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Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

Timing Is Everything...Are You In The Right Position For Corn, Beans and Wheat?

Oct 21, 2010
Be In Position Prior To November 1st
I have seen many traders and producers playing around jumping in and out of these markets, some have had success others have gotten stung.  Most tell me they want to be positioned prior to the the November 9th report, but until then they are going to trade the ranges, the technical gaps, etc...Be careful following this type of advice.  Also you need to make certain that if you want to be long these markets you are in position by no later than Friday October 29th. Remember November 2nd is the big election, and the financial markets could cause major concern.  Then immediately following on Nov 3rd the FOMC meeting where everyone is expecting the Fed to introduce more Quantitative Easing, possibly to the tune of $500 billion to $1 trillion.  If that takes place you may see the US Dollar get seriously smacked and commodities across the board jump to an entirely new level. If you are not long yet take a shot on a pull back either this week or next.
 

*As you know timing is everything... especially when it comes to marketing your corn and beans.  I can help you with your market timing. Read a few of highlights from my most recent daily e-mail.  If you would like to receive this type of information on a daily basis make certain you click the link below and get signed up for my FREE Report. The daily Farm Direction report is sent out each day via e-mail, there is NO Cost and NO obligation!

 

 

 

Free Farm Direction Report (click here to subscribe)

 
Cash Strategies 
As I mentioned in the opening paragraph, the first two weeks in November will certainly be one to remember. As a spec you have to be playing the market to the upside. Producers on the other hand need to have a good game plan in place in case the market provides a unique opportunity.  I continue to recommend being 70% sold in your 2010 beans and 65% sold in corn. I have also been recommending you pencil in small incremental 2011 sales at this time.  Be careful and do not get yourself any more than 30% sold in 2011 before March 1st.  These markets simply have too much potential.  I would advise having some type of hedging strategy in place to protect your downside exposure. Those of you who are still not 65% cash sold in 2010 and do not like your basis can consider an HTA or create your own by selling a futures contract on the board. Those that want to make the cash sales and continue to participate in the market should consider a re-ownership strategy such as buying an at-the-money call and selling an-out-of-the money call to reduce the expense.  Your total downside risk is the difference in the two premiums.  For more ways to get your self properly positioned and or hedged prior to November give us a call and we will be happy to give you some ideas and or suggestions.  

Trading Strategy
A couple trades you can consider if you are looking to get long corn. Buy (1) Dec 2011 Corn futures contract and Sell (1) Dec 2011 $6.50 Call @ 40 cents.  With Dec 2011 corn trading at around $5.30, selling the call gives us downside protection to $4.90.  With upside potential on the trade of $1.60.  I really like the long term risk to reward ratio on the position.
 
Ukraine Exports Slowing...US Wheat & Corn Could Gain Export Business
You have to believe wheat and corn prices are going to see more support as the Ukraine curbs grain exports. As you may know, the Ukraine has been a huge supplier of feed wheat to several Asian countries such as South Korea, the Philippines, and Vietnam during the past few years. As Ukraine cuts exports those countries have had to turn their buying intentions to central Europe, Australia and the US. It doesn't help any that several of Ukraine's largest exporters have cancelled orders for thousands of tons of exports. From what I hear Taiwan is now expected to be looking for around 60,000 tons of corn next week. Japan is trying to lock in more supplies for both corn and wheat. Nothing major, but from what I hear it is around 30,000 tons of food wheat and another 30,000 tons of feed wheat. Bangladesh is trying to find another 50,000 tons of wheat to purchase. Everything I have seen is telling me that wheat from Ukraine to Asia has all but stopped. Importers are now looking to switch origins, I am sure they will look to Europe first.  But with Europe also running low on supply and the US trading at a discount we may see substantially more interest in US wheat.
 
Russian Wheat Continues To Struggle 
The Russian winter wheat crop continues to look below average in all reports, From what I see estimates show winter wheat crops for next year's harvest on about 32.8 million acres, that compares with 42.2 million acres on the same date last year.  As I mentioned in reports earlier this summer, the drought would drastically affect even the following years crop...now it looks like it absolutely will.  The bottom line is simply not enough soil moisture. This is why I continue to stay long the KC wheat over the Chicago as I think quality bread-making wheat supplies could get tight as more people realize what is happening on a global scale.
 
Corn Sets New Open Interest Record 
The recent open interest gains in the corn market has been amazing, as of yesterday morning I had heard we unofficial surpassed 1.53 million contracts in total "Open Interest" setting a new record. This surpasses the old record from February 2007. You can see from these numbers that we are heading into uncharted territory. 
 
Soymeal Crush Margins Exploding In China
Exploding feed demand in China is sending soybean meal crush margins through the roof. I know I have mentioned it before, but I wanted to remind you that China now has more than 5.5 times the total number of hogs we have here in the US and only feed about 1.5 times as much soymeal. It doesn't take a rocket scientist to realize that as their meat demand and production efforts grow they will be searching for higher protein feed. You have to believe both Corn & Meal will be the primary beneficiaries 
 
I Like Hogs Longer Term But We May Be In For More Downward Pressure
I sold the April 72 Puts a couple of sessions back, and have seen very little activity.  I held off buying any calls to the upside on fears that we may see more downward pressure.  From what I can gather as more producers shift their feed rations to new-crop corn blends, the hog growth rates are increasing. This in turn is putting a ton of hogs that are now ready for slaughter on the market. I also have to believe producers are pushing them through a little early as to not incur more corn expenses. The problem is the packers are all full, and not willing to raise their bids to get them because there are just so many currently coming in. With hog prices falling the last three weeks, you have to believe producers are really starting to feel it in their wallets. I hope the bleeding will soon come to an end.  The funds are still extremely long and I am a little worried if they decide to exit we could see even a more significant pull-back.  I will be looking to pick up cheap calls on the breaks.
 

*As you know timing is everything... especially when it comes to marketing your corn and beans.  I can help you with your market timing. Read a few of highlights from my most recent daily e-mail.  If you would like to receive this type of information on a daily basis make certain you click the link below and get signed up for my FREE Report. The daily Farm Direction report is sent out each day via e-mail, there is NO Cost and NO obligation!

 

 

Free Farm Direction Report (click here to subscribe)

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