Tuesday, January 22, 2013

Did one already miss the boat for 2013 corn hedges?

Did one already miss the boat on 2013 corn hedges?

If the boat has already sailed what does one do now?  Meaning if we have seen our highs or prices chances what strategies might work to protect the still decent prices?

If the boat has yet to come; how will i know when it is about to sail?  In other words if we are going to have higher prices when will one know when to pull the trigger?

First off did one already miss the 2013 corn hedge spots...... it is should be known that the futures markets has so many unknown factors that I can't honestly say whether the ship has yet to sail or if we will have another chance at better higher price levels to make sales at.

My generic answer is that it should be difficult to see a major rally if you look at the fundamental picture or simple supply and demand.  Because the market likely focus on acres and trend line yields over the next several months.  Well that is fine and dandy if we have good demand; but it is not likely that corn demand pops up nearly as fast as supply could.  It has been difficult to curb demand; but it might me more difficult to get it back; unless we get it back via lower prices.

So we are left with a catch 22.....only simple way to improve demand is lower prices......

One of the commentaries i read today mentioned that if we have just middle 140 yields with middle 90 million acres that we have potentially the largest crop ever.  Well a large crops is great and helps demand; but i don't know that demand starts the second a farmer decides to harvest.  It could take some time for some of the industries to bulk demand up.  Plus what will happen with basis and producer bin room/ overall situation?  Things are not like the old days; not everything has to get sold.  So cheaper prices are great for demand; but if end users can't but stuff much cheaper that doesn't help demand.

I guess bottom line is we could paint an ugly price picture if we want to look just at the new crop supply and demand picture of today.

Now does that mean we won't have a chance at higher prices....no....not for sure anyways.

We still have a super bullish old crop situation and sometimes money flow and technical pictures can really out do price moves.

So where do i think things could go for Dec 2013 corn......i could paint a slightly bullish picture just on the seasonal trends that indicate it should rise slightly over the next several months.  Some planting scares and other weather scares could add some premium to the market.  The question is how much premium is already added into the market because of the present dry conditions?  That I don't know.

Bottom line is one could find lots of bullish arguments as well as bearish arguments; so that probably means just a little good old fashion risk management should be used.  Pick what level of sold or protection gets you comfortable.  For some that might be 10% sold or protected.  While for others it might be 50-60%; then find a way to get there.  Don't do it all in one shot; spread out the risk.

Write  yourself a pro-active marketing plan that tries to make sales incrementally as or when we bounce higher.  But include some exit dates so that you are getting something done.

For a good look at a 2013 market plan check out this link to Ed Usset's 2013 corn pre-harvest marketing plan.

2013 pre-harvest marketing plan for corn http://edsworld.wordpress.com/2013/01/16/2013-pre-harvest-marketing-plan-for-corn/

Now if you want to try and hit a home run; before making sales. Just wait until the minute when one gets bulled up and starts talking about new highs. Wait for that weather scare and talk of $10 or $12 corn; shortly around that point we should run out of buyers; it will be tough to sell but history will tells us that when we have no buyers as everyone has got super bulled up it might be time to take the other side before the ship flips over.

What strategies does one use today. I don't know if there is a great strategy; simple ones like buying puts or spreading sales out seem to make the most sense. But it really comes down to what makes you comfortable.

If we are going to have a real train wreck one might want to do some various what ifs and look at puts as an investment and then decide which ones make the most sense.

Some might feel comfortable selling some calls to pay for some puts but others might not want to touch that because another repeat or worse production then last year could be argued fairly easily right now given the conditions and lack of sub-soil most face today.

At the end of the day it seems like many have always had reasons why our grain prices could go up or could go down; but this year this time those possibilities seem to be even more extreme. Almost scary with all of the unknown factors that are out there today.

Our equities going to continue to run higher and will that lead to money flowing in to the grains and inflation or risk on type of buying by the funds?

Will we have a set back or a fiscal cliff that leads to risk of or massive fund selling?

What type of yield estimate range could one realistically see this year? If we are in much worse shape then a year ago are yields under 120 a bushel possible for corn? In my opinion with out a doubt. But on the other side of things that past couple of years have seen yields start out in the 160 or so range; with some estimates as high as 170. So do we have a range of nearly 50 bushels as possible? Yes without a doubt

50 bushels on 100 million acres if 5 billion bushels; that's a heck of a lot corn that we need to find a home for should we produce that much; but also a heck of a lot of corn demand to potentially curb especially with the tight starting situation.

Now if i was smart enough to know which curve ball mother nature was going to throw us I would put my money where my mouth is. But I am not; so I am not going to advise anyone to do anything other then practice good solid diversified risk management.

Have fun!

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