2013 Commodity

Market Outlook

Presented By:
DeDe Jones
Extension Program Specialist III
Risk Management

Commodity Market
Overview

Tight corn supplies has lead to

elevated prices in the short term.
Sustainable??
Higher wheat revenues are due
to a strong corn market and
grain substitutions.
Rising feed costs combined with
drought conditions has resulted
in critically low cattle inventories,
thus resulting in elevated prices.

Increased production from recent

Pumping ethanol from corn in 1933 market strength combined with
weakening demand suggests
static to falling cotton prices.

World Days of Use on Hand, 11/9/2012

140

140

120

120

100

100

80

83

60

62

60

50

40

40
20

20

Corn

Soybeans

Days of Use

20-yr avg

Days of Use

10-yr avg

140

140

120

120

20-yr avg

10-yr avg

106

100

94
92

80

100

99

80

80
75

60

60

40

40

20

85
83
73

80

Wheat

20

Rice

Days of Use

20-yr avg

10-yr avg

Days of Use

20-yr avg

10-yr avg

Corn
Outlook

Marketing Year Average Corn Prices

Price changes due to a change in supply are usually short lived.
$/bu
8.00
7.00
6.00

5.72
5.17

5.00
4.00
3.00

2.38

2.00
1.29

1.00

0.78

1866
1869
1872
1875
1878
1881
1884
1887
1890
1893
1896
1899
1902
1905
1908
1911
1914
1917
1920
1923
1926
1929
1932
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013

0.00

0.46

SAFP
World Trade

Pre WWI
Biofuel Era

WWI to WWII
Dec '13 Futures

Post WWII

Price changes due to a change in demand are usually sustained for longer periods of time.

80/81
81/82
82/83
83/84
84/85
85/86
86/87
87/88
88/89
89/90
90/91
91/92
92/93
93/94
94/95
95/96
96/97
97/98
98/99
99/00
00/01
01/02
02/03
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13

U.S. Corn: Disappearance, 12/11/2012

Million Bushels

7,000

6,000

Feed & Residual

Ending Stocks

5,000

4,000

Fuel

3,000

Exports

Food Seed Industrial

2,000

1,000

Source: USDA WASDE

Feed Use

Since 2007, energy feed per GCAU has gone

from 1.74 mt to 1.48 mt (-19%)

GCAU mil

mt/GCAU
2.5

100
90

2.0

80
70

1.5

60
50

1.0

40
30

0.5

20
10

0.0

0
Dairy
Hogs
Feed per GCAU

Cattle on Feed
Poultry
Plus DDGs

Other Cattle
Other Livestock

USDA Feed Grain Database and Agricultural Marketing Resource Center, December 3, 2012

JULY 1 FEEDER CATTLE SUPPLIES

Residual, Outside Feedlots, U.S.
Mil. Head
55
50
45
40
35
30
1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

U.S. Ethanol Consumption

Mil gallons

1,200
1,100
1,000
900
800
700
600
Jan

Feb Mar

Apr May Jun

2010

EIA, Short Term Energy Outlook, December 11, 2012

http://www.eia.gov/

2011

Jul

Aug Sep Oct Nov Dec

2012

U.S. Corn Export Sales

Commitments, 2012/2013 MY
Mil bu

1,200

1,000

800

Cumulative Net Sales

600

400

200

Weekly Net Sales

0

Sales as of December 27, 2012

0
1960/1961
1961/1962
1962/1963
1963/1964
1964/1965
1965/1966
1966/1967
1967/1968
1968/1969
1969/1970
1970/1971
1971/1972
1972/1973
1973/1974
1974/1975
1975/1976
1976/1977
1977/1978
1978/1979
1979/1980
1980/1981
1981/1982
1982/1983
1983/1984
1984/1985
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012
2012/2013

U.S. Export Share: Corn Production

mmt

600

500

400

300

200

100

US

USDA Foreign Agricultural Service, PSD 11/12/2012

Foreign

0
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902
1906
1910
1914
1918
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010

U.S. Corn Yield

180

160

140

120

100

80

60

40

20

-40%
1866
1870
1874
1878
1882
1886
1890
1894
1898
1902
1906
1910
1914
1918
1922
1926
1930
1934
1938
1942
1946
1950
1954
1958
1962
1966
1970
1974
1978
1982
1986
1990
1994
1998
2002
2006
2010

Percentage Change in U.S. Corn Yields

70%

60%

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

92-94
07-09
10-12

25%

20%

15%

1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012p
2013e

Corn Yield, % Deviation From Trend

Total corn use in years following short crop:

+13%
+17% +5%
+7%
+17%

10%

5%

0%

-5%

-10%

-15%

-20%

-25%

60
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012p
2013

U.S. Corn Yields

Bushels per acre

180

160

157.2
149.1

140
122.0

120

100

80

Yield

WASDE, 12/11/2012
Trend
10-yr avg

U.S. Corn Supply and Demand

Mil bu

16,000

50%

14,000
40%

12,000
10,000

30%

8,000
6,000
4,000

20%

12.8% 13.9% 13.1%

8.6%

7.9%

2,000

11.0%
5.8%

10%
0%

2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14e

Ending Stocks
Domestic Use and Exports

Production
Stocks:Use

Source: WASDE 12/11/12 and personal estimate

/bu

9/4/2012
9/14/2012
9/26/2012
10/8/2012
10/18/2012
10/30/2012
11/9/2012
11/21/2012
12/4/2012
12/14/2012
12/27/2012
1/9/2013
1/22/2013
2/1/2013
2/9/2013
2/17/2013
2/25/2013
3/5/2013
3/13/2013
3/21/2013
3/29/2013
4/6/2013
4/14/2013
4/22/2013
4/30/2013
5/8/2013
5/16/2013
5/24/2013
6/1/2013
6/9/2013
6/17/2013
6/25/2013
7/3/2013
7/11/2013
7/19/2013
7/27/2013
8/4/2013
8/12/2013
8/20/2013
8/28/2013
9/5/2013
9/13/2013
9/21/2013
9/29/2013
10/7/2013
10/15/2013
10/23/2013
10/31/2013
11/8/2013
11/16/2013
11/24/2013
12/2/2013
12/10/2013

December Corn Futures and 2013 Marketing Plan

South American crop
conditions
Battle for Acres
Planting Intentions

20%
Early season Acreage Tassel and August
crop
Report/
Crop Report
condition and Grain
weather
Stocks
outlook

20%
20%
20%
Cash
sales at
harvest

20%

750

700

650

600

550
avg

500
trend

Oceanic Nino Index (ONI)

ENSO-neutral conditions continue.
Sea surface temperatures are near average across the Pacific Ocean.
ENSO neutral is favored through the Northern Hemisphere winter 2012-13 and into spring 2013.

C
2.0
1.5
1.0

El Nino

Actual Measurements
Latest actual
weekly SST
departure

0.5

Neutral 0.0

La Nina

-0.5
-1.0
-1.5
-2.0

El Nio/Southern Oscillation (ENSO) Diagnostic Discussion, December 31, 2012

http://www.cpc.ncep.noaa.gov/products/analysis_monitoring/enso_advisory/

Predicted

Wheat
Outlook

Marketing Year Average Wheat Prices

$/bu
9.00
8.00

8.00

7.00

6.53

6.00
5.00
4.00
3.33

3.00
2.00

0.00

0.90

1.12

1908
1911
1914
1917
1920
1923
1926
1929
1932
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013

1.00

1.77

MY Avg Price

Pre WWI

WWI to WWII

World Trade

Biofuel Era

Jul '13 CFC

Post WWII

IGC 2012/2013 World Wheat Estimates

mmt

Stocks, mmt

2012/2013

700

500

680

450

660

400

640

350

620

300

600

250

580

200

560

150

540

100

520

50

500
S:U

26.8%

30.7%

29.4%

28.3%

30.5%

Ending Stocks

30.3%

28.0%

26.7%

Production

27.0%

26.5%

25.8%

25.3%

Consumption

International Grains Council, Grain Market Report, 29 November 2012

25.5%

2012/2013 Wheat Production, Major Countries

mmt

150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
U.S.
-1.4 =

+0

2011/2012

Argentina Australia Canada

+0
May

-2
June

+0
July

EU-27

China

+0.2

+0

August

September

Pakistan

India

+0.3
October

+0

FSU-12
+0.1
November

Russian Grain Production

mmt
80
70
60
Rye
Oats
Corn
Barley
Wheat

50
40
30
20
10
0
2010

2012
+25%

80
/8
81 1
/8
82 2
/8
83 3
/8
84 4
/8
85 5
/8
86 6
/8
87 7
/8
88 8
/8
89 9
/9
90 0
/9
1
91
/9
92 2
/9
93 3
/9
94 4
/9
95 5
/9
96 6
/9
97 7
/9
98 8
/9
99 9
/0
00 0
/0
01 1
/0
2
02
/0
03 3
/0
04 4
/0
05 5
/0
06 6
/0
07 7
/0
08 8
/0
09 9
/1
10 0
/1
11 1
/1
12 2
/1
3

U.S. Wheat Use

Million Bushels

2,000

1,750

1,500

1,250

1,000

750

500

250

Ending Stocks

WASDE, 11/9/2012

Feed and Residual

Exports
Food and Seed

U.S. Wheat Planted Acres

Million acres
80.0
75.0

Planted acres = 63.09 + (2.51 * pricet-1) + (-1.39 * trend)

R^2 = 92.4%

70.0
65.0

58.3

60.0
55.0

56.0

50.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Actual
Updated 12/11/2012

Predicted

0
10/28/2012
11/4/2012
11/11/2012
11/18/2012
11/25/2012
12/2/2012
12/9/2012
12/16/2012
12/23/2012
12/30/2012
1/6/2013
1/13/2013
1/20/2013
1/27/2013
2/3/2013
2/10/2013
2/17/2013
2/24/2013
3/3/2013
3/10/2013
3/17/2013
3/24/2013
3/31/2013
4/7/2013
4/14/2013
4/21/2013
4/28/2013
5/5/2013
5/12/2013
5/19/2013
5/26/2013
6/2/2013
6/9/2013
6/16/2013
6/23/2013
6/30/2013
7/7/2013
7/14/2013

2013 U.S. Winter Wheat Crop Condition Ratings

%
CCI

100
500

90
450

80

70
400

60
350

50
300

40
250

30
200

20

10
150

Very Poor
Poor
Fair
Good
Excellent
2013

100

2012

10/28
11/4
11/11
11/18
11/25
12/2
12/9
12/16
12/23
12/30
1/6
1/13
1/20
1/27
2/3
2/10
2/17
2/24
3/3
3/10
3/17
3/24
3/31
4/7
4/14
4/21
4/28
5/5
5/12
5/19
5/26
6/2
6/9
6/16
6/23
6/30

2013 Texas Winter Wheat Condition Ratings

%
CCI

100
500

90
450

80
400

70

60
350

50
300

40
250

30
200

20

10
150

0
100

Very Poor
Poor
Fair
Good
Excellent
2013
2012

1000

500
4/2/2012
4/13/2012
4/25/2012
5/7/2012
5/17/2012
5/30/2012
6/11/2012
6/21/2012
7/3/2012
7/16/2012
7/26/2012
8/7/2012
8/17/2012
8/29/2012
9/11/2012
9/21/2012
10/3/2012
10/15/2012
10/25/2012
11/6/2012
11/16/2012
11/29/2012
12/11/2012
12/21/2012
1/4/2013
1/16/2013
1/29/2013
2/6/2013
2/14/2013
2/22/2013
3/2/2013
3/10/2013
3/18/2013
3/26/2013
4/3/2013
4/11/2013
4/19/2013
4/27/2013
5/5/2013
5/13/2013
5/21/2013
5/29/2013
6/6/2013
6/14/2013
6/22/2013
6/30/2013
7/8/2013
7/16/2013

July 2013 KC Wheat and Marketing Plan

/bu

Early Season Price Rally / Early Crop Conditions

Emerging from Dormancy/Late Season Conditions
Harvest

900

800

700

600

Cotton Market
Outlook

Discussion Points
Supply/Demand numbers
Major variables
Chinese reserve policy
Fund/Fed influences
Weather

Dec13 between 65-85 cents per lb.

2008: Post Mortem

$1.50 COTTON!!!

What Gave Us VERY High Cotton

Futures?
1. Cotton acreage and carryover stocks declined from 2006
through 2009, i.e., cotton repeatedly lost the annual battle for
acreage.
2. The fund sector jumped on the commodity bandwagon in July
with the Russian wheat situation and ramped up cotton buying..
3. New crop supply reductions (e.g. major Pakistan floods,
cold/wet weather in China)
4. Late-season uncertainty about delayed harvests in China and
India (who imposed export restriction)
5. Foreign (especially Chinese) cash prices climbed towards $2.00
on fears of lower-than-forecasted carry-in stocks, fears of
inadequate new crop supplies. Mill buyers may have also
gotten caught in a corner with on-call contracts that were due.
6. Inflationary money policies in U.S. and China until early
November
Will/Can all these factors all line up again?????

Cotton Fundamentals:
The Return to Normalcy
Increasing U.S.
ending stocks,
year over year
fits pattern of
weakening
prices.

Historically
high world
ending stocks
do too, but
distorted by
Chinese reserve
stocks policy.

Cents/Lb. and Percentage

220
200
180
160
140
120
100
80
60
40
20
0
Dec-95
May-96
Oct-96
Mar-97
Aug-97
Jan-98
Jun-98
Nov-98
Apr-99
Sep-99
Feb-00
Jul-00
Dec-00
May-01
Oct-01
Mar-02
Aug-02
Jan-03
Jun-03
Nov-03
Apr-04
Sep-04
Feb-05
Jul-05
Dec-05
May-06
Oct-06
Mar-07
Aug-07
Jan-08
Jun-08
Nov-08
Apr-09
Sep-09
Feb-10
Jul-10
Dec-10
May-11
Oct-11
Mar-12
Aug-12

U.S. Cotton Stocks-to-Use Show Fundamental

Rationale for Price Movements
(except too exaggerated in 2010/11!)

Marketing Year

U.S. Stks/Use
Nearby Futures

August 95 December 2012

125.00
123.00
121.00
119.00
117.00
115.00
113.00
111.00
109.00
107.00
105.00

Production

Consumption
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12

Million 480 Lb. Bales

STILL Dealing with the Effects of $2.00

Cotton in Early 2011

Weak Demand Outlook

European sovereign debt problem
Implies slow to negative economic growth in U.S. and
Europe
Historically this is associated with reduced demand
for cotton

10.00

6.00
1970/1971
1971/1972
1972/1973
1973/1974
1974/1975
1975/1976
1976/1977
1977/1978
1978/1979
1979/1980
1980/1981
1981/1982
1982/1983
1983/1984
1984/1985
1985/1986
1986/1987
1987/1988
1988/1989
1989/1990
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
2004/2005
2005/2006
2006/2007
2007/2008
2008/2009
2009/2010
2010/2011
2011/2012

Lbs./Population

World Per Capita Cotton Use

Shaded bars represent periods of economic recession. Cotton
consumption tends to drop during those periods due to fewer
purchases of clothes, home furnishings, etc.

9.00

8.00

7.00

Source: USDA/ERS/WASDE

China Influences
The Chinese govt has been stock-piling
cotton reserves since 2011
As long as this Chinese cotton remains
out of circulation, world prices have
been supported higher than they
should have been
But Chinese govt reserves represent a
big uncertainty
1.
2.

Kicking the supply response can down the road

Recent indicators that some releases may commence
fewer U.S. exports and lower prices.

China to Release Cotton

Reserves; Futures Decline
By ALEXANDRA WEXLER Jan. 4, 2013
NEW YORKChina has decided to release cotton in its state reserves, a move that has the potential to
shake up the global market for the fiber. The country's National Development and Reform Commission
said it planned to release the stocks to meet demand from the domestic textile industry, according to a
notice on its website dated Dec. 28. However, the NDRC didn't give any details as to how much cotton
would be released, or when.
China is the world's largest producer and consumer of cotton. The news helped push cotton futures to
a three-week low of 73.72 cents a pound during Friday's trading. The contract for March delivery on the
ICE Futures U.S. exchange later settled 0.5% lower at 75.05 cents a pound. China, the world's No. 1
cotton producer and consumer, has been stockpiling the fiber since late 2011, and the U.S. Department
of Agriculture forecasts that China would possess 47% of the world's raw-cotton stocks by

July 31.
Its purchases of U.S. cotton had supported futures prices. Selling cotton from its reserves could mean
fewer imports and less demand for U.S. cotton, analysts said. The release of cotton from China's
reserves "would be bearish to cotton futures, but we suspect they will only sell small amounts until
after planting season passes in the late spring," said John Flanagan, president of Flanagan Trading in
Fuquay Varina, N.C. If China released a lot of cotton, domestic prices could fall and discourage farmers
from planting the crop. However, there are also rumors that China could link the release of reserves to
imports of tax-free or low-tax cotton. Mills that buy from the stockpiles could be allowed to also bring in
an equal amount from overseas. This year's cotton crop in China was of poor quality, so mills may want
imported fiber to blend with domestic stocks, according to industry participants.

Fund/Fed Influences
Fund Sector was an early catalyst, but not
the main force behind the 2010/11 rally.
In 2011/12, the Specs contributed to
volatility, more in a semi-weekly risk on/off
money flows.
1. Changing expectations of economic growth =
demand for commodities
2. Often following euro/$USD shifts
3. Changing expectations/reactions of QE

Outlook for 2012 Crop

The demand picture will remain weak from
reduced consumption and poor/slow
economic growth.
The main thing supporting prices has been
Chinese Govt reserve stock policy
Futures spreads show little incentive to store
cotton
If China starts releasing from govt reserve, prices
could weaken more
Treat old crop price rallies as selling opportunities

What About 2013?

100

December 2013
Settlement Price
Cents/Lb.

90

80

70

December 2012
Settlement Price
60
J

January 3, 2012 December 6, 2012

U.S. Planting and Production Situation will

be Uncertain
Not enough for
a supply
shock
More like a little
uncertainty
premium into
November.

What About 2013?

Consider 2007 when the 4,900,000 planted acres of

Texas cotton was 23% less than in 2006 and pretty
much for the same reasons. So lets assume that U.S.
planted acres of all cotton decline to 9.5 million.
.

With avg. abandonment and yields, could still see 15M

bales of production. Adding in likely 2012/13 carryover
gives a 20 million bale supply. If we export 11 million and
use 3.4 million, that gives a roughly similar ending stocks
for 2013/14 and 2012/13.
Little fundamental rationale for significantly higher cotton prices
than this years range of the Dec 12 contract.

Assumes no demand or policy shock in 2013/14. Big

variable is whether Chinese cotton reserves replace my
assumed level of U.S. exports.

Final Thoughts
Utilize Extension Resources to Aid in Decision Making
Drought Spreadsheets, Commodity Budgets, Market
Outlook Reports,
http://agecoext.tamu.edu/
FARM Assistance (Like Us on Facebook)
QuickBooks Premier 2012

Questions/Thanks
DeDe Jones
Extension Risk Management Specialist III
Amarillo, Texas
806-677-5600
dljones@ag.tamu.edu