Clear Focus Hedging News and Views
November 1, 2024
“Choppy Markets- What’s The Plan?”
With harvest winding down in one of the most favorable weather fall seasons I have seen, we have entered the “choppy” season. There is very little dispute about yields, although there could always be surprises, most likely we will not see much change until the January final. Market prices will most likely be driven by demand and South American weather developments. Export sales have picked up nicely, with last weeks corn number the highest weekly total in 3 ½ years. China has nearly caught up their buying of soybeans to last year’s pace after a very slow start. We had a good rally, but then the rains came in South America, both Brazil and Argentina, and prices fell back, only now to chop back and forth with farmer sales matching up with fund short covering. November 8th is the next Supply/Demand and Crop Production Report, and we will be watching the following:
- Any yield or acreage changes in US production
- South American production estimates
- Demand changes given good export sales and ethanol crush
- US and World carryout numbers- Ukraine may not be as stiff a competitor as before
- USDA price projections: higher or lower for average farm prices
We would note that the funds bought back almost all of their short positions, then sold quite a few back lately, and that becomes a big question in our minds, do they have any reason to buy or resume selling the carry? Here is where our risk lies, as well as end users. We have a big crop, almost all in the bin. We have very good demand as you would expect with lower prices than have been seen in quite a while. Are they cheap enough to bring in more buying? Or do the funds have the will to sell the carry in the market as they did last year? Here are some questions to ask ourselves this month:
- What is basis doing in your area? Spreads have tightened up some, but basis?
- Cash flow needs: when and how much?
- Will basis and futures rally enough to pay you to store grain? How long?
- What effect will the election have if any?
- Wars in Ukraine and the Middle East, the Chinese economy, and possible escalation- any effects?
- South American weather forecasts- weather markets mean opportunity?
We could write a book on any of the above, but are glad to discuss these on a daily basis. Rapidly changing weather and war news can change our outlook by the minute. Keep in touch or call with questions.
Here is what we are doing here on our farm:
2024 Corn
We like to reward rallies, and did so by writing HTA contracts for March at $4.44 and $4.51, and will be glad to add to those sales on a return to those levels. We are looking for basis improvement throughout the month as harvest pressure winds down and IF demand remains strong. We do not want to be waiting around all year to move grain, as we are content to re own it with a limited risk strategy on paper as long as basis is good. We like buying December $4.10 puts (around 6 cents) to buy futures against. This limits our risk of re ownership to around 10 cents and gives us the “courage” to sell good basis or simply re own previous sales if the risk is acceptable. We like this verses buying calls because of more flexibility and the ability to use stops in futures that we can’t in options. Call for specifics and to make sure you understand the idea and process. You can also go out to March if you want more time and buy a 4.20 put and consider selling a December 2025 call for a net credit. This limits your upside on 2025 to $5 IF nothing is done to manage it, but who wouldn’t take $5 for next year’s corn today? Again, just some ideas to consider, call to see if this might work for you.
2025 Corn
We are cautiously optimistic we could get a small rally, but are not overly bullish unless SA weather is really threatening, so we would start looking at some 2025 sales over $4.50 and add increments every 5-10 cents or so
2024 Soybeans
We sold some January beans at 10.80 on our hedged beans, and will look to add to them on any decent rally. We are not as friendly beans longer term as long as weather in Brazil and Argentina stays ok. The carry out is just too big barring any new developments, and the Chinese economy is a concern as well as the BRICKS nations intentions. We want to move cash on good basis and replace it with something with lower risk. Consider a $10 March put and selling a $11 November 2025 call to fund it at a credit, or a small cost to sell a $12 call. This gives you the flexibility to re own previous sales, or prepare to sell on good basis or if cash flow Is needed and have the low risk plan in place.
2025 Soybeans
Given all the factors facing beans, we felt like we needed to “start” by doing an HTA for next November at $11.00. We need to move some beans at harvest in a normal year, so having some on the books at this price seems like a good starting point. We will also look to sell far out of the money calls similar to last year on weather scares to add to our price if warranted. Again, these are only ideas, things we are doing on our farm, which may not be suitable for you, but it at least gives you an idea of what we are looking at, and we can talk about ways to manage these positions as market conditions change.
In conclusion, we remain on the “defensive” as long as carry outs remain comfortable. We hope for some weather scares to really boost prices, but also recognize the risk of SA producing a big crop and really taking prices to the basement. We are more likely to keep prices supported until more certainty is there with yields and production, but if the funds decide to sell in anticipation of needed cash flow sales early next year, well, it might not be pretty. That’s why we want to move cash early and keep our risk limited on BOTH futures and basis. Call or stop by for more complete explanations and see if anything looks workable for you. Have a Blessed Thanksgiving, and make sure to VOTE on Tuesday if not before, and when you do, thank a veteran who made both events possible.
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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
November 8th – Supply/Demand and Crop Production Reports
November 22nd- Cattle on Feed at 2:00 CST
November 22nd- December options expire.
Mike Daube (574) 586-3784
Allen Gard (573) 769-4193
Peter Schram (317) 910-1473