Top Producer: Advanced Wheat Marketing

1. Top Producer:Advanced Wheat Marketing

2. Kim’s web site • agecon.okstate.edu/anderson

3. Marketing Efficiency & Efficient Marketing

4. “Economics is not an exact science. It consists merely of laws of probability. The prudent investor is one who pursues a course of action which is ‘normally’ right and who avoids acts and policies which are ‘normally’wrong.” L.L.B. Angus

5. Supply, Demand Market Efficiency and Efficient Marketing Price =

6. expected Supply, expected Demand Market Efficiency and Efficient Marketing Price =

7. Market Efficiency and Efficient Marketing The efficient market theory conceptualizes markets as information.

8. Market Efficiency and Efficient Marketing When determining price, an efficient market incorporates all available information.

9. Market Efficiency and Efficient Marketing To earn a profit it is not enough to know that price will change; the direction in which price will change must be known.

10. Market Efficiency and Efficient Marketing Profit, from marketing, is earned by people or companies who acquire relevant information before anyone else.

11. Market Efficiency and Efficient Marketing Information by itself is not useful without analysis that compares it with existing information. Therefore earning profit from marketing requires analyzing existing information better than other analysts.

12. Market Efficiency and Efficient Marketing Few people/companies consistently earn large profits from pricing decisions and these people earn their profits from their information and analysis.

13. Market Efficiency and Efficient Marketing Producers/lenders not obtain data first. Need bench-marks Need volume to make marketing effort worth the return. Nearly impossible to predict prices.

14. Market Efficiency and Efficient Marketing 5. Make decisions based on probabilities. Decisions based on what is normally right and avoid what is normally wrong.

16. Corn &Wheat Situation and Outlook Kim B. Anderson Oklahoma State University

17. Policy comes and policy goes but weather determines prices. Luther Tweeten

18. Corn production area

19. Soybean production area

20. Cotton production area

21. HRW wheat production area

22. SRW wheat production area

23. Corn

24. CornusedforEthanol(billion bushels) ’09/10 4.3 bb ’08/09 4.0 bb ’07/08 3.2 bb ’06/07 2.1 bb

25. 2000 79.6 72.4 136.9 10.0 (91.0) 2001 75.7 68.8 138.2 9.5 (90.9) 2002 78.9 69.3 129.3 9.0 (87.8) 2003 78.6 70.9 142.2 10.1 (90.2) 2004 80.9 73.6 160.4 11.8 (91.0) 2005 81.8 75.1 148.0 11.1 (91.8) 2006 78.3 70.7 149.1 10.5 (90.3) 2007 93.6 86.1 154.7 13.2 (92.0) 7-YR Avg. 79.1 71.5 143.4 10.3 U.S. Corn Situation Harvested Acres Planted Acres Yield Production Year (Million Bushels) (Billion Bushels) Percentage harvested in parenthesizes

26. U. S.Price EndingStocks Year Production Consumption 2000 10.0 9.6 2.1 $1.82 2001 9.5 9.8 1.6 $1.85 2002 9.0 9.5 1.0 $1.97 2003 10.1 10.2 1.0 $2.30 2004 11.8 10.6 2.2 $2.42 2005 11.1 11.1 2.0 $2.06 2006 10.5 11.4 1.3 $3.00 2007 13.2 12.6 1.9 $3.50 7-YR 10.3 10.3 1.6 $2.20 Avg. U.S. Corn Situation (Billion Bushels)

27. EndingStocks Year Production Consumption 2000 23.2 23.8 6.0 2001 23.6 24.5 5.8 2002 23.7 24.7 4.9 2003 24.3 25.5 4.1 2004 27.8 26.9 5.1 2005 27.3 27.3 4.8 2006 27.6 28.5 4.1 2007 30.3 30.1 3.9 7-YR 25.4 25.9 4.8 Avg. World Corn Situation (Billion Bushels)

28. 2008 Corn Production 2007 use + ethanol increase – 1 bb ending stocks = required production ÷ yield = acres harvested ÷ % harvested = required planted acres 12.6 bb + 0.7 bb – 1 bb = 12.3 bb ÷ 153 bu/ac = 80 ma ÷ .91 = 88 million acres

29. CBT Corn Monthly Nearest Weather Ethanol Before ethanol

30. CBT Soybeans Monthly Nearest Ethanol & bio-diesel Before ethanol & bio-diesel Weather

31. Key points • 2007 corn production 13.2 billion bushels (bb). • 2007 corn use 12.6 bb. • 2007 ethanol corn use 3.2 bb. • 2008 projected ethanol corn use 3.9 bb. • corn end stocks ~ 1.9 bb  $3.50 avg. annual price. • corn end stocks ~ 1.0 bb  $3.90 avg. annual price. • 2008 planted acres 88 mil., production of 12.3 bb, ending stocks 1.0 bb & $3.70 avg. annual price.

32. Wheat

33. U.S. Wheat Situation Harvested Acres Planted Acres Yield Production Year (Million Bushels) (Billion Bushels) 2000 62.5 53.1 42.0 2.23 (85.0) 2001 59.4 48.5 40.2 1.95 (81.6) 2002 60.3 45.8 35.0 1.61 (76.0) 2003 62.1 53.1 44.2 2.34 (85.5) 2004 59.7 50.0 43.2 2.26 (83.8) 2005 57.2 50.1 42.0 2.10 (87.6) 2006 57.3 46.8 38.7 1.81 (81.7) 2007 60.4 51.0 40.5 2.07 (84.4) 7-YR Avg. 59.9 49.8 40.7 2.00 (83.2) Percentage harvested in parenthesizes

34. U. S.Price EndingStocks Year Production Consumption 2000 2.23 2.39 .873 $2.62 2001 1.50 2.15 .777 $2.78 2002 1.61 1.99 .492 $3.56 2003 2.34 2.35 .546 $3.40 2004 2.16 2.24 .540 $3.40 2005 2.11 2.16 .571 $3.42 2006 1.80 2.05 .456 $4.26 2007 2.07 2.30 .312 $6.10 7-YR 1.96 2.19 .608 $3.35 Avg. U.S. Wheat Situation (Billion Bushels) 13.6%

35. EndingStocks Year Production Consumption 2000 21.4 21.5 7.4 2001 21.3 21.5 7.4 2002 20.8 22.2 6.2 2003 20.4 21.6 4.8 2004 23.0 22.3 5.5 2005 22.9 23.1 5.4 2006 21.8 22.7 4.6 2007 22.2 22.7 4.0 7-YR 21.7 22.1 5.9 Avg. World Wheat Situation (Billion Bushels) 17.8%

36. KCBT Monthly Nearest Ethanol Weather Before ethanol

37. KCBT March ‘08

38. KCBT July “08

39. Beginning stocks Production Supply, Total Exports Use, Total Ending Stocks Avg. farm price U.S. Wheat Supply and Use USDA 07/08 Kim’s 08/09 millionbushels 456 2,067 2,608 1,150 2,301 307 $6.10 307 2,350 2,657 1,050 2,250 407 $5.20

40. KCBT July wheat contract price $7.98 Elevator forward contract basis -$0.53 Forward contract offer $7.45 Buy KCBT July 800 call -$0.70 FC/Call minimum price $6.75 Buy KCBT July 800 Put (800¢ - 70¢) $7.30 Expected June 2008 basis -$0.45 Expected minimum price $6.85 June 2008 wheat delivery prices

41. Key Points • Weather is the major price factor. • Corn continues to set the floor for wheat prices. • U.S. and world wheat stocks below average. • Wheat planted acres increase ~5% (63 ma). • Wheat stocks increase in 2008/09 – below avg. • 2008/09 wheat price range $3.75 to $8.50. • June 2008 wheat price ~ $6.00 $4.50 to $8.50.

42. Management Factors: What is Important, Prices, Yields, Costs or Technology Adoption? Terry L. Kastens & Kevin C. Dhuyvetter Agricultural Economists Kansas State University http://www.agecon.ksu.edu/ kdhuyvetter/KD_Papers.htm

43. 800 + farms 1990 - 2004

44. Evaluated nine management factors Costs Profit Price herbicide/reduced tillage practices Yield

45. Evaluated nine management factors Planting intensity Acres rented Govn payments Farm size Income variability

46. 27% decrease in costs $24.16 51% increase in acres rented $18.57 22% increase in planting intensity $15.39 78% increase in farm size $13.20 Impact on profit/acre of short-run management tools Best one-third Profit/acre

47. 51% increase in herbicide use as % tillage costs $7.34 $7.01 58% increase in govn payments 15% increase in yields $4.40 8% increase in price $2.70 Impact on profit/acre of short-run management tools Best one-third Profit/acre

48. $15.39 22% increase in planting intensity $18.57 51% increase in acres rented $13.20 78% increase in farm size $7.01 58% increase in govn payments Impact on profit/acre of short-run management tools Best one-third Profit/acre

49. Summary 1. Cost most important management factor. 2. Use of technology 3. Yields 4. Supports “Efficient Market Theory.” 5. Price not significant in explaining the difference in profit.