Clear Focus Hedging News and Views
December 1, 2021

 

"Time To Reflect"

As we enter the last month of 2021, we like to look back and reflect on how our marketing plans worked out, evaluate our approach to risk management, and look for ways to improve. For most, 2021 will go down as a tremendous year for both yield and price, which doesn't happen very often. For some, weather issues of too much or too little rain and some nasty storms with excessive winds did some real damage. The bottom line is as a nation, we produced a very big crop of corn and soybeans, and that crop will be sold for the most part by next September. The question is when will you sell?

We have had MANY calls the last two days when prices broke on a combination of a new virus strain, good weather in South America, and the announcement by Brazil that they will not increase the blending rate of soy oil back to 13% in bio diesel gave the markets reason to sell off as investors do not like uncertainty, and the funds hold a very large long position in corn. While the overnight markets are higher today, 12/1, we want to be cautious and watch the lows put in yesterday closely. $5.62 March corn futures was the low, and while not a sure thing, we feel that is an important level of support. If we can hold yesterday's lows, we may be able to retrace some of the move down. The following is a list of possible friendly factors:

1) Crush margins for beans and ethanol are excellent. Domestic demand should keep supporting the market. Will these users extend coverage after the break in price?

2) South American weather has been very good so far, can that continue without some issue developing?

3) Export sales have been relatively slow, will the break inspire some new buying ?

4) Cash flow is not a major issue, so tight farmer holding can be expected, at least until the new year begins

5) Folks remember vividly how harvest time sales last year were "too soon" as prices rallied sharply when South American weather deteriorated

6) End users are profitable at these price levels, and inflation fears may add to the buying

There are also some negative possibilities as well, and we list them below:

 

1) Big crops get bigger? The January USDA Final Report could increase yields again

2) Funds are still holding a big long positions in corn, over 350,000 contracts at last estimate

3) South American weather looks fairly good, a few dry areas in Southern Brazil, but nothing dramatic yet

4) China is way behind a normal buying pace in soybeans, and still have unshipped corn on the books

5) Geo Political issues with China and Russia keep uncertainty and unrest a factor

6)Weather in other major producers is reasonably good, not perfect, but ok for now

Our biggest concern right now is the size of the fund long in corn, as that represents the avenue of quickest price drop if they decide to sell, bank profits, and head home for the holidays. On the other hand, they have been long corn for a very long time, and may be content to hold until we have a crop in the ground here, (and the fertilizer to feed it). Sometimes the first day of a new month brings more money flow in, and we will watch that as well. In our minds, after a good sell off correction, we will watch to see if end users step up and extend coverage, if managed money flows in or out, and how producers respond by either selling or holding tight. It was a wake up call for us as producers, that markets don't have to go up every day, and there will be selling at some point. What is your price? Do you have one in mind? We have to remind ourselves that with good yields, these prices represent a very respectable level of income, and there is risk to the downside as we have seen the last two days. Make sure you are comfortable with that risk or have a plan to remove some or all of it.

 

We are repeating the following from last month to illustrate some thought for new crop:

On new crop, the chatter has been high input costs will drastically change planting intentions, and in some areas, this may be the case, but in the heart of the corn belt, we doubt it. Below is a screenshot of our Sales and Profitability Tracker with some base numbers to consider. Your numbers may be different, and these can change, but for a reference point today, consider that it looks like $5.50 December 22 corn is more profitable than $12.50 November 22 beans at least in Central Indiana. Call us if you want to run your numbers in the spread sheet to get a more accurate picture for your area, but the message here is simple. Don't assume farmers will not plant corn just because fertilizer is high, we like our rotations, and will need lots of incentive to change them. For all the above lists and reasons, we have sold another increment of old crop (2021) in March HTA contract, and an increment of new crop (2022) at 5.51 in December HTA contract. We will continue to hold our January/November bean spread and hopefully see $13 or more where we will sell cash beans, own March calls, and take the long leg off the spread leaving us hedged for 2022 beans above $12.50. We feel this is managing our risk and protecting a very profitable year while making sure 2022 is at least somewhat in the black. Call if you have questions or other ideas specific to your area.

 

 

In conclusion, the recent price break reminds us that "black swans" are out there, and new virus strains are probably going to pop up for some time to come. How elected officials try to handle this could easily affect grain prices. We are concerned that EPA did not release the renewable fuel blending rates as promised today, and that decision carries a lot of potential impact. We like making sales on March corn in the 5.85 and above area, and January beans above 12.75 if we can rally back there, if basis is good. If not, consider some form of downside protection and call us for some ideas that may fit your cash marketing plans going forward. For us, with our 2021 crop now all protected or sold at really nice prices, it is a major relief and joy to have the year we had in production, now safely covered with great prices, truly a blessing and peace of mind that has not existed since the onset of Covid. We wish for all of you a very Blessed Christmas. May the peace and joy of doing what we want when we want continue to be part of our lives, and let us focus on the stewardship of taking care of the land that feeds the world!

Dates to Remember:

Every Monday: Export Inspections, Crop Progress
Every Thursday: Export Sales and shipments
December 9th Monthly Supply/Demand Report
December 23rd: Cattle on Feed,
December 23rd: January options expire