Today was about profit taking
Nov 25, 2008
After yesterday’s strong price move, today was more about profit taking and getting ready for the holiday weekend. The tone continues to be wanting to sell strong rallies. We suggest you review our special report that we have at our web site by Dave Hightower. It’s an excellent article that reviews the overall fundamentals right now. If you can’t get on, call us for a free trial subscription at (800) 832-1488.
The warning flag I’m starting to put up to all clients right now is we still want prices we saw this summer. Many clients have put the crop in the bin and have no plan other than waiting for higher prices. I hear daily that the market is going to have to bid up for acres because of input cost. But what if there are other commodities out there worse off than corn and beans and we get their acres? If this was not bad enough, what if domestic and international demand continues to over correct due to negative expectations about the global economy? The net result could be increasing carryover!
I’ve been saying it for many weeks but I’m now going to get more vocal. I don’t like new crop beans above current levels. I’m quite concerned that if we don’t watch it, we will have at least $7 in front of beans next fall and if we don’t watch out it could be $6. I’m trying to encourage producers to get a floor in place at current levels and only defend if and when we have a solid technical buy signal. At this time, I would refrain from buying puts because of the time value cost. My suggestion is get the cash sold if basis is stable and only buy back on paper if we get a clear technical breakout signal.
In regards to corn, I’ve been wanting to be a buyer at current levels but I’m starting to get concerned that feed usage and ethanol usage is going to keep a lot of pressure on prices. So at the current time, I’m waiting to add to long positions. If in position, I would start looking seriously at maximum risk that will be accepted. Essentially, limited upside potential if we confirm that planted acres will be unchanged to down, and then some type of spring or summer weather event starts to concern the trade about yield.
As to the outside markets, the equity markets have bounced recently with the announcement of the new Obama administration but further gains will be difficult until we see actual programs. The real story is the oil market and it was off over 5% today. Already the OPEX members want another meeting to discuss reducing supply. I note that some big investment houses and analysts are suggesting that oil could have significant downside risk until the end of the year. A correction back below $48 in lead month futures will send negative shock waves through the corn and bean market. So be careful if you are trying to develop an aggressive speculative long position.
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