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CFG AG
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CFGAG News and Views vol. 67 February 2, 2015 "Old Crop Concerns, New Crop Hopes?" In looking back at the January 12 USDA reports, we can only say "at least we did not go limit down", and corn actually did manage to close a bit higher that day. The problem there is the next day saw corn drop 16 cents. The report was not really negative verses expectations, but we did not get the hoped for drop in harvested acres as those watching FSA office numbers were counting on. Soybean and wheat numbers were not friendly, and we have been on a long slide in price ever since. The bottom line is we have ample to surplus supplies at this time, and producers are holding on to a large percentage of last years corn crop. Combine that with spec money on the long side of at least 140,000 corn contracts as of last week, and you can see what a challenge it might be to get a rally back up to the latest high of 4.17 in the March contract. The good news is that projected carryout of 1.8 billion bushels is not that bad in terms of stocks to use, and we will need to produce a decent crop this year, but on February 1, it is hard to generate any big bullish weather threats in this hemisphere, and in South America, things are progressing very well. We seem to be in a rather dull, slightly negative trading environment with bears in cortrol, and bulls hoping for a break either in the good weather patterns in the South, or some big demand news to stimulate fund buying. We remain on that bearish side, but will be watching closely for signs of a change in psychology from the following list: 1) Commodity funds reduce their long corn position further, closer to even. (They are slightly short beans and wheat now) 2) South American weather goes sour, some areas of Argentina may be a little too wet already 3) Local basis for corn strengthens noticibly 4) Corn and Soybean export demand has been good lately, if it continues, USDA may need to raise estimates, lowering carryout 5) Crude oil prices bottom out, and start a decent rally. (A good close last Friday, lets see what happens this week) 6) Foreign Currency issues, more tension in the Ukraine, and more geopolitical issues everywhere that may influence the US Dollar 7) US Dollar strength, and the impact on export projections While these are important, the most important question will be "how will they affect money flow"? What combination of events will cause the funds to either bail out on the long side, or add to the longs? Or will the start of a new month see more money come into the commodities markets from other investments? We cannot know what these folks are thinking, but watching the market this coming week will be important to us from the above list, as well as the begining of the Spring price calculations for our Crop Insurance policies. Unless something dramatic happens, we will be looking at lower levels of guaranteed revenue this year. There will be more pressure on us, the producers, to market grain at profitable levels at a lower starting point in terms of coverage. We will need to be looking for opportunities to lock in a price that at least offers some profitability when we can, as unless we experiance some major weather problem, there will be no need to ration supply this year. That means lower odds of any big price spike like we have seen in the past few years. Being pro-active with a sound marketing plan seems more important this year than ever, at least to us. What can give us some good opportunities? Keeping in mind the above listed items, we will also be looking toward March 31 and the next Quarterly Grain Stocks Report, as well as the Planting Intentions Report, and the factors listed below: 1) Will producers really cut back on corn acres this year? 2) Will grain stocks get bigger, and carryouts larger, or smaller? 3) Is the South American crop growing or shrinking? 4) Major weather forcasts for spring planting- favorable or not? The bottom line in our minds is simple. We have a lot of old crop corn to move, and we have to be serious in our approach. Waiting until the new crop is "made" is not a good option. With any decent crop prospects, basis may come under a lot of pressure as we "make room" for the new. Last year was a good example, as even with a smaller carryout, after July, there was no need to push the bid, a big crop was coming, and basis as well as futures were not favorable. Getting old crop sold at a good basis early, with a limited risk reownership plan is what we favor for both corn and beans at this time. Call us for some specific ideas on where we might look to do this, and for the different choices you have. For new crop corn, we have some time, say until March 30 to see if some positive things develop. We would still be looking at December futures in the $4.40 area to make some cash sales, or some HTA's, or at least put some option floors under us with the top side open for further rallies. We also have to be realistic, and looking at the December 2015 corn chart, getting above $5.00 to $5.10 may require some strong bullish development. For beans, unless something changes drastically in South America, we have to think that November beans at $10.00 and above warrant some sales or at least some option protection. Again, we have a number of choices that may fit what you are looking for to achieve a profitable level of net farm income, and welcome your calls to talk over these ideas. In conclusion, the news so far this year has not been very good in terms of price, and we may have some more down pressure to endure. Watching the market go down day after day without any protection is not a pleasant thing. It is also not pleasant to sell out and see the market take off higher without having a plan to take advantage of unexpected developments. This is a year when complacency and inaction may not work out well. Remember, there is always a way to lay off risk or take advantage of a future development, but rarely do we just stumble on to those. Success in these times may require a more disciplined approach, and a little more time and thought in preparing a plan. Let's see what develops this week as we start to get a handle on revenue guarantees from Crop Insurance, a litle better understanding of the new Farm Program and our choices there, and see if we can establish some reasonable targets to get some sales on the books. Our last estimate of sales from last years corn crop is maybe 35% is all that is sold so far, and sales of 2015 are behind last years pace according to our contacts. If that makes you a little nervous, then we are on the same page, as we are as well. Make sure you keep the big picture in mind as we approach March 31, as there is all kinds of talk about corn acres this and bean acres that, and bets laid accordingly. We would prefer to not gamble, but have a sound, profit guided plan in place before that day ever comes. Let us know what your targets are, and we will see if there are some good choices for you! Dates to Remember this month
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. This material is not a research report prepared by Clear Focus Hedging's Research Department. By accepting this communication you agree that you are an experianced user of the futures markets, and capapble of making independant trading decisions, and agree that you are not,and will not, rely solely on this communication in making trading decisions. |
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