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CFGAG News and Views vol. 43 February 1, 2013 "There is a risk of loss when trading futures and options. The thoughts and opinions in this article are those of the author, and while believed to be correct, are not guaranteed as to the accuracy or content. Past performance is not indicative of future results, and each individual should examine their own risk capital carefully before trading." "Spring Insurance Price Starts Today" It's hard to believe, but February 1 is here already, and the much anticipated price calculation for Crop Insurance begins. Last year we ended up with $5.68 for corn, so unless prices fall quickly, we should end up higher for our spring guarantee. This should go a long way in determining some planting decisions, along with weather and price expectations later on. Contrary to what we hear in coffee shop chatter, it seems to us that profitability will still be the most important factor in determining crop acre mix, and unless something dramatic happens, it looks like corn will hold and probably increase acreage over last year. Some are calling for 100 million acres, and a return to "trend" yield would leave us with a substantial increase in carryout. We have come to regard such predictions with some healthy skepticism, as each producer still has to look at his operation and make a decision based on rotation, market availability, and opportunity. To say with any certainty that farmers will do "x" is similar to claiming to know in advance the highs and lows in any given market. No one ever does, and no one will, there are just too many variables. We can document many surprises in the March Planting Intentions Report to back up that statement. The January 11th Reports, for the first time in years, did NOT result in a limit move in price of grain, but did give corn bulls something to work with. By increasing feed use, we were left with a lower carryout number than expected. Beans came in about as expected, but still rallied the following week, with some pointing to dry weather in Argentina and Southern Brazil as the catalyst. With those cards now on the table, we can get past the claims of much lower harvested acres, lower production and carry outs, and focus on the weeks and months ahead. It is clear that old crop corn supplies are tight, and until we get some positive indications of good planting weather, should be well supported. New crop will wrestle with the need for big acres, a very dry soil profile in the western corn belt, against the back drop of big acre expectations and a price that would indicate support for that to happen. It is hard to pencil out how 180 bpa corn vs. 50 bpa soybeans at current prices favors the beans when considering $400/acre rents. Other factors in the mix include: 1) Will soybean prices rally enough to gain some acres? 2) Will South America raise a big crop AND ship it in a timely manner? 3) Dry areas are shrinking, with at least some moisture. Will we still plant corn if the soil stays dry? 4) Have 3 years of above normal "yield drag" on continuous corn inspire more beans in the rotation despite price? 5) Will the recent rally in cotton be rewarded with more acres at the expense of corn and beans in the delta? As for the markets going forward, we offer the following observations to guide marketing decisions: 1) There is still an inverse in Mar/July corn and bean futures prices 2) Basis remains strong in most areas, but some ethanol plant closings are having an impact in some areas. 3) September corn futures are premium the December by about 24 cents. 4) November beans are now in the range of $13.00-$13.50 that we looked at last month for possible sales Given the above, we would recommend those with old crop corn to sell to shoot for a cash price in excess of $7.50 to move it and,if still bullish, consider either owning July futures, some call spreads, or possibly owning a put and then buying futures against it. There are many ideas to re own grain, and please call so these different ideas can be fully explained in terms of risk and reward as it pertains to your operation. For new crop, we still like selling the September futures and defending the hedge with old crop calls if needed, or buying September puts to capture the inverse as it exists today. Looking at my cash flow, $6.00 corn still stands out as a bright light in my banker's eyes, and deserves consideration. Beans have managed to rally back into the "sale zone" we mentioned earlier, and perhaps should be looked at to get started. As always, call to make a plan that covers not only the sale, but the plan to defend it if production does not come in. From the technical side, we have the following numbers from our computer to consider: 6.80 7.80 July Beans 13.91 15.03 13.31 15.50 12.26 16.08 In conclusion, this is the month to sit down and do some planning. Put the coffee on, get the Crop Insurance agent over along with the broker, and see what we can come up with in terms of a strategy that works together to accomplish your profit goals. By mid month we should have a pretty good grip on the February average price, and can start running some scenarios with some real numbers to work with and some realistic bottom line numbers to compare. We cannot emphasize the importance of the planning, as time and again it has proven to prevent a lot of emotional response compared to no preparation. Making sure we have played out all the "what ifs" before the weather breaks gives both the producer and the broker peace of mind. It simply boils down to us making sure we KNOW what you want and are confident in our decisions to make that plan happen. A small investment of time this winter has proven its worth many times over come spring, and besides, we do enjoy visiting with you! Important dates to remember: February 1st Cattle Inventory February 8th Monthly Supply/Demand Report Weekly Export Sales every Thursday Export Inspections every Monday February 22nd Cattle on Feed, USDA Outlook Board Crop Progress every Monday, 3:00 pm Central Time
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