Clear Focus Hedging - Clear Focus Hedging – News and Views vol. 91 February 1, 2017

Clear Focus Hedging – News and Views vol. 91 February 1, 2017

The crop report on January 12^th has come and gone as well as some bullish South American weather. The markets have turned a bit south as of this publication. We feel it is good to focus on profitability of your operation vs emotion of the weather and other factors.

Some factors to monitor:

Demand for US grain continues to remain strong. Ethanol exports have been increasing the past 6 months, seasonally grain exports are getting smaller. It feels like we should still hit or potentially exceed USDA targets. Trade wars can have a negative impact on US grain if our grain exports are taxed in retaliation. In mid -January (prior to the inauguration of President Trump), China increased DDG and ethanol import taxes /tariff’s….something to monitor. DDG tariffs were increased to 40% of the value of DDG’s and ethanol tariffs increased to 30%. This will cause a drop in prices and put pressure on ethanol crush margins. It will also pressure on soybean meal prices.

Value of the US Dollar – a stronger $ makes the price of our grain more expense, The US $ has lost some strength the past few weeks.

Weather - Crops in South America have been threatened the past month. We are just starting harvest in Northern areas of Brazil and have finished planting in Argentina…so there is still plenty of time remains for a weather event….this can be a bullish or bearish.

China is on Lunar New Year holiday this week. Will they come in and buy lower priced grain after their holiday?

Fund position:

Managed money is currently net long 17,760 contracts of corn. 4 weeks ago they were 110,000 contracts short. This is represented by the green line.

This is a substantial shift in market position in the past 4 weeks. If they continue buying we may eventually test recent contract highs again.

Managed money is currently net long about 186,103 contracts. 4 weeks ago they were long about 110,000 contracts. This is represented by the green line.

Risk is if they decide to reverse a portion of their long by going short. If / when this happens it will put downward pressure on the market. On Monday it is estimated that the funds sold about 10,000 of their longs. (25 cent drop in futures)

It is good to visualize charts for direction. We are still range bound in both corn and soybeans. Soybeans are more profitable today for farmers. They also potentially have more at risk than corn. We have included a chart of the past activity in December 2017 corn and November 2017 soybeans to help you see that, along with of our comments…

December 2017 corn

December 2017 corn has been range bound with a recent high of $3.96 ¾ on January 24^th. We are still being patient new crop sales, targeting $4.00+ for a rally due to lower acreage, potential prevent planting or a planting weather challenge.

November 2017 soybeans

November 2017 soybeans rallied after the crop report to $10.33 ¾ on January 19^th. We feel in the long run sales over $10.00 should be made or at least protected with put options. It almost appears we have a double top formed in soybeans.

In conclusion:

The market is trading and performing price discovery. The market is looking into the future to determine what risk premium needs to be in the market for the various risk factors. You and others confirm this by selling and buying futures to manage risk. Prices you and other farmers are willing to sell, prices end users are willing to buy help the market find its price.

We think it is also simply good business to understand your costs of production, focus on reducing expenses where possible, while looking for ways to increase yield. It is also important to form and execute a plan to market a portion of your crop during the year when it is profitable. It is important this plan fits your farm for cash flow and risk. We like to focus on keeping marketing simple. We believe utilizing these tools; will keep marketing your plan simple and less emotional. These can all be done as cash contracts or your brokerage account

Firm Bid Orders

Sell stop orders

Puts

Courage calls

Some opportunities:

Corn:

Setbacks in corn should allow others to buy some courage calls to help if we get a rally in corn to the $4.00 level. SD July $4.00 calls are trading at 12 cents. We still ultimately feel that with fund position and some risk premium added later to the market we should be able to reach $4.00 corn, but we want to be aggressive sellers at this level and feel the calls will help you not only sell aggressively but allow for some additional upside and protection from margin calls if we do sell too early.

Soybeans:

You know from previous newsletters, we have been in favor of selling $10.00 beans and missed some of the opportunity the January 12^th crop report and South American weather gave us. If you need to make catchup sales, it may be wise to consider puts as we are trading to the lower side of the range again (in case we see another blip in SA weather). We do feel these are levels that long term are worth selling and/or protecting. If you have made aggressive soybean sales, continue to monitor and decide if you need to re-own a portion of those sales at the lower side of the range in case we do get a weather event that has merit to contribute to a substantial price rally.

We want to thank you for your business. We believe that by looking objectively for opportunities we can help your business be more profitable and afford you an opportunity in some potentially challenging times ahead.

Dates to remember:

Crop Progress and Conditions every Monday at 3:00 pm CST

Commitment of Traders Report, every Friday afternoon thru previous Tuesday’s position.