Spring is just around the corner, and it's not too soon for me! While most of the bearishness of demand decline will be factored into the corn and bean complexes by mid-March, the degree of a rally this spring and summer will depend on the following:
1. When will the American consumer and investor regain confidence in the stock market? I believe the public wants to buy commodities more than equities; the problem right now is most have lost their confidence. Time heals all wounds, but we could use a faster cure.
2. How fast will the government's stimulus program promote new jobs and increase income? My concern is that by the time the economy starts to turn around, government expenditures coupled with private sector needs will result in inflation and higher interest rates. Now is the time to think about how you want to position your farm for these events in the future.
3. I fear producers are sitting on higher than normal supplies of old-crop corn and beans and have limited sales on the books for 2009 inventory. This indicates they are hoping for a rally into summer. If there's anything I have learned in the past 30 years, it's that when producers hold inventory, it's difficult for the market to rally
unless exceptional events occur.
4. I expect the bearishness of big corn carryover and building bean carry-over to be factored into the market by early April. The problem is, this time we need an event to get excited about buying corn and beans.
5. I see only two potential events that can ignite the market this spring:
- A serious dock strike in Argentina. This would be short-term help to old-crop beans but would increase serious pressure on inventory prices by late summer.
- The weather. Some are calling for cool and wet. If widespread, it will help new-crop corn somewhat.
While I want to argue for a seasonal bounce in corn and perhaps beans, it's heavily
dependent on turning the negative attitude in the outside markets and a weather event. In an upcoming column, I will talk about why I'm an increasingly strong proponent of hard money. Specifically, I like being long gold on corrections and shorting the bonds on rallies.
By the time you read this, the winter lows will probably be in, but we need to temper the amount of spring and summer bounce we think we're going to experience. With weak outside market influences, big carryover
potential and a recovery in lead-month corn back to the $4 level, new crop at $4.35 to $4.50 is all that is
anticipated. My suggestion is to price on a strong bounce between May to early June on any delayed planting via short futures or long puts. Hold until August or September and move to the sidelines when December corn moves below $3.30. My intent is to selectively trade the short position and be long corn in the bin from the fall of 2009 to the spring of 2010.
The bullishness of Argentina's crop failure and potential dock strike is quickly becoming a distant memory. The focus now is how many bean acres will be planted and how strong the global economy will be for bio-diesel. The pressure is all on the bull's shoulders; the bear can simply sit back and wait. Bulls have to prove they can eat through 4 million to 6 million more bean acres, most of which have not been priced—and the global economy has stabilized. The factors at this time favor lower prices at harvest.
Lock up basis now for beans to be sold off the combine. Second, protect prices between $7 and $9 in a vertical put as soon as possible. Third, if the market bounces back on a weather scare, take the loss in the put play and sell cash. Look at minimizing downside risk exposure before there is little opportunity to act.
The wheat complex has now fallen into a sideways-to-negative price range. While there have been some weather problems this spring, they have not overpowered global decline in demand. The bright spot: If price recovery during the next few months is limited and July Chicago wheat dips back into the $4.80 to $5 level, domestic production is going to drop. The problem for any unsold producer is that if spring winterkill injury does not occur by late March to early April, the trend for wheat is going to be lower. If you can't bring yourself to sell cash, at least look at some type of long put play on any price bounce.
Sales Index Key:
Excellent sales opportunity...10
Excellent buying opportunity...1
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