurate way to describe the
diverse nature of modern commodity funds. A guy needs a scorecard to
keep the players straight.
There are index funds and hedge funds, passive funds and active funds,
“long only” funds, which specialize in certain classes of
commodities (metals, grains, currencies, etc.) and funds that invest and
trade a broad spectrum of commodities. The current concern seems to
focus on the growth and size of long-only passive index funds, whose
one-sided market focus may (or may not) be skewing the futures market
higher, and out of touch with the underlying cash market. Hence the
problem with convergence.
Convergence: Convergence describes the process where cash and futures
prices “converge” to the same price, in the delivery month and at
the delivery point. For example, when the May corn futures contract
expires in mid-May (the delivery month), the futures price should be the
same (or very close to the same) as the cash price of corn trading near
the Illinois River (the delivery point). The basis should be close to
zero.
Over the past three years, there have been a number of contract
expirations and deliveries in Chicago futures markets for wheat, corn
and soybeans where cash and futures prices did not converge. Most
contracts displayed a normal convergence, and there seems to be no
simple explanation for the random times when convergence did not occur.
One thing was consistent in each of these events: The futures price
expired at a higher price than the underlying cash market price. A
negative basis at expiration hurts the short hedger, like the elevator
that buys your grain and sells futures to hedge price risks.
The lack of convergence is generally viewed as a sign of a poorly
functioning market. When it is the cash market that is randomly and
inexplicably below the futures price, this raises red flags for
financial firms (private banks and/or the farm credit system) that
finance margins for short hedgers. The cash market is their collateral
and the lack of convergence raises questions about the true value of
their collateral. Banks, particularly the Illinois lenders closest to
the delivery elevators, are not anxious to expand credit lines when
collateral values are shaky. Hence the credit crunch.
Credit Crunch: To be fair, the credit issue expands beyond the borders
of Illinois, where the lack of convergence is of greatest concern. Think
of the financial strain your local elevator is facing today: Producer
interest in forward contracting higher grain prices has greatly
increased margin requirements, while sharply higher fertilizer and fuel
prices have greatly increased working capital needs to finance
inventories.
There was an anecdotal story of an elevator that a year ago needed
$10 million to finance normal operations, but today needs more than $50
million. Problems in other parts of the financial world are not
helping, even though the grain industry and grain producers -- in
general -- are enjoying good margins. It seems that agriculture needs
some time to adapt to the new reality of high grain prices.
Cotton: Maybe you are like me, so wrapped up in the day-to-day
happenings in grain markets that you were unaware of the earthquake that
struck cotton in early March. Futures prices increased more than 25% in
a matter of days, despite the fact that cotton fundamentals were, and
remain, remarkably staid. There were no report shockers or surprising
export announcements. The cash market reacted to the event by shutting
down. The cotton industry had a number of representatives at this forum,
and they were noticeably agitated and affected by the market upheaval.
The CFTC could have justified another day of open forum to cotton issues
alone.
So allow me to recap the story line as it stands today … Have the
funds influence in commodity markets grown to the point of distorting
the natural convergence of cash and futures markets, creating a lack of
faith in cash market values and the tightening of credit to support
margin needs for legitimate hedging activities? In addition, what
exactly happened in the cotton market on March 4, 2008? The answers to
those questions remain to be seen. Stay tuned.
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Additional
Commentary
Do You Understand Different Pricing Tools?
With the major swings in corn and soybean prices and markets that can
take any direction at any time, Purdue University Agricultural Economist
Chris Hurt can't stress enough how important it is for growers to work
with their commodity advisor and lender to clearly understand the
different pricing alternatives.
“Producers need to look at the possibility of having lower prices and
higher prices and figuring how they will come out,” he says.
“There’s a lot of risk in markets this year and we suggest that
producers look at diversified strategies and not bet all of their crop
on one strategy. Diversifying through time and diversifying through
different types of strategies will help bring producers back toward the
middle. We would all like to be at the top, but this year, with so much
uncertainty, we definitely want to avoid the bottom.”
With the current volatile market swings, prices can change sharply from
where producers might sell futures to price their new-crop production,
and it’s possible producers using futures markets could have large
amounts of margin money to deposit. For this reason, Hurt says it’s
imperative for producers who use futures or options markets with a
broker to set up a hedging line of credit with their lenders just to
cover potential margin calls.
“This line of credit is an assurance that the lender will provide
additional funds to meet margin calls if needed,” he says. “This
three-way relationship is established between the producer, broker and
lender such that each will have all information regarding marketing
positions and margin accounts.”
For a complete look at various marketing strategies farmers can consider
during this volatile period of corn and soybean prices, go to cornandsoybeandigest.com/marketing/news/0422-pricing-alternatives-farmers/.
More
News On The CFTC Meeting, Other Issues Impacting Corn And Soybean
Prices
Regulators Back Away From Changes to Commodity
Hedging
Faced with widespread complaints from the agricultural industry, federal
regulators with the Commodity Futures Trade Commission (CFTC) are
backing away from two proposals that would have allowed institutional
investors to expand their stake in the turbulent commodity futures
markets, reports The New York Times.
With the explosive increase in crop prices, ag markets are attracting a
flood of capital from hedge funds, pension funds and commodity index
funds. The proposed rule changes would have raised the size of the
market stake that financial speculators could hold and exempted
commodity index funds from those higher limits.
Walter Lukken, acting CFTC chairman, says those ideas are being put on
hold. "Given current market conditions and the uncertainty surrounding
additional speculative money in these markets, I will be very cautious
about moving forward with such initiatives at this time," says Lukken.
The CME Group, owner of the Chicago Board of Trade, had originally
supported the rule changes but agreed that a moratorium was appropriate.
"We don't want to be accused of making a situation worse," says Charlie
Carey, CME Group vice chairman. "We understand that the market is in a
tough spot."
Farmers rely on the futures markets and related options markets to hedge
against future declines in crop prices. Many blame new institutional
investors for the increasing volatility in the market, though several
pension fund executives and money managers disputed that theory at the
hearing.
But as volatility rises, for whatever reason, futures and options become
more expensive and less reliable as hedging tools. Almost every speaker
at the commission hearing, including grain farmers and grain elevator
owners, expressed alarm at the wild price swings and escalating hedging
costs.
"People are scared to death to hedge," says Diana Klemme, a vice
president at the Grain Services Corporation, a consulting and brokerage
firm in Atlanta.
CFTC Officials Say Increased Speculation Not Behind Surging Commodity
Markets
A U.S. government regulator says speculative trading is not the primary
culprit behind surging prices of corn, wheat and other crops that have
rattled farmers and food producers, reports the Associated Press.
A Commodity Futures Trade Commission (CFTC) official says commodities
markets are functioning properly, despite almost-daily jolts in prices
for foodstuffs.
"Our economists have looked at all the data available ... and there
doesn't appear that any inordinate speculation has caused prices to
move," says CFTC Commissioner Bart Chilton. One of the CFTC's four
commissioners, Chilton says the historic conditions are likely due to a
host of factors, including weather conditions that have shrunk harvests,
smaller grain inventories and the declining value of the dollar.
Chilton expresses little enthusiasm for limiting speculation in the
markets, saying it could have unintended consequences. "These markets
have to work for all the participants," he says. "If you don't have
speculators in the markets, there's no liquidity and you don't have a
market."
AP says the investment community greeted the commissioner's
remarks with approval. Dennis Gartman, editor of a commodities letter
for investors, agrees that there are multiple reasons for higher prices,
but speculation is not one of them. Gartman and others have become
increasingly wary of government intervention after several lawmakers
criticized excessive speculation in energy and other commodities. "It is
an election year," says Gartman. "To think you won't have senators and
congressmen blaming high prices of things on speculators is naive."
With institutional investors pouring money into commodity markets at a
time of stock market uncertainty, farmers have charged that speculation
is driving up the cost of basic crops and making it harder for
commercial buyers and sellers of grain to use the exchanges as a tool
for limiting their exposure to price volatility.
Groups representing farmers and food producers have asked regulators to
consider limiting speculation to return predictability to the markets,
which they say have been stoked for two years by profit-hungry
investors.
U.S. Firm Plans To Make 1 Billion Gallons Diesel/Year From Brazilian
Sugarcane
AP reports that a U.S. biotech company is teaming up with
Brazilian ethanol producers to turn sugarcane into diesel fuel in a
joint venture that could churn out 1 billion gallons/year by 2015.
California-based Amyris Biotechnologies developed the new renewable
fuel, which is similar to fossil fuel diesel and would be blended with
traditional diesel, says Amyris Chief Executive John Melo.
Trucks toting most of the goods consumed and exported by Latin America's
largest nation could be filled with a blend containing 50-80% of the
synthetic diesel, mixed with traditional diesel, Melo says. If
successful, the venture would allow Brazil to reduce diesel use and
imports. Biodiesel made from oil seeds and animal fat is already a
required component of all Brazilian diesel, although only at a blend
rate of 2%, which is due to increase to 3% in July.
Amyris is considering starting similar operations in Central America and
India and has completed a feasibility study to turn sugarcane grown in
the southeastern U.S. into fuel that would be blended into jet fuel. "We
think of Brazil as the foundation," says Melo.
Will Current Food Crisis Reduce Opposition To Biotech Food Crops?
The New York Times reports that some analysts believe high food
prices and global grain shortages may force governments from China to
Britain to rethink opposition to biotech crops. Asian manufacturers are
buying biotech corn for foodstuffs, U.S. wheat growers look to
biotechnology to boost yields and European agricultural leaders view
engineered crops as a way to alleviate the strain on the worldwide
agriculture market.
The re-evaluation comes as riots were reported in bread lines in Egypt
and other regions, European livestock face critical feed shortages and
biofuels strain the market. Some global leaders aren't convinced
genetics provide the answer, Hans Herren, co-chairman of an agriculture
forum at the World Bank, told the Times. "What farmers really are
struggling with are water issues, soil fertility issues and market
access for their products," he says.
CME Seeks Enhanced Risk-Management Opportunities For Commercial
Hedgers
CME Group is petitioning to the Commodity Futures Trade Commission
(CFTC) approval for the Chicago Board of Trade (CBOT) to clear corn
basis swaps and calendar swaps for corn, wheat and soybeans. The
products are to be traded over-the-counter (OTC) and cleared through CME
Clearing, which joined in the petition.
"Fundamental changes in global grain and oil seed markets are creating
new challenges for market users, including the need to hedge
increasingly volatile basis risks in grain and oilseed markets,” says
Robert Ray, CME Group managing director, International Sales and
Commodity and Equity Products. “CME Group is responding to market
needs by innovating the first-ever cleared OTC grain swaps, which will
offer market users the ability to hedge tailored risks in a centrally
cleared environment.
Corn basis swaps are additional tools to help the grain industry better
manage overall risk. The swaps also help buyers and sellers manage the
risk of price differentials between futures delivery points and local
markets, CME says. Calendar swaps, which are based on the average daily
settlement price for the corresponding underlying futures contract
during the final month of clearing the swap, offer another way to manage
price volatility. The exchange must receive a CFTC exemption to clear
the agriculture swaps. Pending CFTC approval, the swaps will be
available later this year.
South Korea Open Up To U.S. Beef
One of the biggest obstacles to U.S. beef exports may be hurdled soon.
Unless the deal falls apart, as it has too often in the past, South
Korea will resume importing U.S. beef from cattle younger than 30 months
of age beginning in May. Based upon U.S. compliance with
yet-to-be-announced enhancements to the U.S. ban on feeding mammalian
protein to livestock, the announcement indicates South Korea will
ultimately accept beef from cattle of all ages.
“This is outstanding news for the U.S. beef industry and for South
Korean consumers,” says Philip M. Seng, president and CEO of the U.S.
Meat Export Federation (USMEF). “Our industry has lost between $3.5
and $4 billion in beef exports to South Korea since the end of 2003
(when the U.S. identified its first case of BSE). And we know that
there’s a significant demand there for quality U.S. beef that has not
been satisfied for more than four years.”
Until the end of 2003, South Korea was this nation’s third-largest
beef export customer in terms of revenue, according to USMEF. The U.S.
exported 543.6 million pounds of beef and beef variety meats to South
Korea in 2003 (USDA statistics). In 2007, the U.S. exported an estimated
53.4 million pounds valued at $117.3 million, although shipments were
limited to boneless beef from cattle younger than 30 months of age and
the market was only open for an intermittent five months during the
year.
Swine Industry Leader Says Higher Food Prices Needed
In the current issue of the National Hog Farmer North American
Preview newsletter, swine industry consultant Mark Greenwood
discusses the difficulties facing hog producers due to higher input
costs. “U.S. and global food prices are now rapidly rising and must
continue to do so in order for any of the protein sectors to survive,”
he says. “Protein sectors with short production times, such as milk
and eggs, have already dramatically increased pricing. The poultry
sector is likely to follow.
“Protein sectors with longer production periods -- hogs and cattle --
must also follow. The livestock sector has no means to protect all the
losses that are occurring other than the futures markets, but even if
you use them, it still equates to losses.”
Food riots in developing countries and significantly higher grocery
store prices for the American consumer are already here and will
continue to accelerate. “We need leaders to discuss ideas on how the
U.S. protein sectors can effectively manage and survive these difficult
times,” says Greenwood. “There is no doubt that the U.S. swine
industry is the most competitive in the world today. However, despite
the competitive advantages we enjoy, the U.S. industry is not
sustainable in its current form -- if revenue cannot keep up with rising
feed costs.”
Congress Sees Farm Bill Breakthrough
Congressional farm bill conferees apparently have reached an agreement
on a farm bill compromise, none too soon for corn and soybean growers
and other farmers who need a plan to follow for this year’s
production. National Corn Growers Association (NCGA) and other commodity
groups applaud congressional negotiators in finally achieving a funding
agreement on the farm bill package.
“NCGA realizes this has been a difficult process for members of
Congress and we thank them for their hard work,” says NCGA President
Ron Litterer. “As a producer, I understand that recent market
conditions highlight the need for a viable revenue option -- one that
addresses the increasing levels of risk farmers are facing today and in
the future. We strongly believe that this final package needs to
include such an option.” He says NCGA will be working with members of
Congress this week on the final package.
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Updated Marketing,
Farm Bill, Biofuels And Other News At Corn & Soybean Digest Web
Site
Follow the latest analysis of corn and soybean futures
prices and market trends at www.cornandsoybeandigest.com/
-- our flagship Web site. There’s information on the farm bill, market
commentary and lots of other news you can use to better manage your
farm.
If your latest issue of Corn & Soybean Digest magazine isn’t
handy, you can access it and past issues to revisit subjects that can
impact your corn and soybean production and marketing. The site's news
from across the Corn Belt, other corn- and soybean-production areas and
the worldwide markets for corn and beans can help you stay on top of
events that can help or hurt prices.
Go to cornandsoybeandigest.com/
now and stay up-to-the-minute on the timeliest analysis and other
information on corn and soybean production and prices.
Wanted: Your
Innovative Ideas
If you or someone you know has an innovative idea to
save time or money when growing corn or soybeans, we’d like to hear
from you. No idea is too big or too small.
Your suggestion could
be a piece of equipment that’s been built from scratch, or several
pieces of equipment that have been torn down and re-assembled as a
single unit, or simple modifications to existing machinery.
It’s always interesting to see anhydrous applicators, planters,
sprayers and tillage tools that people have constructed to help them
farm better, bigger or more efficiently.
However, machinery
innovations aren’t the only way to save money or add to efficiencies.
We’re interested in any cost-saving ideas that you’ve implemented to
stay profitable. For example, have you been involved in any
machinery-sharing ventures, group input buying clubs or been working
with a consultant who has helped you increase your bottom line?
If you have an idea you’d like to share, please send an e-mail to CSD@csdigest.com or call Managing
Editor Susan Winsor at 952-851-4662, or click on the following link to
enter your thoughts: snap-surveys.com/prismb2b/Grau/CSDShop/csd08shopproject.htm
Thanks in advance for your help.
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Thanks for taking time to review this MarketMaxx newsletter. If you have
comments or questions about MarketMaxx, e-mail your editor, Larry
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