CFGAG News and Views           vol. 28      November 1, 2011

"There is a risk of loss when trading futures and options. The thoughts
and opionions in this article are those of the author, and while believed to be
correct, are not guaranteed as to the accuracy or content. Past performance is
not indicative of future results, and each individual should examine their own
risk capital carefully before trading."

"More cards on the table?"

The much anticipated October 12 reports were released, and the big
surprise was no big changes. Harvested acres were tweeked a bit, but yields
were basically unchanged. Soybean yields were lowered slightly, contrary
to anectodal reports of excellent yields by our farmer contacts, but
really, no big changes from September. There is still a lot of disagreement in
the trade about final yields and production, but at this point, it would seem
to have little impact on price movement. What is moving the market is
simply money flow. With the ongoing issues in Europe, the US dollar
fluctuations and the corresponding trade in commodities is easy to see. Look at
a chart of the dollar, and of corn, and you can see the mirror images. At some
point, usually around Government report days, we do trade some supply/demand
issues, but thats about it. 

The negative factors to price at this time are pretty clear:

1) Export demand is not good for corn, beans, and wheat. Competition from
Russia, South America, and others continue to offer grain cheaper
than the US

2) US Dollar value climbing only makes #1 worse

3)South American weather, planting progress, and leftover supplies from last year
are all bearish beans.

4) European debt issues, the impact on US banks, and the possibility of
default remains a major issue and likely for some time to come

From the positive side:

1) Ethanol is again, very profitable, and demand is good domestically

2) Farmers remain tight holders of grain, and will probably continue to hold until
after year end.
 

3) The North/West Corn belt is extremely dry, and prospects for
moistue recharge do not look good right now.

4) While there are no major weather issues in South America now, how long before
there is one?

Stepping back, away from the day to day volatility, and endless opinion and rhetoric,
for corn we seem to have worked our way into a trading range. 6.50-6.55 is
about where we seem to run out of buyers, and we spend little if any time below
$6.00, and we have witnessed good buying support on any move below that level
so far. Seems pretty easy to recommend sales or put option purchases at the
high end of the range. At the low end of the range, taking profits on
longs, buying calls or futures to reown previous sales makes sense, right?
So why dont we do that every day? The reason is risk, and the volatility of the
market. While we enjoy the good basis now, and seem to have good demand at the
$6.00 level, the risk is a meltdown in Europe, and it could happen any day.
Will it? No on knows for sure, but with the financial distress of a major
clearing firm in this country who is reported to have invested heavily in
Europe, it would seem logical that there is more distress to come. That is why
we strongly suggest that owning put options, making cash sales on good basis,
and looking at a point down the road to reown those bushels when the fires die down
makes good sense. We strongly fear that recent strong basis may not last past
January 1 when lots or contrated grain starts to move. Make sure you have a
plan for dealing with a financial upheaval in Europe and the potential domino
effect in this country by having enough grain covered or sold to meet cash flow
needs. It would be better to have one and not need it than to be stuck in a
panic.

We hope you have been pleasantly surprised when you got to the field and got some
actual yield results. Many of our clients have reported better than expected
yields in both corn and beans, and now have "extra" bushels to
market. Cash flow, tax planning, and a host of other issues influence our
marketing behaviors. Sometimes in an effort to "beat the tax man" we
miss out on some great sales opportunities. I can easily admit to doing exactly
that some times, and have fought the same emotions this year. The "bird in
hand" philosophy is winning in my thinking at this point, and with a
strong basis now combined with a decent futures price, making some more sales
is easier. Reowning those bushels with a limited risk plan later is getting
more and more attractive every day.

There are many ways to reown sales, and include calls, call spreads, and futures. We
also like the idea of owning puts, (at the high end of the price range) and
looking to buy the futures on a break to the lower end. For instance, if we
were to own a $6.30 Dec put for around 15 cents on October 31, and the price
breaks back to $6.30, we could buy the Dec futures at that time and our total
risk is 15 cents plus transaction costs. The advantage to this over call
spreads is now our upside is unlimited. This is just a hypothetical example,
and there are many different combinations of strike prices and months to use
depending on individual goals and objectives. Call us for specific
recommendations on using any of these ideas.

Which leads us to preparing for the November USDA reports on the 9th. Depending on
your outlook, the ongoing European saga, etc, dont forget to cover yourself
before Wednesday Nov. 9. There are still those calling for lower yields, and
lower production, while some are looking  for higher. We will not try to
outguess the USDA process, but will look again at those items highlighted above,
and make some decisions. A quick glance at our cash flow with these prices is
telling us not to take on a bunch of risk. Keep in mind that money flow and
world economics will be the primary price movers until we get to report day,
but after the numbers come out, unless it is a real game changer, we will go
back to what got us here.

From  the technical side, we have the following numbers from our computer
to consider:

In conclusion, We hope you have all enjoyed a safe and productive harvest this
year. In the month of November, a few weeks from now, we will sit down with
family and friends to celebrate the blessings and gifts we have enjoyed this
past year. We thank you for working with us, and hope that we have been able to
help in some way or another to add to your opperation and the bottom line. Call
us to discuss ideas, markets both futures and cash, and we are working with
both programs to provide the best mix of ideas that will fit what you want to
do. In this Great Nation, we still get to do just that, what we want to do, and
for that we give thanks!

Mike Daube      888-391-6330

Allen Gard       800-205-1700