CFGAG News and Views vol. 76 November 1, 2015

"Time: Our Most Valuable Resource"

Sitting in the combine, with harvest almost complete, I have some time to reflect on all the things we did this year, the good decisions and the things I would change. Soybean varieties, corn hybrids, fertilizer choices and weed control are all items I spend time evaluating and comparing. I compare costs and results over each field in detail to help decide what I want to do next year. I evaluate the land for tillage needs, residue control, and drainage issues. In short, I spend a lot of time in making the best decision possible to maximize our potential for next years crop. Working with the best firms in our area to provide research and expertise as well as trials in my own fields helps me be confident that I am doing the best job I can and hopefully the weather doesn't ruin what I have invested so much time and effort trying to accomplish.

Marketing our crops can also be time consuming. There are so many things to watch and pay attention to, and so many "experts" with opinions and analysis of what is important that it can be quite confusing and frustrating. I can remember years ago before I got into this business, that I was constantly searching for someone with all the answers, the "holy grail" if you will. Each new exercise proved disappointing, and the search continued until I realized that the only place I had not looked was to myself! No, I do not posess the "holy grail" of marketing, but what I do have is the starting point. I have the list of costs and cash flow needs that will need to be met. I have the land and machinery payments that will be due, and a list of things I would like to add if extra cash is available. I also know what I am likely to produce in an average year, and I know what the cost of insurance is to protect as much as 85% of the expected revenue.

Instead of doing what I used to do, which was spending a lot of time trying to figure out where the high and the low would be, (and wasting a lot  of time doing so) it finally got through my thick head that I was on mission impossible. There was simply no way to know, and trying to find that number was doing more harm than good because I had a preconcieved notion stuck in my head, and had little respect for other factors that may be developing into market movers. The market simply had it wrong, I told myself, only  to have to admit later on that  I had it totally wrong. A small problem turned into a bigger one, and the frustration continued. What turned the corner for me into a better marketer? (notice, I said better, not best) A very simple decision to focus on what I needed to generate in my business to accomplish my goals. I needed to keep the focus clearly on achieving those income goals by using the tools I have available and manage or lay off risk instead of adding more. That is how Clear Focus Hedging came to be.

Our most important job here, as we see it, is to help you (and ourselves as producers) manage risk. We hear a lot about risk management, lots of lofty verbiage about lots of stuff but unfortunately, it is mostly hot air and noise. Why? Because unless we both know where YOUR risk is, we cannot help you manage it. Your personal risk tolerance may be quite different than your neighbor, and your cash flow needs as well as other unique items dictate different plans for each individual. Consider the following list of factors we use to determine some good choices:

1) Crop Insurance coverage, and projected yields

2) Storage availability and cost of handling and storage

3) Basis levels now and in the future

4) Cash flow needs, as well as tax implications. When do we want/need the income?

5) Expectations for the coming year, what are the potential opportunities for rallies, and how far?

6) What is our profit goals and objectives? Are they reasonable?

At this point in the season, with harvest about wrapped up, we have some extra time available thanks to the great weather we have enjoyed this fall. It is not too early to look ahead and do some planning. Based on what we know, the crop size overall is big, and may get a little bigger in the November 10 Supply/Demand Report. Supply is not the big issue right now, it is all about demand, usage, South American weather, and then later comes our planting outlook to drive price direction. The funds are short wheat, but basically flat in corn and beans. Price discovery is essentially "pure" between producers and end users at this point. What we have is a trading range, where we run out of sellers at the low end, and buyers at the high end. In between in can get boring and choppy, with little direction, and may be lulled to sleep? This is not the time to be sleeping however, as markets usually don't stay that way long in this day and age. Consider this list that could wake up sleeping bulls and bears:


1) Weather threat in South America

2) Funds re- entering the market in a significant way (either way)

3) Strength or weakness of the US $

4) Selling pace of US farmers (TIMING!)

5) Geo-political events, Argentina elections run off in December, Middle East unrest, Russia and China moves being more aggressive 

6) Weather- shift from El Nino to La Nina? Strength of event and projections?

Planning now to take advantage of any of these and others not listed is a good idea. We recognize and agree with farmers being tight holders of grain for now. At the lower end of the trading range we would not be sellers. We do feel it is possible to rally corn to the $4 area and beans over $9. Basis levels are strong, and end users will either rally basis or futures or both to keep the pipeline filled. The next 30-60 days may offer a great opportunity to sell a good basis and re-own with calls or protected futures with limited risk. For new crop, we would be patient for now, but are targeting $4.30-$4.50 for new crop corn to start and $9.50 or better to start on new beans. These numbers are based on our profit numbers for our farm, and may be different for yours. They do not necessarily mean  thats all we can get or if we can get there, it  is simply a place for us to start shifting some risk to other hands and out of ours. We also like the cost of energy right now, and would encourage you to see if you can lock in some diesel fuel, LP gas, or whatever you use, as we are near historic lows,  and certainly have some upside risk if geo-political unrest explodes. As margins narrow, looking at all our inputs and locking in cheaper costs than a year ago takes pressure off the price we need from our crops. A little time spent may pay off well!

From  the technical side, we have the following numbers from our computer to consider:
           Dec Corn       Support                Resistance
                                 3.66                      3.86                                                                    
                                 3.51                      4.02
                                 3.28                      4.20

           May Beans      8.54                     9.27
                                   8.34                     9.52                                                                                                                                                                                             10.90                             

                                   8.00                     9.96

In conclusion, we realize and respect  your time as valuable. We try to provide information in a tmely and efficient manner,  with you in mind. We will not call you with wild trading ideas to generate commissions, because as producers, we would not do them ourselves. We WILL take the time to go over ideas that improve your bottom line, help you lay off risk, or provide some flexibility to your plan. Make sure you are focused on what is important, (you) and not the latest and greatest hot idea. It is just a plain and simple fact that no one knows if corn will be $5 or $3 a year from now, or somewhere in between. We do know that at some point in the coming 12 months, the odds of prices becoming profitable are pretty good. It took longer this past year to get a rally, but we did get to our sales objective of $4.40-$4.50. With a smaller carryout than last year, we feel at some point we should be able to get there. When? No one knows, but if we have that target in mind to do something, and talk over some different ways to protect that price now, it will be a lot easier to pull the trigger if and when it happens. Lets take some time to do that soon, and also take some time to be Thankfull. We thank you for working with us, and we give thanks for all our blessings and opportunities to do what we love to do!


Dates to Remember this month

Crop Progress and Conditions every Monday at 3:00 central time

Export Inspections every Monday at 10:00 central

November 10th Supply/Demand and Crop Production

November 20th Cattle on Feed

Export Sales and Shipments every Thursday at 7:30 am

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