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CFGAG News and Views vol. 48 July 1, 2013
"Reports Bearish New Crop, But....." The June 28 reports are in the history book now, with the biggest highlight being corn acres reported at 100,000 MORE than the March Intentions. Bean acres were also, higher, but less than some analysts thought going into the reports. Old crop stocks are still tight, with July corn and beans closing higher on the day. There are lots of folks "weighing in" on how we can't possibly have this many acres planted, the USDA could not possibly take into account the flooding and prevented plant acres, there is no way we have this much grain on hand, and more. We listen to the rhetoric, try to make some sense of it, and give our opinion on what to do. What do we do? First of all, we try to separate facts from emotion and speculation. The bottom line going into those reports, like all major reports, was the level of risk associated with them. There is simply no way to out guess what the numbers will be. The planted acres number came from a USDA Survey from June 1-June 15 was of farmers. Were they wrong? Did they give accurate information? Again, no way to know, the numbers are what they are until changed or corrected at a later date. Besides those numbers, there are other possible reasons that corn sold off in the new crop, like: 1) Lack of demand 2) A non threatening weather forecast 3) Strength in the U.S. Dollar in relation to other currencies 4) Good weather (so far) in other major grain producing countries 5) Wheat harvest is getting into full swing, and early yield reports are better than expected As we have often said, we like to deal with facts over speculation and emotion. When the market is made up of many speculators as well as hedgers, "market chatter" will always contain the views of those who are "talking their position". When the emotional chatter gets too far removed from reality, then we have those big surprise days that bring us back to real price discovery based on supply and demand. Looking forward, there are certain "facts" that are not friendly to price, and lots of "what ifs" that still need to be played out. First, the "facts" as we see them: 1) We (the U.S.) are the highest priced grain in the world today 2) The 1-5 day, 6-10 day, 11-16 day, and the 16-30 day forecast have no extreme heat in Midwest growing areas, and for the most part, we have plenty of moisture available. 3) There are no major weather threats in China, Russia, The Ukraine, or to the harvest of Brazil 2nd crop corn 4) The crop conditions have been improving in both corn and beans Now, the "what ifs" 1) Cool and wet conditions remain in some major crop areas of Iowa and Minnesota. How much crop production would be lost to an early frost? 2) USDA says it will resurvey some areas in July on planted acres, and changes will be reflected in the August reports. Will we lose some acres from the June reports? 3) What if the weather turns abruptly to hot and dry during pollination? Over half the corn crop was planted in a week, making the third week in July very important. 4) Maybe we will find some end user demand at these lower prices? We will leave it to each individual to weigh these thoughts, and the merit (or lack thereof) with each. It is so easy to look back in hindsight and see what should have been done. Too bad it is not that easy. The message here is clear, we have the potential to go a lot lower in price if none of the "what ifs" play out positively to price. If any of them (or all of them) hit, then we could rally back quickly. The question will be, at what price do you take some form of action? Even if we got smacked down last Friday, we need to shrug off the disappointment, and be ready for something positive. Even if corn does not rally this summer, we need to be making plans to maximize what we have, taking advantage of basis opportunities, rolling hedges out to capture carry, and using our storage wisely. It is never too early to project out the logistics of harvest, how much to move into storage and how much to deliver, and what price potential is likely to be given the crop size. Every report brings us closer to a more accurate production number, and waiting until it is upon us carry's risk. Call us to go over some of these ideas in detail. We have been asked over the weekend, "Do I still sell now?" Our answer may sound like a hedge, but it does depend on each individual. Do you have storage, enough cash flow, and patience? We are still concerned that, according to elevator contacts, sales on the books are very low compared to other years. Basis is still good, and if you do not have storage and need cash flow, it may not be a bad idea to sell some. We can look at a variety of re-ownership plans to take advantage of basis now, and post harvest rallies later. For those who just want protection and flexibility, owning puts is a good idea for any grain not priced or protected. At some point, we may want to unload our cash if basis is good, and own futures protected by put options to participate in a rally with our risk limited by the put option. Again, these are individual decisions, and need to be discussed fully to make sure these or other ideas fit your operation and comfort zone.
5.26 5.65 4.73 6.13 12.33 13.63 11.98 14.00 In conclusion, we want to emphasize again what we consider a big waste of time and energy, that of quarreling with USDA numbers. Everyone can have an opinion, but in this case, theirs is the one the market trades. There is simply no reason, unless you want to, to go into a report carrying a lot of risk. We, and especially this author, has done exactly that too many times over my farming and trading career, and it is still tempting to try and outguess the "herd". The problem is that the hoof prints are still there and not completely healed. The pain that was inflicted has resulted in me buying more options, defending my hedges, and not leaving my net farm income in a lot of doubt. If you are feeling the pain this time, you are not alone, and the real good news is that the markets trade every day and will offer some opportunity. Lets get ready with some planning for the rest of summer and harvest to make sure we can get all we can given the cards on the table today. Have a great July 4th Holiday, and celebrate the greatest country in the world and all the opportunity we have! Important dates to remember: July 11th Monthly Supply/Demand Report and Crop Production Weekly Export Sales every Thursday at 7:30 am Export Inspections every Monday at !0:00 am July 19th Cattle on Feed Crop Progress and Conditions every Monday, 3:00 pm Central Time
Disclaimer: This material has been prepared by a sales or trading employee or agent of Clear Focus Hedging, and is, or is in the nature of, a solicitation. By accepting this communication you agree that you are an experianced user of the futures markets, capable of making independant trading decisions, and you agree that you are not, and will not. rely solely on this communication in making trading decisions. There is a substantial 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 the the accuracy or timing of the content. Past performance is not indicativeof future results, and each individual should examine their own risk capital carefully before trading. |
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