Clear Focus Hedging - CFG Newsletter 115

Clear Focus Hedging – News and Views vol. 115 February 1, 2019

“Deal or No Deal”

The title represents the trade negotiations with China, but also negotiations within our government regarding a budget and the funding of a boarder wall. We have for the most part been range bound since harvest. Reluctant to rally and not willing to take out recent support. For the most part lack of government reports, lack of a major weather story has also helped us maintain the range as no one seems willing to take a substantial position to move the market higher or lower.

On Friday, January 25^th it was announced that we would temporarily open the government and try and negotiate a budget…so we should see a flurry of government reports this week (COT, Export Sales and Export Inspections.)

The final USDA and Quarterly Grain stocks will be released with the February 8^th crop production report. We have included a table with the last report #’s on December 11^th and what the Average Guess was several weeks ago…

January 11, 2019	December 11, 2018	Average Guess
Corn Production	14,626	14,538
Corn Yield	178.9	178
Planted Acres	89.1
Harvest Acres	81.8	81.80

Soybean Production	4,600		4,572
Soybean Yield	52.1		51.8
Planted Acres	89.1
Harvest Acres	88.3		88.30

US 2018/19 Ending Stocks
Corn		1,781		1,694
Soybeans		955		904

November 2019 soybean chart

Soybeans:

Old crop:

We have been sold out for some time. If you are still sitting on gambling stocks, consider locking in basis and look to at least buy puts for some price protection as we are in the upper end of recent ranges. We think selling grain and buying puts with the intent to re-own futures at a later date, ie at the lower end of the recent range has merit vs doing nothing – if you really want to be long soybeans.

New crop:

Start by looking to sell incrementally above $9.50 futures. With carry out’s projected, diminished demand for soybeans, lower meal demand from China due to African Swine Flu. We feel $9.50 or greater is just a good starting point. We are more nervous about soybeans vs corn due to the large carryout in soybeans (corn carryout is potentially shrinking). We think buying puts or using “sell stops” below the market are a potentially effective ideas to manage risk. We also understand that sales can be bought back on paper. We know we can buy futures or call options at a later date. If something changes to effect price in a positive way. (weather, demand improvements, much lower planted acreage than anticipated etc.)

December 2019 corn chart

Corn:

Old Crop:

We feel that basis has improved and selling futures at $3.90 May or greater makes sense. If you want to capture carry, looking to July in the $4.05 area as a target is good point. We are friendly corn, but don’t want to miss our pricing opportunities and prefer to sell into rally’s at the top side of the range.

New crop:

Corn has recently traded up to $4.13 ¾ on August 8^th and has been pretty resilient in the low $4.00 range. We prefer to try and be patient on corn, targeting $4.15 for our initial sales and have bought some $4.20 Short Dated July courage calls for 8 cents on a portion of our production. (these are currently around 10 ½ cents) We are using these to help us sell more aggressively when/if corn gets to the $4.15-$4.20 range) as the calls will be in the money and can enhance the price and manage margin calls if needed.

July 2019 wheat chart

Wheat has not found a story and continues to struggle in the lower end of the range. We do believe that we have suspect acres with the delayed harvest and could have some winter kill areas. We feel patience into mid-February or early March is warranted for additional wheat pricings.

As we move forward and get thru the crop report on February 8^th, we will trade on political news, South American weather and eventually thoughts on planted acreage. Below is a table that depicts last years planted acreage vs Informa’s thoughts.

Planted Acreage Estimates (million acres)

Last Year Planted Acreage IEG (Informa)

Corn 89.1 90.50

Beans 89.1 86.20

Corn:

1) Sell old crop on good basis at the upper end of the range, around $3.90 May futures. Look to set nearby basis on transportation gliches due to weather or planting. Generally in large crop carryover years the nearby basis can be weak, but if you look at the basis 2 or 3 months ahead you usually can lock in a better basis than what basis is when we get there. This is especially true in late summer when everyone wants to move grain..

2) Start selling new crop in the $4.15 area, ramp up sales or buy puts in the $4.20-$4.25 target zone, and consider putting in sell stops at $4.10 on remaining sales if we reach the target zone, moving stops up with the market if it would continue higher..

3) On down moves, consider buying calls or futures at the bottom end of the range, around $3.75 May futures. Keep risk limited by buying futures against puts if you have them in place.

4) If we reach profitable levels, make sure you have risk covered going into March 31. If December puts are too expensive, consider short dated July expiration, or simple May puts. If the reports are bearish, usually the front trading months get hit harder.

Beans:

Sell old and begin incremental sales of new crop now. Monitor carefully as carryover is large. Puts could have value at some point. Another idea to consider is putting sell stops in below the market. Sales can be covered with calls at any time you are not comfortable, should we get a “weather rally” later this spring or summer.

Mike Daube: 888-391-6330

Allen Gard: 800-205-1700

Dates to remember:

February 8^th Final US Production/Demand
February 8^th Quarterly Grain Stocks from December 1^st
February 22^nd March options expire
February 22^nd Cattle on Feed
March 31^st Planting Intentions and Quarterly Grain Stocks
Export Inspections every Monday at 10am
Export Sales and Shipments every Thursday at 7:30am