The sharks are smelling blood in the water. Today’s failure to hold and take out the $3.63 to $3.67 gap made on Oct. 6, 2009, has now opened up the market for further technical weakness in corn along with the soybeans and wheat as we move into the seasonally weak [February] time period. The locals are suggesting the market is still top heavy with a lot of speculative longs in the market and producers are still holding big on-farm inventory in the cash market which needs to be priced for necessary cash flow needs. Good crop reports continue to flow out of South America for soybeans, putting pressure on the soybean complex.
In the outside markets the equities were off sharply today with corrections in gold and oil, which is adding to the concern that a possible secondary correction in the U.S. economy may occur. This has allowed the U.S. dollar to start to firm, along with big jumps in the 10-year note that we are watching.
Overall, it was a really tough day for the bulls. The question now is, if the grains and oilseeds cash markets continue to contract under seasonal farmer product movement, will the bulls move to the sideline or ante up the margin and wait for the seasonal bounce into the March to July time period. My concern is one cannot really look for any major seasonal hope for strength until Mid-March to early April. This is a long time for a bull to feed margin calls in an already tight cash flow market.
Action required: Producers who have heavily sold expected 2010 inventory need to decide if any change in form of their short positions should be considered going into February. Look into selling deep-out-of-the-money puts to take advantage of any sideways to higher price recovery we see from April to June.
I believe producers who have old crop futures to arrive cash sales on the books need to watch their basis very closely. Remember that basis starts to narrow when the market gets weaker due to farmer inaction. My fear is a lot of inventory will be held forward into summer because of price. This could possibly have a big influence on getting basis back to the narrow levels that we have enjoyed over the last couple of years. It is time to be alert to locking up basis against all old crop sales and any off the combine cash sales.
If puts have already been sold, roll forward and down in strike price immediately if the original puts are now in-the-money.
Finally, I believe feed buyers should now move into full stride to get their spring and summer needs locked up in a scale down basis starting at current levels and planning to be done shortly after the February supply/demand report.
Bob’s Upcoming Speaking Engagements:
Periodically go to www.utterbackmarketing.com and click on “Upcoming Seminars.”
January 2010: Louisville, KY … Indianapolis, IN.
February 2010: Louisville, KY … Anaheim, CA.
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