From BNSF. Econ. 338C: Overview of Grain U.S. & Global Marketing. 2 Dump Pits

Transcription

1 From BNSF Econ. 338C: Overview of Grain U.S. & Global Marketing 2 Dump Pits

2 Major Marketing Functions Providing time utility Providing form utility Providing space utility Financing Price/value discovery

3 Key work area for Grain Merchandisers Merchandising & Arbitrage functions: maximizing return over time & space

4 Geographical Corn Price Differences Early May Wheat 2.72

5 Bu./A. World Population & U.S. Corn Yield Population Corn Yield Billion people

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7 Econ. 338 C: Spring 2003 Overview of Grain Marketing, cont. All Activities from production to final user = Marketing First receivers of grain-- elevators, processors, feedlots Pricing the grain to farmers Offering contracts Merchandising: finding greatest value for the grain Economics of transportation Utilizing space efficiently Segregating: specialty crops, non-gmo

8 Countries requiring GMO labeling 4/04 Brazil U.K. Belgium France Netherlands Germany Luxembourg Switzerland Denmark Ireland Paraguay Slovenia Sri Lanka Hungary Philippines Greece Italy Portugal S. Korea Spain Japan Sweden Czech Rep. Finland Hungary Austria Saudi Arabia Poland Japan Australia Mexico New Zealand Russia China Ethiopia Thailand South Africa Taiwan Malaysia

9 Overview of Grain Marketing, cont. First receivers of grain-- Continued Grading grain: Official & unofficial grades Grading standards: BCFM, Test Wt., Damage, soybeans include splits, foreign material Risk-management: hedging, using options Quality control and management *** Processors--soybeans Managing & protecting processing margins: hedging the crush, reverse crush positions Merchandising products Sourcing the soybeans

10 Calculating Soybean Crush Margins 2/26/2004 2/27/03 Soybean oil price$/lb Oil yield, lbs./bu Oil value,$/bu Soybean meal price, $/to Meal yield, lbs./bu Meal value,$/bu Total value from products Bean price, C. Illinois Gross Crush Margin

11 1.20 Figure 1. Soybean Crush margins implied by futures 2004/ $ per bushel Cash margin Feb 3, 04" Feb 25, 04" 5-Mar-04 March May July Aug Sept Nov Jan

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13 Overview of Grain Marketing, cont. II Processors--Corn (ethanol, fructose, other) Can t hedge in margins, may protect via. forward contracts with users Sourcing the corn & contracting with farmers Quality control Dynamic industry About 75 new plants are being planed Big firms: Cargill & ADM (wet milling) vs. dry milling: Distillers grain & solubles vs. corn gluten feed & corn gluten meal) Avoid EU unapproved GMO corn

14 Sioux Lyon Plymouth Woodbury * * * * Osceola O Brien * Monona Harrison Cherok ee Ida Crawford Shelby Pottawattamie Mills * Fremont * * * * Dickinson Clay BuenaVista Page Sac * Carroll Emmet Palo Alto Pocahontas Greene Audubon Guthrie Cas s * Calhoun * Adair Kossuth * Mnt omery Adams Union * Humbol dt Boon e Dalla s Madis on Taylor Ringgol d Winnebago Worth Mitchell HowardWinnesh iek Allamakee Hancoc k * Clarke Polk Storyr Floyd CerroGordo Wright Franklin * Warren * * * * Webster * Hamilto Hardin * * n * Decatur Wayne Marshal l Jasper BlackHawk Tama Wapello Appanoose Davis Chickasa w Bremer Fayette Benton n Poweshiek Iowa Linn Washington Jefferson Henry VanBuren Lee Jones Mucatine Des Moines Iowa Corn Processing & Ethanol Plant Locations, Actual & Planned 2/05/05 Butle r Grundy Marion Mahask Keokuk a Lucas Monroe * * Buchana n * * Johnson Clayton Delawa re * * * Cedar * Louis a Dubuque * Jackson Clinton n Scott *

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17 Est. Corn Available for Export, 2003 and Proj. 2008, Mil. Bu. Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Proj. Proj I 08 II Iowa Proj. Proj I 08 II Key Assumption: Corn 2004 level

18 Basis for Corn, Iowa Counties LYON SIOUX OSCEOLA DICKINSON EMMET O'BRIEN CLAY PALO ALTO KOSSUTH WINNEBAGO HANCOCK WORTH CERRO GORDO MITCHELL HOWARD FLOYD CHICKASAW WINNESHIEK FAYETTE ALLAMAKEE CLAYTON PLYMOUTH CHEROKEE BUENA VISTA POCAHONTAS HUMBOLDT WRIGHT FRANKLIN BUTLER BREMER WOODBURY MONONA HARRISON POTTAWATTAMIE MILLS IDA CRAWFORD SHELBY -30 SAC MONTGOMERY CARROLL AUDUBON CALHOUN Notes: Underlined data indicates that no data were available; averages for surrounding counties are reported ADAMS GUTHRIE GREENE WEBSTER UNION DALLAS BOONE CASS ADAIR MADISON WARREN HAMILTON HARDIN GRUNDY CLARKE MONROE WAPELLO JEFFERSON FREMONT PAGE TAYLOR RINGGOLD DECATUR WAYNE APPANOOSE DAVIS VAN BUREN POLK STORY LUCAS MARSHALL JASPER MARION MAHASKA TAMA POWESHIEK BLACK HAWK BUCHANAN DELAWARE DUBUQUE KEOKUK BENTON IOWA LINN JOHNSON WASHINGTON HENRY LEE LOUISA JONES -9.4 DES MOINES -7.3 CEDAR MUSCATINE JACKSON CLINTON SCOTT -8.7 Late January to late February, 2005 Corn Basis (cents/bu) under near-by futures to to to to to to 0.0

19 Corn Basis Under March Futures Northwest Iowa Feb Feb Feb Feb * Feb Feb Feb Avg North Central Iowa Feb Feb Feb Feb Feb Feb Feb Avg

20 U.S below utilization Mil. Bu. Change in 2002 Corn Production vs /12/02 Basis Implications!

21 Overview of Grain Marketing River terminals Sourcing grain Hedging Quality control Blending Incoming & outgoing transportation Barge freight rates un-regulated, can be locked in Seasonality Competitiveness with processors

22 Useable Bin Size

23 Overview of Grain Marketing Transportation Impacts farmers, elevators, processors, exporters, feedlots Large economies of scale: Shuttle trains, 110 cars of 110 tons each, used continuously Have 17 hours to load and move out Cost savings vs. 100 car trains, to Texas panhandle feedlots: about $0.20 per bushel Volume handled each trip: 432,000 bu. of corn or 403,000 bushels of soybeans Basis & competition impacts

24 Overview of Grain Marketing Transportation Implications for elevator indust. Structure? Changing structure of production agriculture & farmer transportation Trend toward larger farm operations, multiple farms, less on-farm storage Trend toward semi-trucks Need for fast receiving at elevators, processors Basis & competition impacts, where farm storage is large

25 Overview of Grain Marketing Port elevators Major grain exporting ports, corn & soybeans: Gulf, West Coast, Duluth, Chicago/N. Indiana Growth markets: Latin America & Canada Port elevator ownership: Cargill, Japanese firms, Dryfus Quality control: Federal inspection & grading, sampling as loaded Wheat: requires non-gmo certification Checking for unapproved GMO corn

26 Useable Bin Size

27 Cleaning Conveyer Systems

28 Overview of Grain Marketing Importing port: Wilmington, N.C. The world markets Major grain importing countries Import systems & infrastructure Major grain exporting countries Ocean freight (N.Y. Journal of Commerce) GMO trends & preferences Trends in foreign production & use Trade agreements: NAFTA, WTO, possible Latin American agreement Foreign inspection & grading

29 Have currencies recovered % Chg. Feb vs. Jan EU Euro -17 S. Korea -51 Hong Kong -0.9 Japan Malaysia -49 Indonesia -285 India -33 Argentina -218 China +0.1 Russia -576 Philippines -106 Taiwan -27 Thailand -70 Brazil -255 Mexico -46

30 Typical dirt road in Brazil during the beginning of the dry season. Brazil Cerrados Top Soil 120 ft

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33 Newly Cleared Land In Brazil Planted to Upland Rice

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46 % of years out of 30 that climatic conditions are expected to support Asian soy rust Estimated Asian Rust Risk Only 2.7 mil. soy A. in highest-risk S.E. U.S.

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49 1000 U.S. Soybean Exports, Through Marketing Years

50 Figure 6. U.S. Corn Exports to Selected Destinations, to South Korea EU 1994/ / / / /99 99/ Indicated. Mil. Bu.

51 Figure 7. Net Grain Exports, Eastern Europe & Former Soviet Union Combined ,500 1, ,000-1,500-2,000-2,500 Mil. Bu. Corn Equivalent

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56 Corn in China, June 2000

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59 Overview of Grain Marketing World futures markets (Price Discovery) Chicago:corn, soft red wheat, soybeans, oats Kansas City: hard red winter wheat Minneapolis: hard spring and hard white wheat, Corn & Soybean cash index markets New York: Rice Tokyo: GMO & non-gmo soybeans, corn Various other futures markets: Argentina, China, Europe Foreign exchange futures

60 For March 24 Class Read Chapters 1 and 3 in Managing Risks and Profits Focus will be on evaluating corn and soybean producers financial risk bearing ability, break-even prices, and other financial considerations in developing a grain marketing plan