Unpriced inventory and what to do!
Jul 24, 2008
As one would expect, I’m starting to get a lot of calls from clients who have un-priced inventory that must be moved? The question is what to do now?
I’ve been talking about time counts and the end of month profit taking activity. Today is one of the first important time counts for corn. We are 18 days off the June high and Tuesday will be 21 days. Being that it’s the end of the month I have to believe we are due for a respectable 10 to 15% price bounce off the last 18-day break. I have to suggest the corn market has more than likely hit a near-term low but could easily test or make new lows after the August Supply/Demand report if we show continued demand destruction and increased yields. I believe corn will not be able to get its groove back until we get closer to September and the concern over frost starts to get on everyone’s mind. The obvious question is will we get back some of this loss of the last 18-days? It really takes some time now if we confirm a yield above 152. The situation is quickly developing with fertilizer cost exploding and corn prices crashing producers are really looking hard at planting only what they must in regards to corn in 2009. This I believe is the one of the best long-term positives for corn. The other positive is the last 18-day break has allowed prices to get down to a level where all livestock producers and end-users such as ethanol producers can at least see some light at the end of the tunnel.
In summary: While I believe we are in the process of making an extreme low I don’t see the potential until harvest and then the best shot is in Jan to April to retest the $7 plus level.
If my phone calls at the office are any gauge of producer bias, I have to say beans are where everyone is most surprised. Many producers across several parts of the Midwest say even the full season beans are not as strong as crop condition ratings suggest. They are small and some disease is starting to show up. When you start talking to clients with double crop beans they are generally concerned. While these comments are not uncommon for mid summer, this year it’s going to be more acute because we know the crop is late, stocks are tight and any concern about frost injury will cause beans to really bounce.
So what to do? I’ve been hearing basis is really getting tight because producers don’t want to sell. If we get basis to $1 over and you have to move beans before harvest I would lock it up. Second, if you have sold and want to reown I would focus on some limited risk vertical call strategy. Finally, if we are lucky and do get a strong bounce into fall I would really focus on selling Nov 09 back above $14 to $15 price range. My bias is bean acres are going to grow domestically and internationally and passing up anything in this range is dangerous.
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