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Outlook: Bears, Plant and Wait

April 27, 2013
By: Bob Utterback, Farm Journal Columnist
BobUtterback Oct2011

The market is still reeling from the March bombshell that hit the grain complex. With notably more inven-tory in storage than expected, the bulls will have to prove that demand will recover, or yields will be significantly hurt to tighten supply. All the bears have to do is get the crop planted and sit back and wait.

The end user, who was under pressure in 2012, is being patient—buying only what he has to in expectation of bigger supplies this fall. At the same time, farmers are frustrated that they have unpriced grain in the bin and a limited amount of new crop priced. Most will probably rely on crop insurance and put their crop in the bin.

The problem is that strong bull market recoveries in the past few years have farmers believing they can outlast the bear. They might be right, but they need a banker on their side. If we see two years of corn yields above 155 bu. per acre and acres in excess of 96 million, the lows in 2014 might be below the cost of production.

Sales Index Key

Excellent sales opportunity...10

Excellent buying opportunity..1

Since 2000, the June final planting numbers have been lower only three times, while planted acres have increased 10 times. These are not the kind of odds we want to see for Decem­ber 2013 corn to move above $6.

Corn 123456 7 8910

The damage has been done to old- and new-crop corn prices. During the next 45 days, we will see more of a sideways trading pattern than a trending market. New crop, even after the recent sharp correction, should still remain strong. All eyes are on how fast the crop gets planted. This is the bull’s last real hope for strong prices. If 80% or more of the corn crop has been planted by mid-May, it will be difficult for December 2013 to move above $5.95.

If September corn is premium to December 2013 corn by 20¢ or more, place all new hedges in September. If anyone is short December corn (in options or futures), roll back to the September shortly after the May supply and demand report or at 30¢, whichever is tested first.

For cash sales off the combine, lock up basis early if the crop gets planted. In regard to selling, buy deep-in-the-money puts. Plan to be 100% positioned by early May and hope for strength so the puts can be rolled up in June and July. In regard to 2014 sales, get in position if there are weather scare events in June or July.

Beans 1234567 8 910

The April report found more soybeans domestically, along with the expectation of strong sales out of South America. This implies that the possibility of $15 soybeans no longer exists unless the market sees serious signs of crop failure. In fact, new crop soybeans are trending lower on the general expectation of solid acres.

Since 2000, soybean acres have only increased five times by the final June report. This implies even if we see decent planting weather, soybean acres will not grow. We could actually see a better upside price response if a weather event occurs. If you want to play the potential for a weather scare, be long on soybeans, not corn or wheat.

Actively sell soybeans between $12.50 and $13 basis the November 2013 soybean contract. Maintain a cautious selling stance by using deep-in-the-money puts rather than cash or selling futures contracts, due to the impact a possible weather event would have on prices. Use long puts and be 100% priced. In cash or futures, have a plan to defend upside price risk exposure if there is any sign of a technical close in November soybeans above $13.25 after mid-May.

Wheat 1234 5 678910

The domestic crop continues to look weak, which has helped stabilize values, but global supplies are still overpowering the market. There will be strong interest in buying wheat and selling corn by many end users and speculators in June and July. If overall feed supplies are moving into a surplus time period, however, the upside potential of wheat will be limited.

If anyone is short, move to the sidelines with all positions in late August. It is too late to add new positions to sell wheat. Focus on cross commodity hedging by placing new sales in the corn complex rather than wheat. In regard to storage, expect wide basis and a carrying charge structure to come back into the wheat complex as the market is assured of good supplies of other feed grains. Those with storage and hedges in place are in good shape. If you are unpriced, the options are limited; focus on selling in August between wheat and corn harvest.

Cattle 12 3 45678910

The cattle market went through a rough spell recently. This has taken a lot of steam away from the bulls, but they still have ammo to use.

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FEATURED IN: Farm Journal - Late Spring 2013

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