CFGAG News and Views vol 4              November 1 2009

"There is a risk of loss when trading futures and options. The thoughts and opinions expressed in this article are those of the author, and while believed to be correct, are not guaranteed as to acuracy or content. Past performance is not indicative of future results, and each individual should examine their own risk capital carefully before trading."
 
 
"Cold And Wet, A Harvest We Won't Forget"
 
As a "farm kid" growing up, I often listened to Dad and Grandpa at family gatherings talk about the crops and the weather and compare them to other years. For drought years there were the back to back years of 1933 and 1934 that everyone remembered. We talked about the blight of 1974, and then there were the 80's, 1980, 1983, and 1988 that my generation survived. We didnt have much grain to harvest then, but somehow we got the next crop in and managed to get by until the next good year. 1991 will always stick in my mind, as it was the worst for me personally with a bad crop and then an elevator bankruptcy to deal with. There wasnt much left and working off the farm became reality. But we did what we had to do to get our job done and the bills paid. And we will do that again this year, just like our Dads and Granddads did for years before.
 
This will no doubt go down as one of the most challenging years weather wise in the eastern corn belt we have seen in quite a while. A cold wet spring, coldest July on record here, and now rain and cold has delayed harvest more than any year I can remember. My grandchildren are going to tire of hearing me talk about 2009 for the next 30 years (I hope). But we have a big crop to harvest in spite of the weather. Our beans are almost done and averaging over 55 bpa. We hope to start corn tomorrow, the latest we have ever started, but the crop looks a whole lot better than many years in my memory, and I have to focus on that fact combined with a market rally that was expected AFTER we got half way through harvest and not before we started. My net farm income has risen dramatically in the last six weeks with these prices, now what do I do?
 
One of the most important factors in marketing today, in my opinion, is to recognize the power of "outside" markets and money flow and how that affects grain prices. It is easy to look back and see that weather was a factor yes, but the flow of speculator money into the commodities markets have been huge. We are now at prices that we felt were worthy targets to sell at a month ago, but did not expect this soon. When looking forward, we need to ask ourselves the following questions:
 
1) Will more money flow in to commodities?
2) Will crude oil prices keep rising in spite of bearish supply figures?
3) Can the nations economy handle sharply higher energy costs?
4) Can livestock producers and other end users afford higher grain prices?
5) What percentage of this years crop is sold by farmers now, and if not much, when will we sell it?
 
The last question is very important to me, as my biggest concern is selling cash grain on a strong basis. Basis is the one thing I cant recover by reownership. I will need cash at some time, and would rather have those needs covered with a strong basis sale as I can always reown the grain on paper. I cant get a bad basis back. Strong basis has been the case because of weather and good demand. We can easily track that in our local area, but when the combines got rolling, basis went south in a hurry. No one can accurately predict the weather, but what I'm hearing now sounds a little emotional, and I have personally made the worst decisions of my life when I let emotion rule my thought process. I point back to the first paragraph and after listening to Dad and Grandpa, I would ask: "did you ever not get the crop out?" Of course the answer was no, even in 1954 when the floods came in October, we picked corn by hand while wearing hip waders. We will harvest this crop, and everyone in the world knows it.
 
Yes, it will cost more to dry it, it will take longer to harvest and haul it, we will be taxed both in mind and body, but we will get it done, because thats what we do. The world has come to rely on the ingenuity and hard work of the American Farmer, maybe take us for granted too much. But to assume that the market cares about how much our drying costs will be and relate that to a futures price impact wont hold water. The market knows that if we dont bring the grain to town, we wont get paid. Period. We can hold it back with more storage, we can delay marketing somewhat, but we will not sit by and watch our crops sit in the field because that is our paycheck.
 
So what should we be doing in the markets now? Look at price and basis, and what percent  you have sold. Make sure you have enough price protection on enough bushels at this price to cover any cash flow needs. Then look ahead........We now have a very large spec position that is long the market. They are potential sellers. We have a lot of unpriced grain in the field. Those are potential sellers. Who are the potential buyers? The last three weeks corn export sales have been weak. Livestock producers have seen some recovery lately, but enough to chase prices higher? We dont know, and as has been said often in this forum, we choose not to worry so much about others, but what levels of profit do these prices offer, and should we take advantage of them. One of my favorite sayings in marketing is "when they pass a tray of cookies around, its usually good to take a couple." The market has passed a tray containing a dollar rally in corn. Should we take a little?
 
From the technical side, we are looking at the following targets for trading, selling, and reownership.
 
Dec. Corn                                               Nov. Soybeans
 
Support            Resistance                        Support           Resistance
3.45                 4.33                                9.33                10.52
3.33                 4.44                                9.17                11.15
3.14                 4.63                                8.91                11.70
 
Weekly Chart
 
2.93                 4.47                                8.24                10.81
2.73                 4.68                                7.90                11.15
2.40                 5.01                                7.34                11.70

 
My personal strategy for corn right now is incremental sales of this years crop, and rolling my hedges from 2009 to 2010 on these bushels. $4.25 or better 2010 corn looks like a decent place to start given some lower input costs this year. Beans are even more attractive at these levels given the world supply outlook and uncertainty of global economics. My choice this year is sell every bean as soon as harvested, and roll hedges to November of 2010. I can make decent profit at 9.50-10.00 beans, and I dont have the confidence in our present economic policy to wait for more. If inflation kicks in and we do rally higher, I can always spread my position with a long in another month as long as Im adding to the price and not subtracting, but I wont take less than what my hedge price is, keeping my delivery options open to whoever has the best basis and terms. ABOVE ALL: do not fall for the free DP gimmicks out there at any time. Case or John Deere do not let you have equipment to use for free, dont let the market use your grain for free either. Use the tools available and make sound decisions that keep you from being in the box: having to sell grain for cash when basis is bad, or worse, bad basis and bad futures. Call us for some ideas to keep you from making those emotional decisions that cost you money and stress. And most important of all in this time of adverse weather, keep it safe and sound. We have a lot of crop to harvest, we will get it done, and your grandchildren need to hear directly from you how you did it. They along with the rest of a hungry world depend on you doing just that.
 
 
Mike Daube  888-391-6330
Allen Gard    800-205-1700
Ron Reed    877-304-2460