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CFGAG News and Views vol. 73 August 1, 2015 "The Right Tool For The Job" Volatility, is once again the name of the game as market prices peaked on flooding in the eastern belt, and concern over just how many acres of soybeans remain unplanted. The questions remain as we approach the August 12th USDA Supply/Demand Report, with some answers possible as USDA should release a "re-survey" of soybean plantings in some states. As in every case, there are some things we know, and many things we don't that offer the opportunity for market analysts to talk about and speculate on. While it is obvious that many acres in parts of Missouri, central Illinois, most of central Indiana, and parts of west central Ohio are struggling if not a total disaster, the opposite is true in Minnesota, the Dakotas, and much of Iowa. We have no idea how this will average out, but we do know that we had a good opportunity to lock in profitable prices, at a level well above our Spring guarantee from our Crop Insurance. As a resident or Indiana for almost 59 years, I can tell you that I have never seen it worse in terms of crop conditions in the central part of the State. Indianapolis has now set an all time record for rainfall this summer, and the effects are very real. If you are in this region, or one similar, how do you sell cash corn when you may not have any? This is where the "tools" come into play. If you want to lock in a futures price, you can sell the futures, or buy a put option. Neither requires delivery of any cash grain. Selling futures carries margin risk, put options do not, but they do require the payment of a premium for the "insurance" that prices will not go significantly lower. Using these tools, one may be assured of a floor price, and wait to see how many bushels can be salvaged from this year, and what kind of basis is available. We are already hearing about very good basis bids at ethanol plants, and they may get better. If you are in one of these "high demand" areas with poor crop prospects, it may pay to be patient when pricing cash grain. If futures continue their slide downward, basis may get even better. Call us on this one to make sure you have many bids in your area and some insight on the long term outlook. Simply speaking, it may pay end users to bid up some now rather than pay the freight to bring supplies in later as long as their profit margin is acceptable. Lets look at our Bullish/Bearish factors as we start the month and prepare for the USDA report on the 12th:
Bullish 1) Eastern Belt Crops WILL be significantly lower than year ago 2) Prevent plant on bean acres may be higher, and some double crop beans likely went unplanted 3) USDA resurvey of bean acres in Missouri and Kansas may show more unplanted acres 4) Loss of nitrogen, untimely spraying, and other problems related to excess moisture are becoming more apparent 5) Later planting dates are showing more stress and problems 6) Will August weather help finish what we have, or cause more yield decline? Bearish 1) Export sales remain well behind year ago levels, USDA may reduce demand and raise carryout 2) South American corn, and bean meal are now booked into the US 3) Chinese demand and strength of economy are in more question 4) The US dollar continues to be strong 5) There are few weather concerns in the two week forecast 6) Funds are still long, and subject to liquidation
We note that the most recent trading range has December corn from 3.62-4.54 and beans from 8.95 to 10.40 or so. We like the idea of using this range to make some decisions. Hopefully most were able to take advantage of the rally in June and early July to make some sales or buy some puts. Some of you bought puts and sold calls. We would advise that at the lower end of this range, it is a good time to roll puts down, exit the short calls, and see what happens. If you are in an area of water damage, your crop insurance may have already "kicked in". In this case, it may be beneficial to go long futures against your puts, as any further decline in price will be covered by insurance. A rally in price will actually lower net farm income. Make SURE you visit with your insurance agent and us to be confident in this decision before jumping in to a long position just because "it might go up". We are concerned with net farm income and good business decisions, not the latest emotional rant from those who want more trades on. Remember: once you have a good hedge program on, the only reason to trade it is to enhance what you have, or protect what you have made. We strongly discourage emotional, spontaneous responses to market chatter. Dealing with facts and numbers as accurate as we can get them are always preferred.
Our positions at this time are as follows: 1) Start assessing yield potential as best you can. 2) Make sure you have talked to your insurance agent to be sure of what your coverage is, and see if you are now in that zone. 3) Consider a protected long position if you already have a claim, and protect that payment through October. 4) We want to roll puts down, and exit the short calls to remove risk 5) Basis! this is very important, to know what the bids are, when you need cash, and locking in what you need 6) Make sure you are prepared for the 12th, if nothing else have some "just in case" orders in at price level you like. It could get crazy!
In conclusion, please go back and read last month's issue again, especially the conclusion. A great opportunity was handed to us by the funds. Simply put, the funds went from 200,000 contracts short in corn to over 200,000 long in just a few weeks. Producers sold a lot of grain, both old crop and new crop. Now the funds have a lot of longs on paper, and the pipeline is well supplied plus, the harvest in the southern Delta is starting to crank up. We had a great chance to make ourselves profitable, courtesy of the spec money boys. If you did not get everything sold, we will probably have more opportunity, but only if you have the right tool hooked up to accomplish the task. make sure to call and be ready to take advantage of whatever is thrown to us. I remember so well how discouraging it was last June to look at all the potential red ink on our books. In just 3 weeks, it all got better, if we had the right implement on board. Let us know if we can help you with any "hitch pins" to attach some profit to your plan. Dates to Remember this month
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