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CFG AG
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"Evaluate, Plan, and Look Forward" With harvest now behind us, and a great start on preparations for spring, we want to take some time to look back and evaluate how our planning worked last year. We have a very similar carryout projection for corn this year as last year, but more beans and wheat to deal with, as well as reasonably good weather in South America at this time, which could lead to a growing world supply of beans. On the surface, this tells us to be a little more agressive in pricing beans, but maybe a little more patient on the corn. This can change quickly with weather, wars, and factors that change the direction of money flow, but for now, this producer is content to be patient on corn with targets to take some action at $4.30 or better. We are only about 30 cents away from that initial target, so getting serious about some ideas to take advantage of that price might be a good idea. Why $4.30? For our opperation, that price is profitable given normal yield scenarios. With ample supplies of grain in the US and the World, I have to focus on that price that makes ME profitable. It may not be the same for all producers, so each of us needs to do some pencil pushing and find a number that makes our cash flow positive. I have to be realistic as well, that with no supply threats, we may not be able to get to that level, but for now, at least until the week before January 12th when we get the USDA Quarterly Grain Stocks Report as well as the final 2015 Crop Production numbers, I will be patient. That is our next major risk time for price action, and we will need to re-evaluate our position next month as we approach that time frame. As it stands today, if we could rally up to $4.30 December corn futures and $9.50 November beans, I would have some HTA's done as well as some option spreads on to protect that price going into those reports. I would certainly like to have more, but to make sure I will be profitable this year is a little more important given the bearish tone we have in commodities in general. I also want to be flexible just in case we have a major weather development that takes out previous resistance levels, for instance last years December corn futures high of $4.54. This would signal the market needing to make sure adequet supplies are available and there is concern for some reason that we may not get them. It can be any of a dozen "reasons", the reason doesn't really matter, it is a price signal we would respect, and would have a plan to adjust our expectations. If we take time now to lay out our goals, our action plan, and our exit stratigies, it removes a lot of emotional stress when we least need it. For our positions right now, we: 1) Are long corn with protective stops below last weeks low 2) Are selling beans and corn in the cash market if basis is strong, and re-owning with limited risk longs in the futures market 3) Taking profits on long soybean positions, and buying puts to protect unsold bushels if sales are not made 4) Remaining patient on new crop sales, looking for the targets listed above 5) Building a plan to kick in early January, in case we do not reach our targets before the reports on the 12th 6) Targeting the next resistance levels in corn, (March futures around $3.90) to reward the rally with some incremental sales We feel strongly that moving grain on good basis and replacing with low risk (long put/long futures, calls or call spreads) is a much better alternative than simply waiting for a weather scare. We have ample stocks, and an export program that is lagging. This is not a recipe for a big rally. Setting a goal of moving an increment of bushels every month that you have stored may be a good idea. We cannot be sure that good basis will still exist after January 1, as grain sold for that time frame moves, nor can we be sure that it won't. Recognizing that we have two components of risk to our flat price, basis and futures calls for us to limit half that risk by doing a basis contract, or selling and re-owning. Right now, basis here has backed off the highs a few weeks ago, but still remains relatively good. Check your bids and call us for updates. Be aware that a basis contract should be made in the time frame you want to sell, as rolling it will reduce the price by the amount of carry in the market. In other words, if you do a March basis contract, and roll it to May, you will lose the amount of the spread, or difference between the two months price, currently about 6 cents. Continuing to roll forward will do the same, so make sure you understand the contract and what it will and won't allow you to do. We have had many calls on this, and see a lot of confusion on the terms of delivery, so we want to make sure you do not get into a contract that limits your options Looking forward, there are factors we are watching: 1) Weather threat in South America. (or not?) 2) Long US $ postions/short commodity spreads 3) Strength or weakness of the US $. Has it topped out? 4) Selling pace of US farmers (TIMING!) 5) Removing export taxes in Argentina. (or not?) 6) Weather- shift from El Nino to La Nina? Strength of event and projections? Statistically, a strong El Nino like we have now is followed by a warm and dry summer more often than not. While we will not base our marketing plan on that alone, we do like the odds of a rally some time in the next few months to get profitable prices protected. Depending on your risk tolerance, cash flow, storage space and crop mix, there is a way to protect any or all of your crop with the focus on limiting risk. We are always glad for the opportunity to walk through some ideas that may work for you, call for a time we can do this!
8.00 9.96 In conclusion, we come to year end again, time continues to fly by and we want to make sure we say "Thank You" to all of you who call, write or stop by to give us the chance to work together. Your comments and feedback are always welcome as we try to get better every year. Looking at some preliminary year end figures, we are very pleased with what we have accomplished together, and hope to do better next year as well. As my old football coach said, "its good to celebrate your success, but don't ever get saitisfied, you can always get better". He was right, as usual, and we will continue to work to that end. Have a joyous and Merry Christmas, and a happy, safe, and prosperous New Year!
Dates to Remember this month Crop Progress and Conditions every Monday at 3:00 central time Export Inspections every Monday at 10:00 central December 9th Supply/Demand and Crop Production December 18th Cattle on Feed Export Sales and Shipments every Thursday at 7:30 am
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