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CFG AG
CFH info
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"Range Bound or Ready to Rally?" It would seem like we have been stuck in a trading range for corn forever. Since the February rally that took us to $4.05 December futures, we have not really challenged that level at all. Soybeans have broken and not had much of a rally attempt as South American crops have come in at record levels, and little threats remain to the advancing harvest. Wheat has been been stagnant as well, with selling meeting every rally attempt. It would seem like there is little hope for prices to recover to good profit levels, but before we give up any hope, lets look at the fund position. We have often talked about the position of managed money and how it relates to price action. Looking at the fund position last friday, we find they now have a record short for this time of year in corn, beans and wheat combined, nearly 200,000 short in corn alone. Wheat shorts are over 162,000 and beans over 48,000. Add to those numbers the weekend weather that saw heavy rains cover a large area of the midwest, and combine that with cold and snow in others and we have the market responding this morning with corn up 5 cents plus, beans up 7 and wheat up 9 in Chicago and 15 in KC. Is it possible that this is the start of something bigger and better? Our best guess is yes, but we will be watching the following items for clues as to how far this rally could take us if anywhere: 1) How much, if any, damage to newly planted crops, and if there is ample time to replant when the ponds dry up. 2) How long will the cool temperatures last, how fast will planted crops actually emerge? 3) Have the cold temps in the western belt caused damage to the wheat crop? 4) Will it warm up and dry out in the Northern Plains soon enough to get crops planted? 5) Will we lose more corn and spring wheat acres to soybeans, and will prevent plant acres go up more than average? The most important question is how will the managed money folks, (funds) react? Will they exit some of their short positions, or stand pat? We know from past history that price action can become very volatile when we have big movement either in or out of the market by spec money. We saw a big rally last year on the "forcast" of a drought, and when it failed to materialize, good profit prices disappeared in one week. Right now we have a couple forcasters drawing comparisons of this years weather to 1993. Will that be enough to move the funds to a big long like last year? We always try to avoid the emotional aspects of the market place, but we do not want to get carried away with speculative items that we have no idea on the exact outcome. Pretending you know the outcome in the market is very dangerous, and usually results in financial loss. Instead we will focus on what we know: 1) Lots of cold rain on newly planted crops is not good, but full effects may not be known for a long time 2) Sub freezing temperatures are not good for wheat or newly emerged row crops 3) Forcasts for more below normal temperatures mean more time to dry out 4) Planting progress is expected to be about normal when numbers are released this afternoon. 5) We all know how fast crops can be planted in this country, will the price be an incentive to plant or replant, or will it discourage planned intentions, and encourage some other crop or prevent plant? While we all have different opinions and interpretations of the damage caused by weather, the actual impact to production potential will not be known for some time. We have to look at this as one potential time to get back to profitable levels. Lessons learned from the last two years especially tell us to make sure we have plans in place to sell grain or buy puts, and make sure we stick to that plan unless crop losses on our farm change those numbers. For those that bought courage calls, we bought them specifically to make sure we made sales if and when we achieved those price goals. Call now to make sure orders are in on either cash or futures to get those bushels done. One of the clouds hanging over the market is the low level of new crop corn and wheat sales on the books,quite possibly why the funds have taken their short position to the level they have. There is still a lot of grain to sell, old and new crop, but you can bet if your area is flooded out now, there wont be many willing sellers from the farm! Right now, on our farm, in northern Indiana, we have no seeds in the ground, and it looks like at least a week before we do anything. We have sold out of beans, and have a small amount of corn sold on the rally to $4.00 in February, and will add to those on a price move above those levels. History says a high made in February does not hold, it is taken out by summer. Maybe this is the time we go far beyond that, and maybe it doesnt, but we will be ready to act if prices meet our goals. If you are not comfortable selling cash or futures, puts and put/call strategies are good choices in providing a window. Call us for specific ideas on matching up some for your price goals. In conclusion, as we watch the film of flooded fields and snow covered land that has already been planted, we cannot forget that we are still growing crops to sell, and everyone of us is doing their best to produce maximum yields. As prices rally, that incentive gets stronger and stronger! Price action is driven more from emotion than good sense sometimes, and we want to avoid being caught up in that emotion that keeps us from doing our job, the job of making profitable sales. Whether this weather event is a predictor of a repeat of 1993 or not remains to be seen, but we can be ready to cover our bases with some good price protection if funds cover some or all of their shorts. Keep in touch to see if anything changes, it does on an hourly basis, and always keep it safe out there! Dates to Remember this month
Mike Daube 888-391-6330 Allen Gard 800-205-1700 |
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