Clear Focus Hedging News and Views
August 1, 2023
"Volatility and More"
Last month we highlighted the volatility in the month of June, and July did nothing to slow it down. Once again fund money drove prices much higher only to see a big sell off at the end of the month with corn and beans closing below some important technical points. The highlight here is the impact of money flow. If the spec money is flowing in, we go higher, if out, we go lower, quickly. Having sell orders in paid off once again, and with the high level of volatility, the opportunity was here and gone in a very short time. Weather and the war in Ukraine were the biggest influences on fund buying or selling, but the other negative factors are listed below:
- The US $ has rallied
- New export business has been slow, although there have been a few bean and meal sales in the last few days. We still are running well short of last years pace
- Generous rains last weekend helped a large chunk of the corn belt, especially in the east
- While bombing of Ukrainian ports along the Black Sea and the Danube River sparked a rally, the bombing has moved away from there as of late
- Crop conditions dropped 2 points yesterday, but the 2 week weather forecast looks favorable
On the friendly side, here are some things to consider:
- Extreme heat the end of July likely trimmed some yield estimates, especially where corn was trying to pollintae
- While the eastern corn belt received some good rain, areas of Iowa, Minnesota, and the Dakotas were not as fortunate
- Recent estimates by well known crop analysts pegged the corn crop at 174 nationally, well below the July S&D Report
- Crop condition ratings are very low in comparison to recent years
The next USDA Supply/Demand and Crop Production Report will be on Friday, August 11th, with updates on yields, production, and demand. As these numbers are not based on actual field surveys and counts, it will be interesting to see how high or low the production numbers come out. We have seen estimates of below 170 to 179.5 for the national corn yield, so someone is likely to be surprised! The old adage of soybeans are "made" in August may not be as true because more and more beans are planted early. Did the rains come in time this year? What will USDA project demand to be? The bottom line is what does our carryout look like at the end of the report, higher or lower? If we are going to move prices much higher, then the funds will have to drive it as cash basis and lack of a big export program have end users in a comfortable place for the moment. Conversely, if we are going to push prices much lower, the funds will have to push it as farmer sales will likely shut off as insurance guarantees kick in and there is no reason to sell. We include below the screenshot of the Tracker to illustrate:
| |
|
|
PROFIT Matrix |
|
|
|
|
|
|
|
|
| Corn |
|
|
|
|
|
|
|
|
|
|
|
| |
$300 |
Profit Goal |
APH |
Spring Price |
Red = Below Cost of Production per acre |
|
|
|
|
|
| |
$1,223 |
APH x Spring Price |
207 |
$5.91 |
Yellow = between cost of production per acre and profit goal |
|
|
|
|
| |
85% |
Level of Crop Insurance |
|
Orange = Crop Insurance Guarantee line +/- $10 |
|
|
|
|
|
| |
$1,040 |
Crop Insurance Guarantee |
|
Green = greater than profit goal per acre |
|
|
|
|
|
| |
$806 |
Cost of Production per acre |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
Yield |
|
|
|
|
| |
140 |
150 |
160 |
170 |
180 |
190 |
200 |
210 |
220 |
230 |
240 |
| $2.40 |
$336.00 |
$360.00 |
$384.00 |
$408.00 |
$432.00 |
$456.00 |
$480.00 |
$504.00 |
$528.00 |
$552.00 |
$576.00 |
| $2.50 |
$350.00 |
$375.00 |
$400.00 |
$425.00 |
$450.00 |
$475.00 |
$500.00 |
$525.00 |
$550.00 |
$575.00 |
$600.00 |
| $2.60 |
$364.00 |
$390.00 |
$416.00 |
$442.00 |
$468.00 |
$494.00 |
$520.00 |
$546.00 |
$572.00 |
$598.00 |
$624.00 |
| $2.70 |
$378.00 |
$405.00 |
$432.00 |
$459.00 |
$486.00 |
$513.00 |
$540.00 |
$567.00 |
$594.00 |
$621.00 |
$648.00 |
| $2.80 |
$392.00 |
$420.00 |
$448.00 |
$476.00 |
$504.00 |
$532.00 |
$560.00 |
$588.00 |
$616.00 |
$644.00 |
$672.00 |
| $2.90 |
$406.00 |
$435.00 |
$464.00 |
$493.00 |
$522.00 |
$551.00 |
$580.00 |
$609.00 |
$638.00 |
$667.00 |
$696.00 |
| $3.00 |
$420.00 |
$450.00 |
$480.00 |
$510.00 |
$540.00 |
$570.00 |
$600.00 |
$630.00 |
$660.00 |
$690.00 |
$720.00 |
| $3.10 |
$434.00 |
$465.00 |
$496.00 |
$527.00 |
$558.00 |
$589.00 |
$620.00 |
$651.00 |
$682.00 |
$713.00 |
$744.00 |
| $3.20 |
$448.00 |
$480.00 |
$512.00 |
$544.00 |
$576.00 |
$608.00 |
$640.00 |
$672.00 |
$704.00 |
$736.00 |
$768.00 |
| $3.30 |
$462.00 |
$495.00 |
$528.00 |
$561.00 |
$594.00 |
$627.00 |
$660.00 |
$693.00 |
$726.00 |
$759.00 |
$792.00 |
| $3.40 |
$476.00 |
$510.00 |
$544.00 |
$578.00 |
$612.00 |
$646.00 |
$680.00 |
$714.00 |
$748.00 |
$782.00 |
$816.00 |
| $3.50 |
$490.00 |
$525.00 |
$560.00 |
$595.00 |
$630.00 |
$665.00 |
$700.00 |
$735.00 |
$770.00 |
$805.00 |
$840.00 |
| $3.60 |
$504.00 |
$540.00 |
$576.00 |
$612.00 |
$648.00 |
$684.00 |
$720.00 |
$756.00 |
$792.00 |
$828.00 |
$864.00 |
| $3.70 |
$518.00 |
$555.00 |
$592.00 |
$629.00 |
$666.00 |
$703.00 |
$740.00 |
$777.00 |
$814.00 |
$851.00 |
$888.00 |
| $3.80 |
$532.00 |
$570.00 |
$608.00 |
$646.00 |
$684.00 |
$722.00 |
$760.00 |
$798.00 |
$836.00 |
$874.00 |
$912.00 |
| $3.90 |
$546.00 |
$585.00 |
$624.00 |
$663.00 |
$702.00 |
$741.00 |
$780.00 |
$819.00 |
$858.00 |
$897.00 |
$936.00 |
| $4.00 |
$560.00 |
$600.00 |
$640.00 |
$680.00 |
$720.00 |
$760.00 |
$800.00 |
$840.00 |
$880.00 |
$920.00 |
$960.00 |
| $4.10 |
$574.00 |
$615.00 |
$656.00 |
$697.00 |
$738.00 |
$779.00 |
$820.00 |
$861.00 |
$902.00 |
$943.00 |
$984.00 |
| $4.20 |
$588.00 |
$630.00 |
$672.00 |
$714.00 |
$756.00 |
$798.00 |
$840.00 |
$882.00 |
$924.00 |
$966.00 |
$1,008.00 |
| $4.30 |
$602.00 |
$645.00 |
$688.00 |
$731.00 |
$774.00 |
$817.00 |
$860.00 |
$903.00 |
$946.00 |
$989.00 |
$1,032.00 |
| $4.40 |
$616.00 |
$660.00 |
$704.00 |
$748.00 |
$792.00 |
$836.00 |
$880.00 |
$924.00 |
$968.00 |
$1,012.00 |
$1,056.00 |
| $4.50 |
$630.00 |
$675.00 |
$720.00 |
$765.00 |
$810.00 |
$855.00 |
$900.00 |
$945.00 |
$990.00 |
$1,035.00 |
$1,080.00 |
| $4.60 |
$644.00 |
$690.00 |
$736.00 |
$782.00 |
$828.00 |
$874.00 |
$920.00 |
$966.00 |
$1,012.00 |
$1,058.00 |
$1,104.00 |
| $4.70 |
$658.00 |
$705.00 |
$752.00 |
$799.00 |
$846.00 |
$893.00 |
$940.00 |
$987.00 |
$1,034.00 |
$1,081.00 |
$1,128.00 |
| $4.80 |
$672.00 |
$720.00 |
$768.00 |
$816.00 |
$864.00 |
$912.00 |
$960.00 |
$1,008.00 |
$1,056.00 |
$1,104.00 |
$1,152.00 |
| $4.90 |
$686.00 |
$735.00 |
$784.00 |
$833.00 |
$882.00 |
$931.00 |
$980.00 |
$1,029.00 |
$1,078.00 |
$1,127.00 |
$1,176.00 |
| $5.00 |
$700.00 |
$750.00 |
$800.00 |
$850.00 |
$900.00 |
$950.00 |
$1,000.00 |
$1,050.00 |
$1,100.00 |
$1,150.00 |
$1,200.00 |
| $5.10 |
$714.00 |
$765.00 |
$816.00 |
$867.00 |
$918.00 |
$969.00 |
$1,020.00 |
$1,071.00 |
$1,122.00 |
$1,173.00 |
$1,224.00 |
| $5.20 |
$728.00 |
$780.00 |
$832.00 |
$884.00 |
$936.00 |
$988.00 |
$1,040.00 |
$1,092.00 |
$1,144.00 |
$1,196.00 |
$1,248.00 |
| $5.30 |
$742.00 |
$795.00 |
$848.00 |
$901.00 |
$954.00 |
$1,007.00 |
$1,060.00 |
$1,113.00 |
$1,166.00 |
$1,219.00 |
$1,272.00 |
| $5.40 |
$756.00 |
$810.00 |
$864.00 |
$918.00 |
$972.00 |
$1,026.00 |
$1,080.00 |
$1,134.00 |
$1,188.00 |
$1,242.00 |
$1,296.00 |
| $5.50 |
$770.00 |
$825.00 |
$880.00 |
$935.00 |
$990.00 |
$1,045.00 |
$1,100.00 |
$1,155.00 |
$1,210.00 |
$1,265.00 |
$1,320.00 |
| $5.60 |
$784.00 |
$840.00 |
$896.00 |
$952.00 |
$1,008.00 |
$1,064.00 |
$1,120.00 |
$1,176.00 |
$1,232.00 |
$1,288.00 |
$1,344.00 |
| $5.70 |
$798.00 |
$855.00 |
$912.00 |
$969.00 |
$1,026.00 |
$1,083.00 |
$1,140.00 |
$1,197.00 |
$1,254.00 |
$1,311.00 |
$1,368.00 |
| $5.80 |
$812.00 |
$870.00 |
$928.00 |
$986.00 |
$1,044.00 |
$1,102.00 |
$1,160.00 |
$1,218.00 |
$1,276.00 |
$1,334.00 |
$1,392.00 |
| $5.90 |
$826.00 |
$885.00 |
$944.00 |
$1,003.00 |
$1,062.00 |
$1,121.00 |
$1,180.00 |
$1,239.00 |
$1,298.00 |
$1,357.00 |
$1,416.00 |
| $6.00 |
$840.00 |
$900.00 |
$960.00 |
$1,020.00 |
$1,080.00 |
$1,140.00 |
$1,200.00 |
$1,260.00 |
$1,320.00 |
$1,380.00 |
$1,440.00 |
| $6.10 |
$854.00 |
$915.00 |
$976.00 |
$1,037.00 |
$1,098.00 |
$1,159.00 |
$1,220.00 |
$1,281.00 |
$1,342.00 |
$1,403.00 |
$1,464.00 |
| $6.20 |
$868.00 |
$930.00 |
$992.00 |
$1,054.00 |
$1,116.00 |
$1,178.00 |
$1,240.00 |
$1,302.00 |
$1,364.00 |
$1,426.00 |
$1,488.00 |
| $6.30 |
$882.00 |
$945.00 |
$1,008.00 |
$1,071.00 |
$1,134.00 |
$1,197.00 |
$1,260.00 |
$1,323.00 |
$1,386.00 |
$1,449.00 |
$1,512.00 |
| $6.40 |
$896.00 |
$960.00 |
$1,024.00 |
$1,088.00 |
$1,152.00 |
$1,216.00 |
$1,280.00 |
$1,344.00 |
$1,408.00 |
$1,472.00 |
$1,536.00 |
| $6.50 |
$910.00 |
$975.00 |
$1,040.00 |
$1,105.00 |
$1,170.00 |
$1,235.00 |
$1,300.00 |
$1,365.00 |
$1,430.00 |
$1,495.00 |
$1,560.00 |
| $6.60 |
$924.00 |
$990.00 |
$1,056.00 |
$1,122.00 |
$1,188.00 |
$1,254.00 |
$1,320.00 |
$1,386.00 |
$1,452.00 |
$1,518.00 |
$1,584.00 |
| $6.70 |
$938.00 |
$1,005.00 |
$1,072.00 |
$1,139.00 |
$1,206.00 |
$1,273.00 |
$1,340.00 |
$1,407.00 |
$1,474.00 |
$1,541.00 |
$1,608.00 |
| $6.80 |
$952.00 |
$1,020.00 |
$1,088.00 |
$1,156.00 |
$1,224.00 |
$1,292.00 |
$1,360.00 |
$1,428.00 |
$1,496.00 |
$1,564.00 |
$1,632.00 |
| $6.90 |
$966.00 |
$1,035.00 |
$1,104.00 |
$1,173.00 |
$1,242.00 |
$1,311.00 |
$1,380.00 |
$1,449.00 |
$1,518.00 |
$1,587.00 |
$1,656.00 |
| $7.00 |
$980.00 |
$1,050.00 |
$1,120.00 |
$1,190.00 |
$1,260.00 |
$1,330.00 |
$1,400.00 |
$1,470.00 |
$1,540.00 |
$1,610.00 |
$1,680.00 |
If you have a high level of insurance bought, further weakness may be giving you a decent payment depending on your yields. If you are in an area that has been hurt by weather, you may want to consider some sort of long position to protect that payment, and lift hedges. Insurance is like owning a put option, further downside is covered, and you paid for that put by buying the policy. Over the years we have seen many times when the market bottoms "early" only to rally in October when the fall price is established. Make sure you run the numbers with your agent first to make sure where your coverage starts. We are not advocating speculation, only risk management, and sometimes that involves covering the short side, or being "double short". Call us for further details as each policy and coverage is individual in nature and a "cookie cutter" approach is not advised. Going forward consider the following to prepare for harvest and marketing:
- Consider exiting short calls in corn, as the values have gone down dramatically.
- Consider rolling hedges in the September contracts to December or March if you have storage as there is now good carry in the market.
- If storage is limited, consider some call options on further weakness to sell against. If we get into the field and find lower than expected yields, having the calls makes selling easier rather than paying storage
- Owning puts is never a bad idea for producers, they put floors in, but can also be used to backstop a long futures position to reown harvest sales
Looking ahead to the 2024 crop, with input costs down considerably, $5.50 corn looks very profitable, and we have some interest in locking in both inputs and price if we get back there. Since there is a small inverse with September trading above December, we like selling September with the ability to spread with a long December if a long position is warranted, using either futures or options as part of a management plan. Check with us on using this strategy to see if it works for you. Remember last year we started selling September when the inverse reached 38 cents and is now a 9 cent carry. 47 cents per bushel is a lot of profit per acre! There is no guarantee we can get back to those levels this year, but keep these ideas in mind when making your plan.
In conclusion, it has been a wild ride, but as we approach the home stretch there is still time for more excitement. It's now time to plan for harvest, consider yield potential and storage capacity along with sales made. We hate paying commercial storage, as long as basis is decent we prefer to sell and reown, investing the storage money into tools we control. Once the grain is in the elevator, they have no incentive to push basis, and usually works out that any carry in the market will be eaten up with storage charges. Commercial grain entities are not benevolent organizations, so don't expect "gifts" from them! We have many different ideas to fit what you need to maximize profits, capturing carry, using inverted markets when available, and only buying options to cover what you need to cover in terms of time. As we prepare for harvest, let us share some of them with you, and have a great end of summer!
Every Monday: Export Inspections
Every Thursday: Export Sales
August 11th: Crop Production, Monthly Supply/Demand Reports
August 18th: Cattle on Feed
August 25th: September options expire
Mike Daube: 574-586-3784 or 574-910-3818 cell
Allen Gard: 573-221-9234
Peter Schram: 317-910-1473
|
|