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Clear Focus Hedging News and Views
April 2, 2034
“Reports Are In, But…”
Finally, we got some positive news in the March 29 Reports, with both quarterly stocks and planting intentions on the friendly side for corn, and neutral to slightly bearish for beans on the stocks. The corn market rallied sharply and put in a new high of $4.81 in the December contract before backing off a few cents on the close. Was it bullish? We started looking at the state-by-state numbers and total planting acreage intentions, and the first thing that stood out was a decline of over 5 million total acres. Where did they go? Solar panels? Windmills? CRP? Here are some of the factors that we are looking at that may explain some of the numbers:
Looking at the last 20 years, from March to June reports, corn acres were up more often than down, so it is fair to say that we do have the possibility of more corn acres later on, depending on weather. For beans, the acre number came in almost dead on the average guess, with stocks a bit negative. As we look to the April 11 and the next Supply/Demand Report, the big question of South American production will take center stage along with weather for the Safrinha corn crop and US planting, as there are still big differences in estimates of Brazilian production of both corn and beans. We should see a drop in corn carryout as ethanol production has been very good, and exports have been decent. For beans, export sales have not been as stellar, while crush has been very good. Demand, as USDA sees it, will be the major factor in bean carryout.
Here are a couple graphics on total US acres and record soybean crush:
Going forward, we are concerned that the friendly news will be short lived unless funds, who remain heavily short the corn market, will not cover them. We did see a lot of farmers selling last Thursday afternoon, and it continued on Monday. If the funds do not exit the shorts, this rally may be short lived. We need to see some decent export business soon, and that may be tough with the US $ back above 104, and some weather issues would help as well. At this writing, we are getting some moisture in the drier areas in the western belt, and Brazil second crop corn has as well, but we are entering the critical stage in those crops this month. Our thoughts going into planting:
Old Crop Corn: We remain sellers on rallies, last week July futures hit $4.60, and we like anything above $4.50 to add as long as basis is reasonable. If you think we can get a weather rally, look at some short dated new crop calls to replace the sold bushels, hopefully to sell new crop against on any decent rally.
Old Crop Soybeans: We seem trapped in a range, but it looks like $12.20 basis July is stout resistance. We like selling in the $12-$12.20 range, and using short dated new crop calls for re-ownership, again, reducing risk and giving us something to sell against on any rally.
New Crop Corn: We have done some HTA contracts on corn starting at $4.75 and $4.80 and will add more in this range as we have calls in our pocket. If we cannot take out last Thursday’s high of $4.81 this week, we may get more aggressive on sales. We also own short dated $4.70 puts that expire April 26 th and depending on the market reaction to the reports that day will have a better idea on whether to sell, roll, or exercise them. Keep in touch!
New Crop Soybeans: We did some HTA contracts for November beans at $12, again, with short dated calls in hand, and would add more sales at this level or higher. Not the prices we were hoping for, but our attitude is more defensive than the last few years. These are prices we can live with, not hoped for, but with carry in the market, we need to have sales on to be able to roll later and add to our price. The market will not guarantee us a profit, and couldn’t care less about our risk as producers, so it’s up to us to lay off some or all that risk!
In conclusion, while we finally got some friendly news, we hope it is not short lived, but must prepare for what is to come. As we prepare for planting, take a few minutes to go over your marketing plan, and make sure you have orders in. We have seen some really wide ranges of trading, with some highs hit overnight, so get some plans in order, let us know so we can at least alert you if prices approach your targets. Making a profit this year may come down to nickels and dimes added to board prices through capturing carry, watching basis closely and being mentally prepared to pull triggers. Call with any thoughts or ideas, we have a few weeks before it gets crazy! .. Dates to remember: Every Monday – Export Inspections at 10:00 am CST Every Thursday – Export Sales at 7:30 am CST Every Friday – Commitment of Traders Report at 3:00 pm CST April 11th – WASDE at 11:00 am CST April 19 th Cattle on Feed at 2:00 CST April 26 th May options expire.
Mike Daube (574) 586-3784 Allen Gard (573) 769-4193 Peter Schram (317) 910-1473 |
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