The grain market closed the week in choppy trade!
Mar 20, 2009
The market opened like a lion but is closing like a lamb. This week saw the Fed injecting massive amounts of money into the money supply to drive down interest rates. This helped to drive gold up sharply on concerns about inflation which spilled over into the corn and bean complex.
This week it should be noted the rally was not triggered by any strong exports or demand increases, it was all about the funds and public buying commodities in expectation of inflation worries. We don’t want to rain on their party but I must insist that you don’t have inflation unless consumers are willing to buy. Right now everybody knows why the government is stimulating so aggressively, things are bad and not improving fast. The name of the game is save to retire debt, and cash is king—which I believe is going to rule consumer thinking for several months to come!
Based upon the action of the Fed this week and expectation that the G-20 meeting in April is going to support further continuation of easy money, we are seeing great opportunities developing to refinance loans. We will be releasing to our clients next week a power point presentation of our outlooks and an explanation of how to hedge your interest rate exposure. Bottom line: Great opportunities exist to sell bonds at record highs over the next few months, don’t get left out.
In regards to corn and beans I continue to stress that only two strong factors will raise prices, a significant surprise in planting or a weather yield reduction event. I’m not really worried about inflationary pressure on grain prices between now and fall, it’s all about supply. I continue to urge clients to scale up sale corn now that we are over $4.25 and I would like to be done by $4.52. In regards to beans any place close to $9 beans is a good value in my book.
The tool of choice right now would be to buy puts or a put vertical and roll up. I would really like to discourage the use of short calls to help pay for the puts until we get into the late May to early June time period.
Finally, in regards to corn I’ve had some clients roll their short futures to the July 2010 to keep the hedge in the weakest month possible. I would be looking to roll the July 2010 back to the September 2009 some time in May. As a guide, once we start hearing the crop is getting close to 70% completed you should start looking for a top in the bull spreads and start bear spreading for a long term move back to full carry.
In summary we want to start moving slowly—but deliberately—to get a large portion of the unpriced inventory moved and get some floors under the 2009 inventory. Our concern is still quite high producers are going to hold onto inventory way too long and potentially cause significantly lower price values in the August-to-September time period.
If you want to go over details or would like to read more daily recommendations regarding reownership or marketing strategies, email me at firstname.lastname@example.org or email@example.com.
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