CFGAG News and Views vol. 50 - September 3, 2013

"We found more bushels......again"

Yes, in the Quarterly Grain Stocks Report, USDA did in fact raise the 2012 bean crop, and found more corn via less feed use. Wheat was the only bright spot with a few less bushels than the trade anticipated. Combine that with the majority of early harvest yields coming in better than expected, and you have the recipe for falling grain prices. The question now is how low do we need to go? Last year the question was how high prices needed to go to ration a short crop, and now we wonder when serious demand will develop and offset the selling pressure. While it felt like the roof caved in yesterday, we want to look forward and examine our opportunities. Remember, the fall price calculations for Crop Insurance start today, and producers need to look at their coverage and their positions in the field and the market and be ready to take some actions. We will cover those issues later, but for now we look at those factors that will influence prices leading up to the next big report, the October 11 Supply/Demand Report. This day should bring an end to the debate on prevented planted acres, up or down, and also give us a better idea on actual yields and production, essentially putting most of the cards on the table. Things to watch for as we approach the 11th:

1) Yield results as harvest moves north. Do they fall off, or continue "better than I thought"?

2) Weather issues for US harvest, and South American planting

3) The on-going budget debate, and approaching debt ceiling deadline

4) Italy is back in the news with their debt problems

5) While the "crisis" in Syria is on the back burner for now, the Middle East reamains

6) Will producers sell more, or fill the bins and weld the doors shut?

Early harvest premiums have been a great bonus for those able to take advantage, but are erroding quickly as harvest moves along. Once the pipeline if full, and premiums no longer exist, we question how much will actually be sold. The corn market has a carry from December to March of 13 cents, and December to July of 28 cents at this writing, encouraging storage. Beans do not, and encourage selling now. Our indicators are telling us that beans will be moved at harvest, and corn stored, following market signals. We agree with that, and have some ideas on re-ownership of soybeans  that will be posted on the website home page. There are many ways to reown beans, depending on risk tolerance. You can own futures, and we would look to the July contract for that, you can own puts and buy futures, buy calls, or use a spread. The spread we are looking at is the July/November 14 spread. Call us for details on any of these ideas to see if they fit your risk tolerance and overall goals.

For corn, trying to pick a bottom now that the lows have been taken out may be like trying to catch a falling knife. We do not try to guess where that might be now that our carryout looks to be over 2 billion bushels, but at some point, the selling will subside, and demand will pick up. Our problem reamains with our competitors in Brazil and the Ukraine having plenty to sell at prices less than we are currently. Throw in currency values, and we are still not there yet. Our advantages remain logistics, and the fact that this years crop looks very good as to quality overall. Our major focus here is to look at your overall revenue calcualtions, your insurance coverage, and making sure your position in the market is maximizing your net farm income. It is time if you have not already done so, to check with your crop insurance agent, get a good estimate of yield, and see what price that your insurance coverage kicks in at. It may not be advantageous to be "short" the market anymore, in fact it may be time to build a long position if you have a claim. Each individual is different, that is why we do not make blanket recommendations, but we do have ideas for you to make sure you are locking in everything you can.  Check in when you have a break to tweek the plan if necessary.

For those with hedges on, keep those ideas in mind of being flexible. You may want to convert short futures to puts, or simply lift them if you are confident we are close to a low. We ask a number of questions that help us make decisions, and we list them here:

1) Do you have enough storage?

2) What are your cash flow needs for the rest of 2013

3) If you do not have enough storage, what are the options?

4) What is your local basis for corn and beans now, and in the next few months?

5) How long are you comfortable storing grain?

With answers to these, we can make a plan to either sell and re-own, store and capture carry, or use our put options to back a long position to lock in insurance claims. All of these can add dollars to your pocket, or limit those that can be taken away. We firmly advise not to pay commercial storage unless absolutely necessary, and absolutely advise against using "DP" options. These do nothing more than put off decision making, and allows commmercials to use your grain for nothing. You still have all the downside risk, and the commercial has the grain to ues with no risk. Does the machinery dealer bring you equipment to use for nothing? Eliminating those risks and replacing them with a clear and  profitable plan makes more sense to us. Giving up control of the grain for little or no consideration and "hoping" it gets better does not make any sense to us. If you need more reasons to not do this, call me, as I can go on forever, but for the sake of time, we will leave it at that.

For now, we will continue to look at the "end game" of our hedge program, and try to maximize our position. It is always your call as to when you lift hedges or convert to cash sales, but we do encourage you to call and make sure we are not "double hedged". In other words, dont make big cash sales and leave hedges on without stops or some sort of risk management. We are about reducing risk, not adding to it. We cannot eliminate all risk, but we can manage what we have. Options and stop orders can be used to make sure we dont "give it all back". Make sure we know what you want and need to get where you want to be. 

From  the technical side, we have the following numbers from our computer to consider:

Dec.  Corn                Support                 Resistance

                                 4.30                       4.60                                                                                                              

                                 4.20                       4.90

                                 3.97                       5.20

Nov. Beans               12.50                      13.00

                               12.00                      13.60                              

                               11.80                      14.10           

In conclusion, while yesterday was a disappointing day to bulls, there are many business days in a year, and the markets will trade every one of them. Each day presents a new opportunity to do something positive, and we choose to spend more time on those than dwelling in negative hindsight. By doing that, we miss less good chances by not wasting time bashing the USDA or blaming someone else for our lack of good risk management. We know this because we have been just as guilty over the years of doing just that. We learn something every year if not every day, and maybe after a few years of record prices, we got too complacent, thinking prices could never go down and stay there. Can they? Absolutely they can for a while, but just as high prices cure high prices, the opposite is also true. While we found lots of producers in other countrys wanting to cash in on $7 corn and $17 beans, we will find less incentive as prices move below the cost of production. At some point, economics take over, and production falls. When that happens is up to other factors as well as the weather, and we choose not to be too caught up in that, but rather look to our Sales and Profitability Tracker to tell us when we are profitable, and then decide how to take advantage of that level. Only by using that or similar tools can we maintain our business at a profitable level and have peace of mind. Call us to explain any of these ideas or the "Tracker" that is now available for 2014. Have a safe and happy harvest!

Important dates to remember:

October 11th Monthly Supply/Demand Report and Crop Production 

Weekly Export Sales every Thursday at 7:30 am

Export Inspections every Monday at !0:00 am

October 18th  Cattle on Feed

Crop Progress and Conditions every Monday, 3:00 pm Central Time

Mike   Daube      888-391-6330
Allen   Gard       800-205-1700

Disclaimer: This material has been prepared by a sales or trading employee or agent of Clear Focus Hedging, and is, or is in the nature of, a solicitation. By accepting this communication you agree that you are an experianced user of the futures markets, capable of making independant trading decisions, and you agree that you are not, and will not. rely solely on this communication in making trading decisions.

There is a substantial risk of loss when trading futures and options. The thoughts and opinions in this article are those of the author, and while believed to be correct, are not guaranteed as the the accuracy or timing of the content. Past performance is not indicativeof future results, and each individual should examine their own risk capital carefully before trading.