Are You Prepared for the January 12 USDA Report? Here are Helpful Tools to Prepare for the Big Day
This is the time of the year it is easy to get lost in the post-harvest cloud of “stuff.” After all, you have had a long, hard, harvest season. In fact, it seems like you just finished planting! Then the fall, as cold, wet harvests often do, they drag on and on and on. The holidays sneak up on you, and you’re just getting around to closing the books on another year. Then, there are meetings with your accountant and lender–and let’s not forget about the mountain of paperwork that has accumulated on your desk from three long months of harvest! And just like that, it’s January 12!
You may be wondering what is so special about January 12? It is when the USDA reports the final production numbers for the 2017 crop year. From this report forward acres and yield are fixed. This is the report I like to call the “Big Game” of USDA reports and for good reason. After January 12, the supply side is fixed and the USDA can only adjust the demand side of the supply and demand balance sheet. And with record stocks stored on farms, tucked away in grain bins, this means all those unpriced bushels are at risk.
Market fluctuations shortly after the report are largely caused by a change in expectations, which can leave your unsold grain production at risk if you are not prepared.
Market analysts will all be out in force with their pre-report trade guesses just after the New Year. However, when the analysts’ expectations deviate from the report numbers, this often creates a market move. Just look at the deviation we experienced with the November World Agriculture Supply and Demand Estimates (WASDE) on both corn and soybeans:
This deviation causes the “surprise” and market reacts accordingly. But, there is no need to wait until the “Big Game” to get your team ready. In fact, getting your marketing plan in order post-harvest is actually a great first step!
However, this can be a challenging task.
One simple calculation to consider: Take the number of unsold bushels in storage and understand the value at risk given a market move. I have included a simple worksheet below to calculate this variable for your unsold production for corn and soybeans.
The prep for this report doesn’t stop with just understanding how a market moves impact on your unsold production. You need to understand the prices needed to remain profitable as well. Chances are, it’s been a while since you have thought about your break even on your corn and soybean crops. Post-harvest is actually a great time to revisit the topic.
By this time, you know how much you have invested in the crop and what it produced. You have probably even made some sales along the way. But do you know where you are profitable? This is a very difficult equation to solve. It requires totaling your expenses for the year for each crop, determining a profit goal, calculating the value of marketed grain, solving for unsold production, solving for breakeven and formulating a target price. So, I’ve created another simple worksheet that can help you get ready for report day by filling in a few blanks:
Of course, we can help, too. Your Cargill Risk Management team is here to help you with your OTC hedging needs.
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