Bob’s thoughts from the road
Jan 30, 2009
Well, I’ve been on the road over the last couple of weeks and here are some of my observations so far from the winter meetings.
- Not surprising there is still a lot of unpriced grain sitting out there on farms. While it’s always difficult to say how, I get the distinct impression someplace between one third to one half of the 2008 crop is still unpriced and needs to be moved into the marketing system.
- While producers are obviously concerned about not being priced, they are not being pressured hard to move inventory. I sense many are going to hold inventory well into the spring and summer hoping for some type of weather event.
- Implications: We many not go as low as we really want to see in February for the corn market because farmers are not selling. Equally, there is a growing risk that basis could widen if we move up this spring and summer in flat price due to weather concerns.
Other observations: There is a lot of snow and moisture in the northern Corn Belt, especially for North Dakota and Minnesota. This concern when combined with early discussions that we could have cold wet spring is giving rise to concern about a spring weather scare event.
First, holding corn for the April to June weather event may pay but be sure that you don’t forget about basis exposure. You might want to start talking to your agronomist and seed salesmen about any changes you should make in hybrids and tillage practices to prepare for cold and wet.
In outside market influences most of the damage to the corn crop has already been done while rain could help the beans. For beans, as we move into February to March, I believe the big concern is the potential for a dock strike down in Argentina. The other commodity which is becoming sensitive to weather conditions is wheat. As we all know wheat is produced globally and it’s especially not hard to get into production which makes the potential of supplies increasing quite quickly. So far in my travels out west I’ve got the distinct impression that we are going to see few spring wheat acres due to profitability and if cool and wet steps in, you will see less production as well. As for Kansas, the trend is also toward more corn production. This all suggest to me the market is in a decent position to react to further weather problems. This implies a lot of speculative interest will start to develop in wheat in March if any sign of spring freeze like last year starts to develop. Right now for unpriced inventory I would suggest it’s time to drag your feet of forward contracting off the combine cash sales. I would however be looking really hard at locking up basis. Again, hold off flat price sales until March/April but get basis locked up.
Final note: We are alerting all our brokerage and internet clients of a buying strategy in corn that we want to start implementing between Feb 5 and Feb 20th. If you are interested, check our website for more information.
Final comment: We are now in the crop insurance season. We realize it’s a big financial expense but taking out an 80% CRC crop insurance program on beans could really give you a solid financial reward. By having the insurance in place and then selling the cash the potential for returns will be huge. If you have any questions about crop insurance give Rowland a call here at UMS at 1-800-832-1488.
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