The market traded both sides of the market as it continues to try to decide how to position itself for the upcoming harvest. Officially, we are suggesting today to all clients who have any hedge-to-arrive or cash contracts where basis has not been locked up and will need to sell in the harvest time period to, “LOCK UP BASIS NOW FOR CORN”.
My fear is the risk of a crop increasing in size. I have been very reluctant to increase the U.S. crop above the 159 bu. per acre level up to now. However, we must face the reality that the crop conditions are not deteriorating with the current weather conditions. Granted it’s a little late and frost in September would have some very troubling effect on both the corn and more on the bean markets. However, we MUST have a frost now to reduce supply or we could be heading to a good old fashioned wood shed flogging!
I still hear of reports daily of producers having significant inventory of old crop corn on hand. A lot of unpriced producers are still waiting for the “event” to bail them out. I grant you we still have the potential but the odds are increasing significantly that you will not see lead month futures get back above $4 until we are well into the 2011 season. My weather man is suggesting a cool snap is going to show up the end of August into September and there will be some 40 degree mornings. So we still have the potential to scare this market. I must stress if nothing happens by the middle of September the bear is going to “ROAR”! Great for forward sellers and clients who bought Crop Revenue Insurance, very bad for the unpriced producer.
Summary: I’m very concerned about downside risk in corn. Producers should be using any price bounce in July 2010 above $3.60 to scale up sale.
Planning note for speculators: I sense that wheat acres are going to be down along with corn and cotton in 2010. This puts a lot of pressure on 2010 November beans. I strongly urge all clients to get a plan of attack put together on how they are going to use a September frost scare to sell beans. As for speculators looking for a revenue source, I will be looking at selling out-of-the-money March or May cotton and wheat puts as we move into October. More on this later, for now aggressive net put selling should only be talked about but not implemented.
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