Clear Focus Hedging News and Views
March 1, 2022

 

"War: What's Next?"

We are now witnessing an event that will be talked and written about for generations, the first major war in Europe since WWII, and we begin this months message with a prayer for all the people affected by this action. We cannot begin to understand how difficult this must be to just survive let alone plan on growing crops this year, and this is what the marketplace is watching and reacting to, as the Black Sea countries of Russia and Ukraine produce a substantial amount of wheat, corn, and sunseeds, and there is little room in the world balance sheet for smaller production now that crops in South America. If the war drags on, it becomes increasingly difficult to see how normal crop production is possible. If by chance a resolution is possible soon, it may still be possible to raise crops but there will be ongoing issues like port function, and infrastructure issues that will depend on the amout of damage done and how soon repairs can be made. It is something we have not seen in modern time, and we will learn a great deal from it, hopefully never repeat it.

The markets job is to find a price that brings buyers and sellers together, which last week turned into a very wild ride a one day range in beans of $1.10/bushel from high to low, and limit up to limit down moves in corn and wheat in successive sessions. We can expect more of the same as we go forward, but as risk managers we need to recognize all the items that can generate wild moves both up and down, even at this moment we are sharply higher and there looks to be no end to the rally. Here are some of the things we are watching:

1) The war so far has lasted longer than most military experts thought possible due to inspired fighting by Ukranian people. How long can they hold on? What is the "breaking point" and when?

2) Will the Russian President get more desperate and escalate the weapons used? How much carnage is enough?

3) Will end users like Egypt turn to other sources for wheat and corn? They usually buy from Russia and Ukraine, but France and US were the only offers on a recent tender

4) Will strong sanctions weaken Russia enough? How long can they go without selling energy and grain?

While the war goes on, little has been said about South America, where crops have been damaged by too little rain in the south and too much in the north, lowering crop estimates substantially. The market probably has those reductions factored in, but the new challenge is balancing out the effects of what has happened in the last week. Argentina has recieved rain, and continues to have favorable rain in the forecast, at least for the next two weeks, which should stop the decline in estimates, but is probably too late for a major rebound in production. It will be very interesting to see how USDA handles these issues in the next Supply/Demand Report on March 9th, as major revisions to crop production in other countries as well as export projections are possible. One thing is for sure, there will be PLENTY of volatility to work with, and managing a marketing plan will be hard in terms of maintaining discipline and emotion. Just like last week, we could easily see up limit and down limit in the same 24 hours. It will be easy to get lost in the fog and do nothing, and miss some great opportunities. Here are some items we will be talking about in the next few weeks:

1) How much old crop are you holding? Is price protected or sold? If sales are made, so you want to re own on breaks?

2) When will you need cash flow? There is no carry in either corn or beans, sell now and re own in back months?

3) Funds are still big longs in the corn and bean market. When will they sell some off and how much how fast?

4) What price will make you happy? Do you have orders in?

5) How much upside potential do you think we have? How much downside risk? What is the price that end users give up and stop buying?

6) How much risk is in the March 9 and March 31 Reports?

Crop Insurance prices are now set, and are or near the highest ever with corn at $5.90 and beans at 14.33. We have great opportunity to lock in at least some profit even with high costs, and that is where our concern lies. While it looks very bullish right now, there are always things that can devleop quickly and high frequency traders can generate massive selling before you can blink. We like the idea of making some sales on rallies and buying some short dated calls on breaks. Take a look at the short dated May expiration corn calls, (expires on April 22) as that should be enough time to see if crops can get planted in Ukraine or not, as well as getting through the next 2 USDA reports and a look at our planting weather. Markets usually put premium in quickly if rationing is needed, and run much higher than necessary, so having upside through then makes sense to us. Beans will be very sensitive to the 2 USDA reports, Supply/Demand on the 9th an the big ones on the 31st with Quarterly Grain Stocks and Planting Intentions numbers to analyze. These will be big numbers on their own, but the status of the war in Ukraine will add more volatility and risk to our plate. Keep in touch as these events and new developments change in minutes!

In conclusion, keeping the emotion out of the mindset is the most difficult thing to deal with in marketing. Making good decisions is hard enough without the massive loss of life and destruction of a nation, but above all our concerns here, we must consider ourselves very fortunate to live where we do. Our prayers are with the people of Ukraine, and we hope for a quick end to this horrible event. Call if you have ideas or questions, but don't forget to make sure you have a profitable price protected some how some way. There are many good choices, and we have to give thanks that we have them, and are able to make them!

Dates to Remember:
Every Monday: Export Inspections at 10:00 am
Every Thursday: Export Sales at 7:30 am
Every Friday: Commitment of Traders Report at 3:00 pm
March 9th: Monthly Supply/Demand and Crop Production Reports
March 25th: April Options Expire
March 25th: Cattle on Feed
March 31st: Planting Intentions, Quarterly Grain Stocks

Mike Daube: 574-586-3784
Allen Gard: 573-221-9234