CFGAG News and Views Vol. 5   Dec 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 accuracy or content. Past performance is not indicative of future results, and each individual should examine their own risk capital before trading."
 
 
"Making a Wish"
 
 
As the month of December is now upon us, and we still have some corn to get in, the anxiety level increases with each new weather forcast. Will it snow and blow before we get done? So far the month of November let us get a lot done, so once again we arrive at normal from a soggy October and a warm and dry November. I wanted to look back at last months issue briefly to the questions I had, and look at what we learned.
 
1) Will more money flow into commodities?  YES, and lots of it!
 
2) Will crude oil keep rising in spite of bearish fundamentals?  It has, but has stalled out around $80/barrel
 
3) Can the nations economy handle sharply higher energy costs?  Well, oil and gasoline demand are at or near 5 year lows
 
4) Can livestock producers and other end users afford higher grain prices?  Yes and No.....just ask them.
 
5) What percentage of this years crop has been sold by farmers, and if not much, when will it be sold?
 
The last question is tough to be exact on, but according to many sources we went in to harvest with a very low percentage of grain sold. Then we have a very late harvest realative to normal, and basis remained firm. But now, it looks like it has caught up with us, as basis levels here are the weakest they have been in a long time at 45-50 under. It is a situation we feared a month ago, as a big crop finally started making it to town. Farmers are selling grain now, as storage has been maxed out in many places, and the extra bushels have to go somewhere before it snows. We have vomitoxin issues here in the eastern belt, and that will add more marketing challenges not only to farmers but elevator managers as well to find a willing buyer. Lots of problems, so how do we sort through the emotion and plan ahead?
 
Here are some of the basic facts that we are looking at:
 
1) Weather is no longer a major factor here, as corn harvest should be approaching 90 percent by Sunday night.
 
2) South American weather is very good right now, conducive to good yields.
 
3) Grain quality is suspect in many areas. We tried to dry and store wet grain fast, lots of foreign material may lead to storage problems and the old addage "sell it or smell it" may come into play.
 
4) Ethanol demand is very good, profit margins are excellent. Vomitoxin in DDG is a problem, but seems to be an eastern problem
 
5) Export demand is not good. It appears there is not much need for  any $4.00 corn now.
 
6) Speculators have huge long positions in the grain and other commodity markets now.
 
This leads us to the question of the month, which comes from Missouri. "I don't understand this outside market influence, how can we have the biggest corn and bean yields ever down here, and they are buying like there is none left?"
 
The "outside" markets are probably the most difficult influence to estimate, as simply put, with the value of the dollar falling, investors with dollars sell them and buy commodities to protect the value. This puts upward pressure on grains, when maybe the fundalmentals of supply and demand would suggest prices should fall. The market is a big place, where many interests come together to discover a price. It does not have to make sense all the time. Some traders only look at a chart to see what direction the price is going, and go with it. Others look at buying patterns, like new money coming in at the begining of a new month. Others look at long term seasonals to buy or sell. Bottom line is many people put up a lot of money for many different reasons, and the volume of "votes" for each side decides at the end of the day if we are higher or lower. Its not easy to predict, but very easy to throw up your hands in frustration if the market does not rally with a hot and dry forcast in July. We have learned, many times the hard way, that trying to pick a top or bottom is rather fruitless, and quality of life suffers when we do try.
 
So what to do? Decide ahead what price makes you profitable and happy. When it gets there, either take it or protect it. When March corn traded above $4.20, it bought quite a bit from us. That should be over $4.00 cash this winter, and with yields at 200 bpa or so, thats $800/acre gross. I can live with that. Beans over $10.00 are equally attractive to me, and have earned some of next years production as well as the rest of 2009 beans. If I see a weather problem in South America, or bean demand just keeps going, then re ownership may be an option, but for now, I am happy with the cash flow generated. We can farm next year, and be more comfortable than last with some lower input costs to look forward to. Remember a year ago and the price of nitrogen? What a difference a year makes........I wonder how much will go on this year.
 
At this point, you are probably thinking this guy just woke up in a cave full of bears, with no bulls in sight. Not really, just remember markets go both ways, and we have run the grains up on outside market forces. In 2007-08, we had short carry outs, and lots of folks claiming there was no way we could farm enough acres to meet demand. Price took care of that, running ethanol plants out of business and crippling livestock producers. Cries of food shortages drove rice and other grains nuts. But we found a price that would shut the bulls down, and that was that. Another new plateau gone defunct. Avoid those emotional memories, and just be profitable every year. Its much more fun to go Christmas shopping, making a wish for a happy and healthy New Year, and enjoying all that you have worked for. From all of us at CFG AG, we wish you a very blessed Christmas Season, and thank you for your business and interest. As always, call us with any questions or ideas.
 
 
Mike Daube   888-391-6330
Allen Gard     800-205-1700
Ron Reed      877-304-2460