CFGAG News and Views   February 1, 2020

"Best Offense A Good Defense?"  

 In writing this on the day before the Super Bowl, we couldn't help using an old football analogy to set us up for this years marketing plan. After the USDA Reports last month, there is still much argument over just how much grain is really out there and available. USDA actually increased average yield, and only cut acres slightly, but surprised us with a much lower than expected stocks report. This lead to a lower initial reaction, but that was followed by a nice rally, but now with the outbreak of coronavirus, we have traded lower for the last week of January. What do all these things mean to us going forward? The title says it all. We can easily see a rally based on future reports, surveys, unexpected demand, South American weather, our spring weather and on and on. But we can also see the possibility of a spread of coronavirus, excellent weather, and trade agreements being dishonored causing markets to trade lower to much lower, so perhaps the best choice may be to focus on defense while making sure our offense is not limited if and when opportunity presents itself. Here are the key price drivers as we see them going into the month of February:


1) Coronavirus- how bad and for how long? How much damage to the Chinese economy and the effects on the newly signed trade agreement

2) Brazil and Argentina weather, harvest progress and safrina corn planting dates

3) US weather, spring outlook and early planting progress in the south

4) Weather in the northern plains, crops still not harvested, quality and quantity, and planting progress if and when they get it out  

5) Exports: corn has been lousy but is now improving, beans and wheat have been good but weakening as of late


We have learned over time that markets do not like uncertainty, and grain and equity markets this past week have confirmed that. The stock market is quite concerned about the opening of the Chinese markets Sunday, February 2, as they have been on holiday for the past week and the opening of their markets Sunday will be important. We may have to turn the channel from football to the business channel frequently! With the World Health Organization declaring a major emergency and all travel in and out of China being restricted, this could be a major issue, and conversely, the market may have already factored in the worst case scenario. This is all unknown, and these unknowns have probably overshadowed the good news of the week that now along with the trade agreements secured with Japan and China, we have signed the USMCA agreement with Canada and Mexico. These agreements were expected, so we should not be too disappointed that immediate price rallies didn't happen, it could have been more of a "buy the rumor, sell the fact" effect, but combined with the virus outbreak, buyers are more likely going to the sidelines until more is known. 


With these things in mind, we look at both bullish and bearish items to guide our thinking and timing of what we want to do:




1) Basis levels remain strong across the board, some strengthening this past week on futures weakness indicates demand is still strong 

2) Soybean harvest in Brazil is behind average, delaying safrina corn planting, which "could" pose a yield risk

3) We should have the bulk of the corn export market for the next two months, as Brazil focuses on beans, and Argentina harvest is a few weeks away 

4) Soybeans prices have fallen to be more in line with Brazilian offers 

5) Cash flow needs are not as urgent this winter as MFP payments, Crop Insurance payments and early sales have enabled many to hold off more sales

6) Trade agreements are being signed and more are being worked on. Optimism on success is good!




    1) Early bean yields from Brazil are very good, above expectations, with some now seeing a crop exceeding 124mmt (last year 117)

    2) Chinese buying may be delayed due to virus spread, economy at risk

    3) Planted acres of both corn and beans in the US should increase substantially with less prevented plant

    4) A return to trend yields would create a very large carryout for next year

    5) Lower fuel prices negatively impact ethanol margins, mild winter weather may reduce feed demand


  With these in mind, what should our strategy be going forward? With demand uncertain and South America looking relatively good at this point, we feel that defense first is the best approach. We want to make sure bushels that must be moved at harvest are covered first, anytime that we are at profit goal levels. $4.00 corn and $9.60 beans seem to fit that criteria for most farms we work with, not great but certainly acceptable given the possible alternatives if all factors above lean to the bearish side. We like buying "courage calls" on breaks in the market to cover sales we want to make in the future. One idea is to sell old crop on good basis and own short dated December calls to re own and also use to open the upside on future sales. This way we participate in a rally but also have upside potential on bushels we want to sell early. Make sure you call and go over these ideas so we make sure we are REDUCING future risk or at least planning in that direction by taking these positions. We need to have entry and exit strategy in place if we truly are managing our risk to the best of our ability. With this in mind, the following is a brief outline of what we are doing on our farm.

1) For old crop, we have basis contract orders in to sell both corn and beans for spring delivery, and are targeting $4 March futures for corn and $9.20 March beans for sales

2) We are buying short dated, July expiration calls for November beans and December corn to re own old crop sales and defend new crop sales if targets are hit, $4.10 December corn and $9.60 November beans

3) We are selling new crop corn via HTA contracts on bushels we may not be able to store starting at $4.10 and adding increments every 5-10 cents.

4) We are buying short dated, July expiration puts covering most of our production on any rally above $4.10, and will consider selling full December $5.00 calls if price and timing are in line with current expectations

5) We will cover 100% of unsold beans with short dated August expiration bean puts on any rally to $9.75, and consider selling 10.60 November calls if price and market conditions are reasonable

6) On any large, unexpected rally in either crop, we will utilize sell stops in either the cash or futures market to make sure we get more sold at higher prices than expected. We will also consider rolling up puts to increase our floor depending on time value, days to expiration, and price action.

It has been said that the best defense is a good offense but in our marketing world this year, we prefer defense first. The American Farmer has demonstrated incredible ability to deal with adverse weather, plant disease and other issues to produce yields that 20 years ago none thought possible. We simply cannot discount this ability, as the marketplace has accepted it as absolute, you just cannot underestimate our potential to produce, and the driving force that makes it happen. This fact forces us to be defensive with our price targets, but we also want to have upside potential. The best example we can give is a put option. If we buy 4.10 puts and the market rallies to 4.50, should we be sad?? No, we protected our income level, but now have the opportunity to INCREASE that level of profitability! We need to reward that rally by either selling cash or rolling up puts, accepting the fact that hindsight never makes good sales, only gives us reasons not to sell in the future. Worrying about "leaving money on the table" rarely leads to good selling attitudes for the future, when the focus SHOULD be on selling every bushel at prices at or above target levels of profitability. Knowing where that price is that gives you that level of profit is where it starts, if you know where that is, then selling becomes much easier, and the decision to add becomes a simple math equation solved in seconds once the emotion and fear are removed. Our goal is to get more of our decisions to that direction!



In conclusion, we want to emphasize our plan this year, and it simply starts with a price that satisfies your business needs. Lets determine that level, and go from there. Our farm decisions are based on our cash flow needs and profit goals, not on what "might happen" in the marketplace. We are not as concerned with maybes as we are of avoiding red ink on our statements, and that involves realistic number crunching based on reasonable numbers. Our input costs are known now, and production estimates along with crop insurance levels are in view, so its time to get serious about firming up our selling targets and planning a course that is ready to go. Opportunities in market rallies when supplies are comfortable do not last long, and in our view, we are in that realm of comfortable supplies and good but limited demand growth until disease outbreaks are under control. There is good news of a possible vaccine for African Swine Fever showing very effective results, which would certainly help the rebuilding of hog herds in China, but that may take some time to verify. Assuming all is well and the sky is the limit may not work out well, but it is a possible break through. We want to see good news. but at this writing, we still want to focus on our defense, and in the game of marketing, we will be placing our "bets" on covering the "under" in the price score while hoping for the "over" to raise our bottom line. Enjoy the game, but stay protected!


Dates to Remember:

  • Every Monday: Export Inspections, Crop Progress
  • Every Thursday: Export Sales and shipments
  • February 11th : Monthly Supply/Demand Report, Crop Production
  • February 21st: Cattle on Feed
  • February 21st: March Options expire



Mike Daube: 888-391-6330 or 574-586-3784

Allen Gard: 573-7694193



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