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CFGAG News and Views vol. 90 January 2, 2017 "Happy New Year!??" A new year begins with plenty of excitement, resolutions for some, and almost all of us want to do a better job of marketing. We begin the new year by listing what we feel are our most important guidelines to being a better marketer: 1) Know where you (and only you) are profitable and at what price your profit goals met. 2) Look at the charts for direction as to what are reasonable price ranges for the year ahead. Keep in mind fundamenatal factors as well, and when playing "what if" your assumptions are reasonable 3) Determine when cash flow needs will kick in, and plan CASH sales in those time frames, either making those sales or setting basis if favorable in those time frames 4) Construct a plan to make cash sales, buy puts, or sell futures when price goals are met, and defend with options when you feel you need to 5) Always have a back up plan in case price goals are not met, and if sales have to be made, have limited risk re-ownership strategies to put in place 6) Keep emotions under control when extremes hit the market such as drought, flood, or frost. Keep those profit targets in mind, and don't forget about the next year's crop if we rally sharply By using this guide, we feel we make better decisions overall, and keep ourselves focused on profit rather than emotion. We will not always hit the highs, but we hope to make sure we are able to be profitable at some point in the marketing year, and take advantage of the many marketing tools available to lock in those prices. It is really not difficult if you can remove all the emotion from the decision, but we know that is impossible. Everyone who has farmed for any length of time remembers price extremes and how much money was "on the table" and lost by selling too soon or not selling enough. The "high" and "low" in any marketing year is something we do not know as fact until long after it occurs, making it impossible to grasp in the here and now, yet some in this business try to imply that they know we will get to a certain number. For all humans, these are all guesses and nothing more. We can look at previous highs and lows in prior years as well as comparable supply and demand numbers to get into a reasonable price range, but if we have a large amount of money flow either in or out of a market, it can cause large swings in price that leave us baffeled as to how we got there. Keep number 6 above in mind during these times. As we move to the January 12th Reports, the USDA will weigh in with final Production numbers from the 2016 crop, a Quarterly Grain Stocks Report, and carry out numbers reflected in the monthly Supply/Demand Report. This is a big day of numbers that will set the price tone for the next 2 months at least. We need to have orders in "just in case" our price goals are hit for either buyers or sellers. Quarterly Grain Stocks reports almost always bring in a surprise or two, and we would not anticipate anything different here, and risk levels are quite high. We cannot emphasize enough making sure you have the risk covered going in that you do not want to worry about. We will not speculate on what the reports might say or if we "think" they will be bullish or bearish. Making guesses leads one to thinking he or she is right and then looking for reasons to be so. The market does not care if I am right or wrong, and cares even less about my ego, as I am powerless on my own to move the market in either direction. What I have to do is respect the power of the market to punish those that think they have the answer but really do not. This is why we focus on profitable prices and how to take advantage of them when they come. As this is written, some of the factors we are watching as we approach these reports are: 1) Demand for our grain is excellent, (in spite of a higher US dollar) will that continue? 2) Weather in South America is reasonably good, but there are a few issues like Argentine wetness, and Northern Brazil dryness that will be watched closely 3) Trade issues with Asian countries as well as potential conflict with the Russians and how much "sabre rattling" goes on 4) South American yield reports are starting to come in, those along with smooth shipping pace (or not) at their ports as well as labor strikes and their impact 5) Early planting intentions numbers from the US, and weather outlooks going into our growing season. While all these and others will impact price discovery, for this month it will be January 12th that likely makes or breaks the market psychology going into the winter months. Keep in touch as these items become news, as many will be affected by currency values, which can change quickly with a new president coming on line January 20th. Many changes could be in the offering, and the stock market has already anticipated a more "business friendly" approach. We recall much the same reaction after the election of Ronald Reagan in 1980, and then the realization that many of these changes were going to take a while to make a difference. We live in a very fast reacting world today, so even more caution is advised when making assumptions as to what effect any particular event may cause. We do not look at the latest political spin to make our profitability decisions, as these are worse than "guesses", they are designed to make someone or something look better than it really is, so is even farther from fact than an honest guess. Keep the focus on what price you want and need to make that profit goal! What we are facing as we start this year is the fact that while demand remains excellent, we have plenty of supply of all grains. There are no shortages and as of today, no real threat to those carry out numbers shrinking enough to cause a major rally. Funds are still long beans, and short corn and wheat, and we usually see some index fund rebalencing early this month. These factors can lead to some day to day price moves that you may want to participate in if you like to trade ranges. Corn has been stuck in a 3.40-3.65 range for what seems like forever. Wheat has not strayed out of a 20 cent range much, and March beans between 9.90 and 10.60 has been about it. You may want to consider some options above or below those ranges "just in case" as we approach January 12th. It is not uncommon for prices to "break out" of these ranges when major reports are released. As of right now, on this farm, I am totally sold out of both old and new crop beans, (see last months newletter) and remaining patient on new crop corn, (no sales yet), about 40% sold on old crop corn, 60% hedged, but would like to move more cash inventory if basis improves. I also have puts bought to re-own corn and bean futures against if cash sales are made.We are still targeting $10 cash beans for old crop or new crop, $3.70 or better for March corn for old crop sales, and $4.00 December futures for cash sales or option purchases. We also like the idea of buying "courage calls" when we trade at the bottom end of the recent range to make sales against at the top end of the range. Conversely, buying puts at the top end of the range gives one the option of buying futures at the bottom against them. All of these ideas keep risk limited and ability to stay in the game even if cash sales are made. We like these ideas especially given the importance of the reports on the 12th. In conclusion, as we start a new year, we thank you for your business and re commit ourselves to doing the best job possible to bring you good information and solid ideas. We go back to the begining of this article to repeat over and over (to ourselves too!) what we have found to work well over the years in terms of dealing with the markets and how to make money doing what we love to do. I cannot imagine doing anything else than what I am doing now, like going to work at a job I hate just to get by. Our job as producers and marketers of what we grow is incredibly challenging sometimes, but we are all lovers of a challenge or we would not be here. It is great to produce food and fibre while enjoying the country life and working with other producers, sharing thoughts and ideas makes it even better, and being in control of my own decisions is worth more than I can count. Give us a call in the next few days to get ready for the 12th, and we wish you a happy and prosperous new year! Dates to Remember this month
Mike Daube 888-391-6330 Allen Gard 800-205-1700 |
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