Clear Focus Hedging News and Views
February 1, 2022


 "How High, How Long?"


           It has been a great ride up thanks to adverse weather in Southern Brazil and most of Argentina, as little rain and extremely warm temperatures have lowered crop production estimates dramatically in the past month. Last fall, when planting was just starting in the Southern Hemisphere, estimates for the Brazil crop were 144 MMT for beans, and 118 MMT for corn. Now we are hearing sub 130 MMT numbers for beans, and 108 for corn. Argentina, which has received some healthy rain amounts lately, has still lowered production roughly 4 MMT's for both corn and beans from prior estimates. Bottom line is perceived world supplies are tightening, and we need more weather premium in prices in case further deterioration takes place in SA crops, and the what ifs of our planting weather. Weather markets (and corresponding predictions on production) are anyone's guess, we will only stop going up when we run out of buyers, or significant selling comes in. Where can the selling come from?


1)  Funds are long 366,000 corn contracts, and 115 bean contracts at last report

2)  US producers have plenty to sell, and have been ramping up sales in the past week

3)  SA producers also have plenty to sell as a percentage of the total

4)  Very little 2022 grain has been sold for many reasons


Buyers have come from many directions, funds, end users concerned about weather and potential war in the Ukraine, and inflation fears. Some believe money has flowed in from the stock market as well. It is easy to become complacent and ride the wave up, but as always, we want to throw a note of caution up: markets never go up forever, and when the buying is over, it can be a long ride down. Our task is to responsibly take advantage of good, profitable prices, reduce risk, and make our life easier by making sure red ink is not part of our balance sheet. We start calculating insurance spring prices today, and they look to end up significantly higher than last year. Yes, input costs are up as well, but we also know that the market does not care how much it costs us to produce it, end users only will pay what they think they need to. Our preference is to get grain sold on good basis, and re own with calls or call spreads, or puts and futures to make sure we do not give away a big chunk of this rally. New crop coverage can come from many choices, HTA contracts in September for corn, (13 cent inverse over December), short dated puts, buying puts, selling calls to create a window. For old crop corn, March is leading the inverse parade, trading 8 cents over July, and we remember well what inverted markets mean, the market wants the grain now, will offer no incentive to store it. Keep that in mind when planning cash sales. When planning ahead, keep these factors in mind, they still apply from last month!


1) How much old crop are you holding? Is price protected or sold?

2) When will you need cash flow?

3) Are your input costs set, or still fluid? If set, are these new crop prices profitable?

4) What price will make you happy? Do you have orders in?

5) How much upside potential do you think we have? How much downside risk?

6) How much risk can you stand going into the February 9th USDA Reports


It has been our experience that serious weather issues sometimes get overblown, and the February Reports may bring a different perspective in terms of supply/demand balance sheet. Always remember these report days, they carry risk and prices can move sharply in either direction. We like to lower our risk level before we get to report day, and if using options, try to get them bought a few days before as volatility usually goes up and premiums increase. Call or stop in to go over some different options for your individual needs.On our farm, we are almost sold out of old crop corn in the cash market via HTA contracts, and have the rest hedged at these prices. $15 dollar beans bought the balance. We are adding to new crop hedges in increments and will soon have 85% coverage. It is very hard to see prices going up and look at previous sales but it is all about the average, and the security of knowing we will be profitable this year! Some have even started looking at 2023 prices, as we all know every producer in the world will want to produce as much as possible, and eventually we will have a surplus. We want to make sure as we can that we don't want to miss a good business opportunity by being complacent in the thought prices can never go back down.


In conclusion, keeping the emotion out of the mindset is the most difficult thing to deal with in marketing. Making a profit is always number one, and our age and experience reminds us of too many missed opportunities in the past by passing up good prices and then refusing to sell on a down day, or week. The charts are pointing up, and the rally is on again, and until we run out of buyers, no one knows how high is high enough. One idea is to layer sell stops in either the cash or futures market to make sure you have a sale in case of a sharp turn of events. This is one choice, and there are many others, so lets put some numbers together and make sure we have another year of profits!



Dates to Remember:
Every Monday: Export Inspections at 10:00 am
Every Thursday: Export Sales at 7:30 am
Every Friday: Commitment of Traders Report at 3:00 pm
February 9th: Monthly Supply/Demand and Crop Production Reports
February 18th: March Options Expire
February 25th: Cattle on Feed
Mike Daube: 574-586-3784
Allen Gard: 573-221-9234