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December 2010 Archive for Outlook Today

RSS By: Bob Utterback, Farm Journal

Bob Utterback has more than 26 years of experience and offers producers a disciplined approach to marketing.

Grains Up Prior to Christmas

Dec 21, 2010

We are now into the holiday week. Normally, it is reduced volume and many traders elect to move to the sidelines. However, it appears the market wants to move higher under pressure from the bulls. The expectation is growing that supply problems will persist into the New Year, along with strong demand. The market is now 18 days up in the current rally without a correction. I believe the odds are increasing significantly that a lot of the bullish expectation will be factored into the market before the January report.

Please note that the Dec 2011 contract broke above the $5.40 overhead resistance today. This opens up a move to the $5.62 fall high. While many producers seem to be waiting for the $6 level, we urge caution in getting too bullish. While we still recommend waiting until closer to mid-January, we believe one must start thinking about a scale-up selling program -- start right below the old highs and get very aggressive as the market moves closer to $6.
 
The soybean market advanced nicely under continued concerns that strong demand was going to push up domestic prices. There seems to be a general lack of selling interest right now.  Subsequently, it takes very little to move up the market.  My only concern is it’s almost too easy for the market to move higher. If we have any change in attitude this market could experience a correction very quickly. While we do have some concern about the short-term overbought status, we have to say the overall long-term picture looks positive. Our strategy continues to be defending previously sold positions and holding off on selling new crop inventory. We really don’t believe this market will end in a “V” top, but more likely a distribution top that should give producers plenty of time to get sales in place.
 
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 

 

Grain Outlook

Dec 16, 2010

Corn: Fundamentally, things are looking up for the corn complex. After Friday’s surprise increase in stocks, the market has been unable to move lower. Concerns are growing that demand is not being rationed at the current price for both ethanol and exports. There are rumors that commercials have a lot of inventory bought for January, but they are already allowing producers to deliver on contracts in December. This could shorten up their book and require them to become more aggressive on cash procurement as we move into the end of December. Expectations are still very high that new crop corn will have to stay competitive in order to assure adequate planted acres. It should be noted that Dec2011 corn contract hit $5.40 today, which is still 22 cents below its contract high. We believe the odds are still better than 60/40 that the market will test and perhaps make new highs before April 1, 2011.

Soybeans: The soybean complex has experienced a very strong surge of price activity. Just like corn, it started weak in overnight trading and then found strength all day long. The March contract tested $13.10, which had been recent overhead resistance. The technical picture for soybeans is very similar to corn. It has been up for a significant number of days and most of the momentum indicators are getting top heavy. Even if you long-term want values to go higher, a correction over the next two weeks would be a necessary cleaning function. The big news is China did not raise interest rates over the weekend. Bank margin requirements did increase, but it does not have the same impact on borrowers as raising interest rates. With inflation at 28-month highs, the government is getting very nervous about inflation. It wants to control it without tanking the economy. I have to say the soybeans look a little more fragile than the corn complex. I would not be surprised to see them break first. Remember, the Nov 2011 objective is $13.25; the market is currently at $12.16, allowing producers time to sit back and wait.
 
Wheat: The wheat complex continues to get firm under concern about global supplies. Primary producers like Argentina are still having some concerns about yield. As long as this concern continues to be in the market, it appears wheat has the ability to stay firm. At this time we assume those following our recommendations sold all the new crop wheat [we’ve recommended] on the books at $8. We suggest that those who have sold more than 50% of expected production need to invest in some short-term upside call protection just in case the market gets the idea that supplies are going to get too tight due to reduced global yield and inflation influences.
 
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Wheat is the leader!

Dec 02, 2010

The wheat market has now become the leader of the pack due to growing concerns about the upcoming crop. While I believe there are some concerns, we still have adequate global supplies and a repeat of the 2008 price event is very unlikely. Subsequently, expecting wheat to carry corn and beans back to the old highs is not practical in my opinion. Essentially, corn and beans have to do it on their own fundamentals. 

Right now corn exports are dragging along, which has accounted for the recent price break. We will need solid confirmation of some further yield reduction and that China needs more corn to see the March contract go back to $6.17. As for beans, we could start to see some bullish yield reduction numbers coming out of South America if dry conditions persist. However, don’t forget—beans can handle dry conditions better than corn until we get to the later production stages. That’s why the market is not getting overly concerned yet, but as we move closer to January and February, it will be come critical.  We believe the primary bullishness for beans is the constant demand for bean supplies by China, but a questionable increase in planted acres domestically. At present this fundamental is up in the air and will be critical as we move into the pre-plant time period in April.
 
Actions that we believe need to be done at this time:
  1. Decide on a target price you want to achieve before starting to price the 2011 corn and bean crops. Since we’re suggesting a $200 to $250 profit over costs per acre, it will be different for every producer. I believe the $5.25 to $5.75 level for corn and $12.50 to $13.25 level for beans meets this criteria.
  2. Decide on an operational plan on how to sell inventory once target prices are reached. Are you going to sell cash and accept losing all upside price potential if a summer weather event occurs? If price goals are not reached by a certain time period, what are you going to do? If prices break, what is your strategy—store or dump at harvest? If you dump inventory, will you reown? Instead of selling cash, are you going to buy puts or sell futures and use some type of call strategy to give you market flexibility? We obviously believe one should have some upside protection strategy, but it requires cash flow to do this. It is now time to get your financing arranged and your hedge account set up for the 2011 contracts.
  3. Run the market plan through your head several times and model out how you are going to react if a yield reduction event occurs versus perfect weather and a great crop. At what price level will you consider 2012 and 2013 protection? Remember back in 2008 when corn went from $4 to $5, we all thought it was the high and sold. As we soon found out in May and June when corn went to $8, nearly everyone was paralyzed. In the end tremendous multiple year sales were missed due to inability to act because of cash flow risk exposure. Remember, as ag producers, you have [historical]  price cycles where high prices ration usage and stimulate production, which eventually leads to prices moving below cost of production!
  4. If at all possible continue to focus on locking up inputs for as far into the future as you can push supplies and landlords. We see only one direction for fertilizer, interest rates and land rents to go . . . UP! The more that can be protected, the better marketer you can be; this mean multiple year cash rents and building and holding multiple year supply levels of inputs on farm if possible. We know it sound wild, but try to build an inventory of critical items needed on the farm. For example, it is rumored that a farmer needed some new truck tires but the local dealer had them on back order for at least two weeks. Ask yourself, do you want to wait two weeks for a tire or other critical supplies during planting and harvest season? Bottomline: Manufacture and retail suppliers are not going to pay to maintain inventory until this economy improves and then it will continue to be tight.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
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