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Market Outlook for 2004/5

Market Outlook for 2004/5. Ward Nefstead Associate Professor & Extension Economist. Major Factors Affecting Markets. Chinese Demand- will it continue? Trade Negotiations-Americas Weather for 2004/5 crop season Weak US Dollar Low Carryover for Stocks both US and World. Questions to answer.

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Market Outlook for 2004/5

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  1. Market Outlook for 2004/5 Ward Nefstead Associate Professor & Extension Economist

  2. Major Factors Affecting Markets • Chinese Demand- will it continue? • Trade Negotiations-Americas • Weather for 2004/5 crop season • Weak US Dollar • Low Carryover for Stocks both US and World

  3. Questions to answer • Why did soybeans rally so quickly? • What price level will start to ration soybeans? • Will drought continue in central plains? • Will high prices result in increased planting at world level?

  4. A Look at soybean fundamentals

  5. A Look at corn fundamentalsA:\usdabscorn.htm

  6. WhatOptions Say Prices will be?Corn

  7. What Options say prices will be-soybeans

  8. A Look at Basis

  9. A New Market Information Webpage

  10. Corn Outlook • Carryover of 989 mil. Bu. Or Stocks/Use of 14 will result in futures prices of $2.45 to $2.80. Using average cash price of $2.35 and adding ½ July 2004 futures price range will generate a range of $2.15 to $2.55. • Scaleup selling plans will begin at $2.40 to $2.60.

  11. Soybean Forecast • A carryover of 125 mil bu. (lowest in 27 years) will generate an average price of $6.75. Using the ½ July futures price range, this means soybean prices will range from $6.00 to $8.50(or higher). The McNew diagram of Stocks to Use vs. Ave. Price shows a potential of reaching higher price levels.

  12. Wheat Outlook • Carryover of 599mbu will yield an average price of $3.45($3.75 for Spring Wheat). Using ½ July 2004 Futures price gives a price range of $3.00 to $4.50.

  13. A “new” look at Seasonal Price Cycles • Shape of seasonal price cycle is related to many factors: Farmer selling, size of crop, nature of demand,etc. • What factors will suggest shape for 2004? * Alignment of futures prices-do they suggest a return to carry or downward movement of prices(look at change in new crop prices-Dec. corn/Nov soybeans

  14. Research on Season Cycles • Factors affecting shape of cycles(D.Bullock) • Corn-Segment two- lower domestic supply may create the need for imports. Ending stocks are declining. Highest prices are in April May and June.

  15. Soybeans Seasonal Price Cycle • Type A cycle- highest prices in early spring • Type B Cycle- highest prices in fall/early winter

  16. How to hedge weak basis • Using MGE corn or soybeans index futures. • See corn and soybean spatial basis to see if basis is strengthening or weakening. If weakening, Sell index futures and buy later to form hedge.

  17. Setting Price Targets • Based on fundamentals, see website(post harvest marketing plan • Based on price/cost ratio, see website(cost plus spreadsheet) • Based on Options forecast-see website(Hilker) • Use several and also compare technical(RSI of 75-80 suggest market is at top.,etc)

  18. Thoughts on Contingency Plan for Marketing • A version of the marketing plan must be based on scenarios. What may happen? 1. Chinese demand fades 2. Plantings are much higher or lower 3. US dollar is much lower or higher 4. Trade negotiations result in shift of demand

  19. Scenarios create variations in plan • Decrease in demand- increase forward pricing %. Look at extending bids forward over a longer period. • Change in trade- if it affects demand, also allocate more to forward pricing. • Weather creates smaller crop. Allocate more to postharvest(shape of seasonal). • If volatile, use trend following rules to capture volatility. • Knowledge of basis will allow comparison of options

  20. A spreadsheet can compare scenarios • Each scenario can be read into spreadsheet to compare market alterative strategies. • Price outlook determines “best “ strategy.

  21. Can Basis be forecast ahead? • Research on basis- 10 years • Use of Kriging surface techniques- Spatial Analyst (ESRI) • Example of estimated surfaces • Minnesota example in detail. • Can this knowledge increase profits?

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