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CFG AG
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CFGAG News and Views vol 7 WOW There was not much more to say at 7:30 am on January 12, when the USDA report was released. The corn market was indeed shocked that the government actually raised yields to over 165 bpa, and INCREASED planted and harvested acres. Most were looking at some of the crop still standing, (or laying) in the field, and fully expecting a yield decrease, especially since the yield went down in the preceeding report. Needless to say, corn was down limit and stayed there shortly after the open. In our January newsletter, we noted that this report was known to provide surprises, and this was a big one. February options proved very useful for some decent price insurance, and we shall continue to promote them as part of the overall risk management program. Beans were hit also, but not nearly as hard as corn relatively speaking, as the trade was expecting some bigger numbers, but also some solid export demand as well as strong domestic usage. They got both, but with no major weather issues in South America, a record crop is closer to reality in the southern hemisphere, and world carryout grew to over 59 million metric tons. Wheat was simply more bearish, as we now have a 48% plus stocks to use ratio, and even with significantly less wheat acres planted this year, it is simply more wheat than we need at this time. After a few minutes of looking at the numbers, my statement at the time was "we are in big trouble for 4-6 weeks". Aside from the above, another reason we have price pressure is simply not enough of the crop was sold last year. With high imput costs, a very late planting season, coldest July on record here, very late maturity, early frost potential, and speculator buying that began in early fall, it looked to many as if the corn market would just keep going. It was very easy to talk yield potential down, and potential losses up, and not sell or protect anything. Those with hedges on became very discouraged. With strong ethanol demand, it was very easy to build a case for higher and higher prices, as the "carry trade", selling US dollars and buying commodiites, was the trade every money manager was touting, and just added more fuel to the fire. All these things together brought us to the shocking reality of a bearish report underprepared for the resulting price moves. So now what? One of the things we talk about often is not letting emotion rule decision making. We have lost an opportunity, prices are well off the highs, and eveything looks bearish now. I think we have reviewed that side enough already, so lets look at some things that could reverse this trend. 1) Planting season- when the worry starts about this years production 2) Re survey of acres in March 3) Lower prices could lead to better export sales 4) 1.75 billion bushel carryout is not excessive in todays market 5) Livestock prices are improving, especially hogs 6) Some money managers are still advocating investment in grains 7) Any major weather issue in any major producing nation will have an impact, we have enough, but for how long? As we start the month of February, one of the things we think is most important is planning. Our insurance prices will be determined this month, and it is time to sit down with a good agent with good analytical software, a good broker, and do some planning. We like to look at dollars per acre, making provisions for cash flow, addressing storage availability and desired cash market availability. Simply put, if we are able to sell or protect a price that is above the february insurance price, we are lowering the deductible, and increasing the guarantee in dollars per acre. If you need to visit with an agent or broker, give us a call and we can recommend a good one. If we use a couple hours looking at the "what ifs", it can really ease the mind when the planting season starts. When the plan is complete, we will help you explain it to your lender if necessary. That way everyone has some comfort as well as accountability in making the plan work for you. Another topic for Indiana, Michigan and Ohio farmers is vomitoxin. Some have found levels that may make the corn unusable, and a potetial loss of major proportions. If you have these issues, make sure you call your crop insurance agent and follow proceedures. Our understanding is the grain must be tested, and then marketed before a claim can be settled, but there are differences among insurance companies, so call the agent to be sure. Re ownership of sold grain is another major topic of discussion, and there are many ways to do it. We have different tools and combinations to do just that, but would rather visit on those individually. Risk tolerance varies as well as timing and flexibility in the positions, so we are reluctant to post specific ideas that may not be suitable for everyone. Futures, options, and futures spreads all tools that can work, but need to address what you want and need as well as your comfort level. Again, sometimes we have seen emotion take over when you are forced to move corn at a bad basis and price. It would be easy to do if you have to dispose of high vomitoxin corn and you see your profits leaving, but being patient and talking out a plan with your broker just might prevent another disaster. Looking ahead from the technical side, which may provide some guidance as to reownership, consider the following:
In conclusion, remember the old marketing saying.... "Bulls and Bears run every day, but the Hogs always get slaughtered." |
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