Slow demand sets market up for volatile 2013
It was another quiet month in regard to hedge activity for the advisers in the Archer Financial Services, Inc., Ag Hedge Program. Most of the price action centered on fund liquidation based on developments in Washington. Hopes for an uptick in exports due to declining global supplies failed to materialize. Finally, favorable South American growing conditions prompted soybean sale cancellations from the Chinese.
The hedge activity that did occur seemed to center in corn futures as well as some small soybean cash sale recommendations. By the end of 2012, the average sales levels in corn stood at 61% for 2012 crop and at 36% hedged for 2013 crop corn. Meanwhile, soybean hedges at year-end stood at 63% and 19% for 2012 and 2013 crops, respectively.
"While not a popular position, we believe corn is in the midst of the largest bear market in history," says Richard Brock of Brock Associates. "Too many people are concerned about weather and overlooking change in demand."
Corn usage for livestock has dropped 400 million bushels in the last two years, Brock notes. Corn usage for ethanol will drop 500 million bushels, and corn exports are projected down this year. Demand changes much more slowly than supply. "With that said, why would anyone want to store $7.50 corn unless they are feeding it?" Brock asks.
Weather is important…in May, Brock says. For right now, as the old story goes, no one has ever lost a corn crop due to a February drought.
- February 2013