Grains Down on News that Acres May Grow!
Feb 16, 2011
The weak bulls are heading for the exit as the market digests the recent news from the feed grain council meeting. The big news came from the chief economist for USDA who suggested corn acres are going to grow above 92 million and soybean acreage increase to 78 million. Both numbers are at the top end of trade estimates. Add to this the expectation that China is going to start cancelling some bean orders from U.S. and purchase from Brazil has everybody thinking a short-term top.
I have to say its actually a good thing right now for the bulls to take a break. The announcement that planted acres are going to grow takes away the risk of a big surprise in the March Prospective Planting report. My expectation is we will see a solid planting number somewhere around 92.5 million corn and 78.5 in beans. I believe both numbers are strong but lets face it the profit incentive is huge. So, as we allow the market to blow off a little steam it actually gives feed buyers and any one wanting to get into a defensive position the opportunity to buy before the spring and summer risk time period.
Even with these big acres, the problem for the bears is not over. Since domestic and global stocks have gotten so tight we “MUST” have a decent yield. Any concern about getting the crop planted or weather stress will cause upside price activity to be potentially extreme from May to July. This is why we continue to suggest that all cash sales should be covered by some form of call protection and if possible, a future position should be postponed until late summer. Bottom line, remain in the market with a limited risk strategy such as long puts rather than a all or nothing approach of selling cash or selling futures. The upside potential risk is simply too large at this time if any type of yield reduction event occurs.
I encourage anyone that can get to the Louisville Farm Show to come on by and attend my seminar this week. I will be speaking on Wed and Thursday. I believe my comments and recommendations will be helpful to you in this most exciting time period this spring and summer.
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