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CFG AG
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CFGAG News and Views vol. 72 July 1, 2015 "The Sun is Back Out!" After what seemed here like endless cloudy days, rain, and low prices, the USDA Reports were released yesterday, and once again the market was caught off guard. Corn stocks were 100 million bushels less than the average guess, and beans 45 million less. Combine that with the adverse weather in the eastern corn belt, the late planting of soybeans, and the uncertainty about how many acres will be left to harvest after some extreme rain totals for May and June, and the perfect storm market rally came to be. There are a lot of unanswered questions that leave doubt when just 6 weeks ago the market was comfortable and complacent believing that surplus supplies of all grains were near certain. Those questions, both bullish and bearish are listed as follows:
Bullish 1) How many acres of corn and beans have been destroyed? 2) How many acres of beans will actually be planted? 3) Will double crop acres get in? USDA projects 5 million. 4) What will the effect of late planting, nitrogen loss, and lack of timely spraying be? 5) What are the longer term effects like disease and other pest pressure? 6) Will weather be more favorable or go to the other extreme? Bearish 1) Will western corn belt acres off set eastern losses? 2) How long before we hear of South American meal being booked in? (approx $110 cheaper than ours) 3) Will China's growth slow more, do they move their excessive corn inventory, or hold it? 4) Have we given South American farmers more incentive to plant more now? 5) With adequet to surplus soil moisture, can a dry spell hurt us much now? 6) Funds are long beans, probably flat corn now, could they sell again, stay out, or go long? There are many questions, and many opinions on both sides. We hear endless chatter and prognostications, lots of folks that have a number for this and that. Our position is simple. The only number that matters is YOUR bottom line. What is your yield potential today, what is your break even, and where are you likely to make a profit. All the rest is JUST NOISE! We can so easliy be distracted from what our only real job is, and that is to opperate a profitable business. That is hard sometimes, remember just 3 weeks ago? December corn was around $3.65 and November beans were under $9.00. Today we have December corn over $4.30 and November beans above $10.30 at this writing. Lets see, 65 cents in corn and over a dollar in beans, what should we do? We know first hand how difficult it is to assess water damage, and to project yield averages, but we have to try to make a good decision. It does NOT matter what someone else has or doesn't have, it matters what you have. It is time to make our best estimate of what we could have, and make some moves to protect some profits. We are now well above our insurance spring price guarantee, so making sales above that reduces our deductible. We are fairly certain that overall, farmers still have a lot of old crop bushels, and very little new crop sold, we feel it is time to get something done. Our positions at this time are as follows: 1) We as producers should start incremental sales using HTA contracts in areas that have poor crops, basis could get really good there 2) We are long calls based on last months advise, and feel they should be "rolled up" to take profit off the table 3) Cash sales should be made for what you are comfortable with in terms of production potential 4) We want to own put options, or put/call spreads to protect another portion, get a floor in place with a reasonble upside objective 5) Old crop should be moved or protected soon, and new crop you cant or dont want to store should be covered as well 6) We want to make sure we have a plan for the "what ifs" going forward. Make sure we focus on YOU, as that is all that matters.
In conclusion, our market opportunities can come quickly, and be gone even faster. We could write about our good moves and bad for hours, waste time in hindsight about the "woulda coulda shoulda" routine. It would accomplish very little if any good. We want to look forward and plan on profitability. A few weeks ago, there was little hope, lots of red ink on our books. Now, with crop insurance and a better price, there is some hope of profitability. BUT, it is only a better price if you take it, not watch it. Some action now is warrented and encouraged, but the specifics are up to you. We have choices and ideas, but they have to fit your plan and cash flow needs, as well as risk tolerance. Also, remember that the markets are closed on Friday the 3rd for the Fourth of July Holiday, and reopen Sunday night on the 5th. Have a great weekend celebrating our Independence! Dates to Remember this month
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