Comfortable Changes

Below is a rough draft for a newsletter article that I did up.  Won't come out for a few weeks; but here is a sneak preview..........

Comfortable Changes

Ok…… I do really struggle writing an article for newsletters because of the fact that our grain markets are ever changing and by the time a newsletter gets put together, proofed, and sent out our markets may have changed dramatically.  No one really knows the future the only thing we know is that there be will change.  Our markets are called futures markets just for that reason; that we don’t know what is going to happen with them in the future.

All we know is that there will be change; and plenty of change in prices is what we have experience in the past few years.  Did you know that since our bull markets started in June of 2010 we have had well over 100 (I stopped counting at 100 with 10 months left) moves of 30 cents or more in a couple day period in the KC Wheat contract.  It was just a few weeks ago that we seen beans up about a dollar a bushel in a week or so; follow by down about a dollar a bushel a week or so later.  After a bullish crop report we seen beans move 85 cents from their highs to their lows.  Not mentioning the swings we have had for the other grains like spring wheat, sunflowers, and corn.  Bottom line is our markets are always changing.  So much so that I could never write an article for a couple weeks in the future without expecting some major changes.

Ok I think everyone knows that our markets are always changing.  That we determined and is well known.  What is more important is what we do with those changes; are we able to manage them.  In grain marketing with grain price outlook do we make decisions that are fearful or greedy?  Do we put our self in a situation where we are forced to make bad sales at the wrong time?  Do we fail to make sales when our gut is telling us to sell at nice profitable levels?

Each of you know your answers to the above questions; but with our every changing markets are you able to adapt in a comfortable way?  Do you have a marketing plan that leaves you comfortable at night?  A pro-active risk management strategy that allows you to be successful in the future whether the crop prices for corn, wheat, soybeans, and sunflowers go up, down, or sideways? 

At the end of the day the message is simply get comfortable in our changing market.  For some of you that might mean writing a marketing plan which is something we would be happy to help you with .  For others it might mean simply having a solid crop insurance plan.  Others it might mean making scattered profitable sales to help avoid the extremes price swings that we seem to have.  Many of you might use put options to help protect downside risk in our markets.  Some of you might feel you need to re-own grain sales in case you sell to soon or use min-price contracts.  We can help you with all of these.  Bottom line is your Midwest Cooperatives Grain Marketing team is here to help you find your comfort zone in our ever changing market.  Don’t forget we have all sorts of tools to help you in your grain price risk management; such as the min price contracts, weekly marketing meetings, helping of writing grain marketing plans with the ability to tie in everything from finance to inputs to the sale of grain, and a Country Hedging Branch Office.

So there you go; that is my preach. Get yourself comfortable!

Is it time to panic sell? Are you Comfortable?

With the recent sell off in beans; one has to ask themselves what could we see happen in some of the other grains.  How much downside is left in these commodity and grain markets?

First off there are so many factors that will determine where these markets go from here that one really should NOT try to out guess it.  When marketing grain or doing a grain marketing plan you want to search for Comfort.

One thing you can do is try to evaluate the markets with a plan based on what happens in our markets and on the outlook.  For the outlook I like listing possible outcomes both good and bad; both macro items and specific items.

As example one might list Macro items as

The US Dollar
World Economy direction
China
Europe issues
Politics and Policy
ETC



Crop specific items might include

carryout
supply
demand
weather - drought- relative to supply
price - econ 101........
supply trend, demand trend, and price trend

The reason I like to list some of the above is to help get an idea of some of the possibilities that I feel could happen; especially when looking at extremes

One big extreme could be corn yield this year; if we hit 170 or higher we likely are swimming in corn and have corn starting with a 4.00, more then likely a 3.00 and possibly a 2.00

On the other extreme if we have yields like last year or less; we could easily see new highs for corn.  Perhaps close to the 10.00 or so that corn is presently worth in China

So after i have looked at these possibilities i need to ask my self some hard questions as for outlook and what ifs.  Such as if we see a huge drop have I put my self in a comfortable situation?  Will my crop insurance give me all the coverage i need?  Do i need to have more sold?  Do i want to own put option protection as another form of coverage?

What about to the upside; am i comfortable if we go up from here?  Do i have too much sold?   Do i need to own some cheap out of the money call options?

I could go on and on; asking and answer hundreds if not thousands of questions.   But at the end of the day I want to have one thing
.



Comfort.  I want to be comfortable so that I never have to Panic sell or Fear sell.   I want to be comfortable enough that I don't lose a wink of sleep at night if the markets go up, if the grain markets go down, or if they just don't do much of nothing.

How you get to your Comfort Zone is something that each of you will have to determine.  You might be there and if your not your gut is probably telling you so.  Listen to it.

There is a saying buy fear and sell greed.  Don't be so uncomfortable that you put yourself in that situation.  Put your self in a comfortable situation where you are making sales and using tools that allow you to be comfortable without thinking that you are getting greedy or that you are fear selling.

Be pro-active as it is the first step in getting comfortable.

How do I hedge my 2012 corn crop and come out with the best return?

How do I hedge my 2012 corn crop and come out with the best return?

Below is a look at a few charts that tell us how history says one is suppose to hedge the big bull markets; as always it doesn't mean it will be the same this time around.

The heart of the question is if a producer has a good idea and portion of his costs of raising his 2012 corn crop how does he go about marketing it.  Forget the method for starters; let's go right to the heart of the matter; where does one place his hedges.  Should he really sell 2012 at a discount to 2011 if the reason he is selling is he thinks prices will go down?  Probably not because softer prices usually go along with more supply thus creating a carry in the market or at least taking away part of the inverse that is presently out there.

Where would the old school say to hedge it at; on this I know I have learned via being a grain merchandiser one is simply suppose to place hedges where they belong or you might get burned and if you get burned too many times you will be sleeping on the street.

So there you have it; old school versus the bear market theory; bear market theory says place your hedges in the Dec 2011 crop while the old school says that might work most of the time but the one time it doesn't work.  OUCH!

Personal opinon is that ECON 101 will rule out thus causing increased supply with decreased demand therby creating a bear market sometime in the next 5-6 months therefor I place the hedges in the Dec 11 all day long until I see that we are going to have much supply come Oct-Nov.  My thinking that is we always see some sort of harvest pressure; I have never went a year not seeing grain piled some place or another during the winter and I don't think this will be any different.

Here are some charts that might help you make your decision.

Oh by the way if in 2008 you would have placed your 2009 sales in Dec 08 futures you could have hit over 8.60 a bushel for corn; while the high of that Dec 2009 contract was 7.00 ish.