Outlook Briefs
Harvest of the 2000 Crop Is Clouding the Production Picture. The 2000 peanut crop harvest has lagged behind the 5-year average. A later than normal harvest was expected in the Southeast due to a late planted crop. However, the usually dry Southwest harvest has been complicated by rains and the threat of cold weather. Given most of the 2000 crop additional contracts were made in the Southwest (~300,000), fulfillment of contracts will be watched closely.
Quota production in Alabama is expected to fall short by 50,000 to 70,000 tons. As result, additionals are being sold through buyback contracts in Florida and Georgia to cover the shortfall in Alabama. As of October 24, buybacks totaled 20,000 in the SE and 20,000 in the SW. Care must be taken not to overuse buybacks to the point that additional assessments will be needed to cover losses in the marketing pool the following year. Given the amount of buybacks which have an immediate profit impact on the loan pool, pool profits are expected to result in at least a $350 net loan price for additionals. Thus, the loan should return a better price than a $300 50/50 split buyback contract. The decision to use a buyback or the loan will come down to cash flow needs for some growers.
The October USDA crop report lowered the 2000 US production estimate by 283,000 pounds to 3,469,650 pounds. Harvested acreage in Texas was lowered by 68,000 acres and the yield was lowered by 350 pounds resulting in a 28% reduction in Texas's production. The Oklahoma yield also dropped 200 pounds to 2200 pounds. Georgia's and Florida's average peanut yield was raised 100 pounds to 2600 and 2400 pounds respectively, which is likely a result of Labor Day rains leading to better than expected yields for irrigated and non-irrigated fields. Thus, competition for fall transfer leases has increased raising the lease price by 2 to 3 cents above normal. (Nathan Smith)
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Outlook
Cotton Brief. USDA's October estimate, as expected, dropped the size of the 2000 US cotton crop below 18 million bales. The crop is now forecast at 17.5 million bales - down 800,000 bales from the September estimate of 18.3. Most of the reduction came as a result of reduced harvested acres in Texas.
Although the drop in the size of the crop was anticipated, the market seems to have met the report with mixed feelings. The 800,000 bale drop in production was partially offset by USDA lowering the demand side also by 400,000 bales. Still, the ending stocks/use ratio declined from 23.2% to 21.5% so this indicates the market has tightened and should provide support for prices as we proceed through harvest time and into winter. Prices (December futures) appear content to trade within a range of 62 to 64 cents. Risk of prices falling below 62 cents appears minimal.
The question on the minds of every cotton grower is whether or not prices will make another run at 68 cents. I view this possibility with optimism but caution. USDA's October report shows increased production in China and Pakistan and a 1 million bale increase in foreign stocks. The A-Index (world price) seems to be stabilizing. US export projections continue to fall. The best chance for a rally would seem to hinge on a cut in foreign production and an improved outlook for US exports.
US prices (NY futures) are currently only a couple of cents above the A-Index - this is narrow by historical standards. So some strengthening in US prices would seem warranted. Also, with US stocks/use at only 21.5%, higher prices would also seem possible.
While the risk of lower prices seems limited, upward potential looks difficult to predict. This favors growers taking the LDP and purchasing Call Options as the less risky strategy for participating in a possible rally this coming winter and spring. (Don Shurley)
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Corn Market Overview - Harvest is rapidly winding down in the heartland as farmers bring in a record crop. The latest USDA estimate is for the harvest to be near 10.2 billion bushels, up 700 million bushels from last year. Total supplies will be large at 11.9 billion bushels. Use is expected to top 10 billion bushels for the first time ever with healthy gains in all use categories. Ending stock will rise modestly. Season average U.S. prices will be near $1.85 per bushel. On the technical side, the seasonal low has been set and prices should begin a long slow upward movement through the winter. That means POPs and LDPs will likely fall. Georgia farmers should look to claim their POP or LDP and hold their corn for sale into late winter or early spring.
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Soybean Market Situation - The soybean supply demand situation reads a lot like the corn report above. Record production and total supply and record off take with a modest increase in carry out stocks. The crop will be near 2.8 billion bushels and total supply will exceed 3.1 billion bushels. On the use side of the ledger, increased domestic crush will more than off set a slight reduction in exports providing a total use level of nearly 2.75 billion bushels. Season average prices will be near $4.90. The market has most likely posted its seasonal low and a slow grinding uptrend should evolve. Consider claiming the POP or LDP soon. Current market carry in the deferred futures contracts make storage attractive.
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Wheat Market Outlook - New crop July 2001 wheat futures provide little incentive for Georgia farmers to get excited about growing wheat this winter. Current futures prices mean cash contract bids in the $2.60 range, a meager level but not low enough to promise any POP or LDP supplements. Futures prices have remained within a 30 cent range since June but have traded with more volatility over the last two months. While the world wheat stocks are declining, the U.S. stocks remain stubbornly high and that will limit upside potential unless traders sense a weather problem with the crop. (George Shumaker)
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Dairy Outlook. While there is no relief in sight for higher milk prices, there is some help on the way. Congress has passed the FY 2001 Agriculture Appropriations bill. That bill contains $473 million in market loss payments. Unlike the past two years, this year's bill does not contain a specific dollar amount to be paid to dairy producers. Instead it uses a formula equal to 35 percent of the difference between 2000 milk prices and the average price for the previous five years.
Given the significant drop in farm-level milk prices in 2000, National Milk Producers has calculated that the payment rate could be $0.65 per cwt. on a producer's annual milk output, up to 3.9 million pounds. This means that the average 210 cow dairy would get the full payment.
Cheese prices remain below support and will remain so until cheese processors start selling to cheese to the CCC. Processors do not seem to be ready to do that since USDA requires "approved packages" and inspectors to be on hand. (Bill Thomas)
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Outlook