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Moderates: Prepare for Upside Profits and Downside Risk in 2013

November 29, 2012
By: Ed Clark, Top Producer Business and Issues Editor

Moderate market analysts point to the potential for big upside profit and downside risk in 2013.

The nation’s top crop analysts are spread across the marketing map, from extremely bullish to  extremely bearish, with several in the middle, when it comes to corn and soybean prices. Opinions vary on how producers should protect themselves from market fluctuation.

The moderates on our list suggest taking a middle course until critical influences become better known. It's not clear what kind of a season South American growers will have. How well stocks were rationed in the United States won't be apparent for several months. In the meantime, these analysts suggest preparing for both higher and lower prices.

Click here to read what the bulls in our survey suggested.

Click here to see what the bears in our survey recommended.

Navigating Highs and Lows

brian basting

Brian Basting
Advance Trading

Corn and soybean prices are expected to be highly volatile. With low ending stocks, there’s little room for downward production adjustments or increases in usage.

The South American growing season is underway, and it’s possible we’ll see record soybean production. Weak demand for corn exports and a potential increase in U.S. soybean yields offset bullish trends. With record exports, Brazil corn is displacing U.S. corn in some markets. China could surprise the market, if its corn crop falls short and demand grows faster than projected. On the other hand, if China’s appetite for soybeans slows, U.S. exports could fall short.

Upside market potential is high, but so is downside risk. As a result, consider an options-based
strategy, which establishes a floor but leaves the upside open. An alternative is to make cash sales if basis is favorable and purchase call options.

Prepare for Dual Scenarios

naomi blohm

Naomi Blohm

Because Chinese soybean demand has been voracious, look for a $14.50 to $17 range until more is known about South America’s yield. If yield looks to be superb, futures’ prices could slide to the lower end of that range. Should the weather look ominous with less than stellar yields, prices will likely retest the highs we saw this summer.

For corn, as tight as our stocks are, end users will continue to buy as they need it, so as not to excite the market and cause it to go irrationally higher. Corn will trade in the $7.25 to $8.25
range until January.

If we have perfect growing conditions in South America and adequate precipitation in the U.S. this winter, prices could go below $7 on the board. However, we need fall rain and good snow to  replenish moisture. I am bullish on corn because absolutely perfect weather conditions are required between now and spring for a good crop, long-term.

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