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CFGAG News and Views vol. 71 June 1, 2015 "Ready to Turn, or More Down to Go?" June 1st, the grain markets are depressed, and so are many producers. The "funds" or speculative money has now established a record short position in corn, beans, and wheat combined, and by a big margin comparitively over past years. Everything seems to come up "bear" in the news these days, and the questions keep coming, "how low can we go?" It is not a lot of fun dealing with low prices, especially when we look back and wish we had sold more. Remember 3 years ago? We were just starting the big bull run with the drought of 2012, and folks wished that they had sold nothing! We had record high prices within weeks, and the stage was set for great profits in farming for a couple years at least. While we do not predict a repeat of 2012, in either weather or price activity, it is important to step back from the emotion and remember that what seems like a high price (or low one) can change quickly, and for those not mentally prepared with a well thought out plan, a good opportunity can be missed very easily. As we think this through, lets look at the basic factors in both camps: Bullish 1) Excess moisture in places have washed out some acres, and prevented some from being planted 2) Export sales have been relatively good, in spite of cheaper prices in other nations 3) Funds are now RECORD short in all three grains combined 4) Ethanol production is above levels needed to meet USDA targets, and stocks of ethanol are not building. Good margins! 5) Bird Flu issues seem to be quieting down 6) Geo-Political issues are still simmering Bearish 1) Crop conditions overall are good so far 2) Carry out levels of all grains are ample if not surplus 3) Planting progress is close to average, even with the wet areas 4) We may have more planted acres than forcast, especially beans 5) We have adequete to surplus soil moisture in most of the corn belt, a drought will be hard to establish this year 6) Funds are short, and making money, they could continue to press the market lower We have a monthly USDA Supply/Demand Report on June 10, and also a look at crop production for this year. The BIG report will be on June 30 with the Quarterly Grain Stocks, and our first look at planted acreage from USDA. These will be big numbers to digest, as combined with the two week weather forcast, we should be able to establish a decent number for carry out levels this year and next. These Quarterly Stocks numbers have been big game changers in the past, as there are lots of potential surprises given expectations possible. Getting prepared with a good market position to take advantage of those "surprises" can make all the difference, mainly by assessing your risk going in, and taking some of that off the table. For instance, if you are heavily short the market, make sure you are comfortable with that position, or own some calls to offset the potential upside if there is a major surprise. If you are long grain in the bin, and in the field, owning puts on any decent rally takes advantage of the rally, but insulates against a bearish number from USDA. Make sure you call us for some ideas to lay off any unwanted risk going into these report dates. Our positions at this time are as follows: 1) We are not "bearish" corn or wheat at these price levels, and still believe a rally is possible, we would not rule out $4.00 Dec. corn 2) We are comfortable owning calls in corn and wheat, especially to cover sold bushels 3) We are more bearish beans from this price level, we would sell cash beans near $10, and new beans above $9.50 4) We are looking for a "short covering" opportunity to make new sales 5) We want to have orders ready to sell cash, buy puts, and sell futures on any good short covering rally 6) We want to make sure we have a plan to deal with any old crop left as well as prepare for new crop in case the reports are bearish. We need to start now making plans to store and hold, or sell enough on any good rally. Make SURE you know what price you are willing to sell at given your storage and basis levels in your area! Anything that is sold in the cash market can be re-owned on paper if the basis is good, and can be much cheaper than commercial storage. Call for ideas! In conclusion, it can be very depressing to a producer if you are looking at less than ideal crop conditions, and a price that does not cover costs, but to an end user, this is a great opportunity to lock in some good profits. The main reason we are not bearish corn at this time is that margins for users are so good. Consumption should be growing, and there is considerable price "space" before end users back off. Combine this with the fund short position, and there is some real upside potential if anything substantial changes in the perception of this crop or world demand. Soybeans have a supply problem that has been growing for over a year, but severe August weather could change that game as well. Instead of throwing in the towel, lets look for our next opportunity and prepare for our harvest now so we have some "space" available. Looking at cash flow needs, storage requirements and costs, as well as basis levels both nearby and beyond can help mitigate a bleak situation now. Don't forget to fly the flag on the 14th, and be sure to keep in touch before the reports on the 10th and 30th!
Dates to Remember this month Crop Progress and Conditions every Monday at 3:00 central time Export Inspections every Monday at 10:00 central June 10th Supply/Demand and Crop Production June 19th Cattle on Feed June 30th Quarterly Grain Stocks and Prospective Plantings Export Sales and Shipments every Thursday at 7:30 am
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