Grains gap higher and fear is setting in
Jun 01, 2009
The corn, beans, wheat and cotton all gapped higher today and did not look back. The continued concern about delayed plantings along with the new lows in the dollar continues to push all buyers into a frenzy over concerned about inflation.
The dramatic correction in the T-bills and bonds today is saying all holders of bonds are demanding more for their money in light of the government’s action in regards to General Motors bonds. Holders see that they are no longer secure and are demanding more interest on bonds for future price defaults.
In summary “fear” is starting to become a primary factor for end users. They don’t want to get caught in last year’s price run up. There margins are already being stretched due to low economic activity. A run up in input cost could put some of them over the edge.
So what does this mean to producers? We have been suggesting in the last three weeks that we would prefer to manage risk in the form of long puts. We continue to suggest until we get a handle on planted acres and crop conditions that a limited risk strategy is the way to be going in both corn and beans. So if you are short the futures, consider moving into a long put for the next four weeks. If you are short the cash, consider buying futures with a stop at support levels. Bottomline: As a seller there is risk of some cash flow exposure. Let’s manage the risk and not blow out of hedges at the top of the market due to limited capital. It’s time to batten down the hatch, a big blow is upon and a good captain looks for safe harbor rather than ride out what could be a very wild ride.
If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at firstname.lastname@example.org or email@example.com. Tomorrow we will talk a little about the bonds, gold and crude oil.
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