Every year, the markets make a fresh start. There are great expectations and hopes for good yields and prices. This year is starting out no different, but there are more storm clouds on the horizon than usual.
The macro economy is uncertain. Many market watchers are suggesting we are merely in a cyclical downturn. All that is needed, they say, is more consumers spending and the rich to pay more of their fair share. On the other side of the argument, there are those who suggest that we are not merely in a cycle low, we are in the final stages of a bubble economy and fiscal and monetary restraints are needed. They argue that we have seen the housing market crash and the consumer debt crash, but the big bubble of government debt and a weak U.S. dollar are yet to come.
Regardless of which side of the argument you believe, you still cannot afford to ignore the extensive market price movement in 2013 and beyond. This will have a tremendous impact on every producer’s strategy to protect his or her farm assets.
Uncertainty about the strength of domestic and global demand for grains and oilseeds are already causing concerns, as is the issue of consumer pushback because of high beef and pork retail prices.
As if these two factors were not causing enough insecurity in the fundamentals, there are considerable concerns about the potential of another yield reduction event due to weather in 2013.
For now, keep a tight rein on risk exposure. Consider using the federal subsidy crop insurance program and an integrated marketing program to maximize profit.
Sales Index Key
Excellent sales opportunity...... 10
Excellent buying opportunity..... 1
Finally, if we do see a yield reduction event this summer, use that rally to extend your coverage into 2014 via the futures markets because eventually the best cure for high prices is high prices!
Corn 12345 6 78910
The corn market corrected after the August highs and is now hovering within a tight trading range in the old crop. Expectation is still high that lead-month corn will spend limited time below $7—but it will also spend limited time above $8. The cash basis level will continue to be extremely strong as end users acquire inventory in a tight stocks environment. Midwest producers should take a cash bid as close to $8 as soon as possible and not hold until the summer for the weather scare event.
Normally I’m bearish and recommend being a strong seller of December 2013 corn above $6.45 to $6.65. Now people seem to be more bearish than me! It seems like they want to use a trend-line yield of 160 bu., which, when combined with a 98-million-acre crop, should lead to a significant increase in carryover.
We might get undermargined producers to panic-sell in January and February but be unable to handle a weather scare in May or June. Anyone who wants to sell inventory now should use a deep-in-the-money put and stay away from all cash, forward cash and short futures contracts until June 15 or later.
- January 2013