Lessons to Carry Over to 2010

December 11, 2009 07:55 AM
 


Sales Index Key
Excellent sales opportunity 10
Excellent buying opportunity 1

As 2009 comes to a close, we need to prepare for another year of fun and games with the commodity markets. Reflect on 2009 to see if there are any lessons that can be applied in 2010. Remember, every year is different, which forces us to study and
adjust our way of doing business.

One of the biggest influences to consider when creating a marketing plan for 2010 is outside markets. The government's spending spree, low interest rates and the assault on the U.S. dollar are expected to continue in 2010. When the equity, gold and oil markets start to trend lower, watch out for risk in the commodity markets.

Corn 4
The slow harvest is giving rise to the potential for further reduction in the crop size. This could help keep corn prices firm into December, but I still believe corn will experience a period of weakness in January and February as producers move cash inventory into the system. There is also the possibility that poor-condition corn could come out of the bin.

Once we get past March and the lower crop size and stronger ethanol demand are confirmed, the odds are carryover could be 1.2 to 1.3 billion bushels. While this is not low by historic standards, it means we will need a 13.2-billion bushel crop next year. To do so, we need a couple more million acres and solid yields.

So the big question is, "How high does corn have to go to assure enough acres?” With this year's limited fall field work and potential storage problems, will producers go with an easier crop, such as soybeans? Since beans are now above $10 in the deferred contracts, I anticipate rumbles from producers about switching.

Beans 3

Strong demand and the influence of outside markets has allowed soybeans to bounce back. However, my long-term concern for new-crop 2010 soybeans is building. We know there are increased acres in South America. Couple that with the 1 to 2 million acres of winter wheat that didn't get planted, and we could add 2 to 3 million more planted acres of soybeans in 2010. Bottom line: A building carry-over does not support November 2010 prices higher than $10.50 unless a major supply event occurs.

If you have old-crop soybeans in the bin, be cautious in December. Once the trade has a handle on the South American inventory, I expect China to turn its attention from the U.S. to South America. Don't allow prices to break below solid technical support (such as the 50-day moving average) without having inventory priced for 2009 and 2010 production.

Wheat 6
By the end of October, the wheat market had most of its bearish fundamentals factored in. We have had lead-month futures below $5. Supplies are big. I expect traders will be looking for signs of a technical bounce. If wheat can move above its previous week's highs, we may see fund buying. This isn't an endorsement to be long wheat. It means most of the price weakness is likely in the market. It's time for feed buyers to get long-term scale-down buying programs in place.

Hogs 7
The hog market has had an impressive $14 per cwt. gain in prices since the August lows. While the rally is a result of reducing herd size, there have been more profound underlying positive factors. First, it appears global demand is stabilizing, so hopefully pork exports will start to recover. Second, the inflationary pressure of outside markets has helped trigger excitement by trading funds to invest in the hog markets.

Consider vertical put strategies to have downside protection in place when the market breaks technical support. Buy all feed needs in the cash market in January and February.

Cattle 5
Cattle producers are bleeding red ink for inventory in the feedlot. Feed values are moving higher. The only positive is low interest rates.

While most other commodities have benefited from the inflationary cycle, the cattle complex has moved lower when the overall market moved higher. When will the investment public decide that cattle prices are too cheap? Demand has to increase and supply has to decrease—which should happen soon. Funds usually aren't bottom pickers, but most will not be strong buyers until the market takes out overhead resistance and technical indicators. I suggest a minimum objective of a close above $86.

 


The information provided is believed to be reliable. There is a risk of loss associated with trading futures and options. Anyone acting on this information is doing so at his or her own risk. Consult your Risk Disclosure Statement before trading. To comment on Outlook, e-mail Outlook@farmjournal.com. For information on risks and strategies or to subscribe to Bob Utterback's Internet site or e-mail service ($400 per year), call (765) 339-7704 or e-mail bob@utterbackmarketing.com. You can read daily comments from Utterback after markets close at www.FarmJournal.com.

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