Sales Index Key
Excellent sales opportunity 10
Excellent buying opportunity 1
The extremely wet September and October has led to one of the slowest grain harvests on record. In late October, the December corn contract broke through overhead resistance of $4.09, which started talks of $4.50 and higher corn—but the hype quickly stopped.
It's a bull's game for now, but the bear is not dead, he's just wounded.
I know it is hard to be a bear, but the market is rising on fear, not solid demand. The ability to sell 2010 production in the July 2011 contract at $4.60 represents a potentially good return. With fertilizer and fuel costs down, profit margins are as good as they were when corn was higher in 2008. Lock up fertilizer, gas and cash rents and sell the deferred futures.
Once you decide to sell the market for profits, consider three variables:
1) Watch the basis to determine when to convert the futures to a cash sale; 2) Try to keep the short hedge in the month that is going up the slowest in bull markets and in the months that are the weakest when the markets turn down; and 3) Understand that there is a significant cost to hedge-to-arrive or cash contracts. Selling futures gives you the flexibility to take advantage of spread movements, which could be big during the next 12 months.
Soybeans are not as bullish as corn. Granted, the price trend is up, but it is weak; it is a reactive, rather than a leading, market. You need to move the crop out of the bin if November beans show signs of closing below $9.60, if there's a sudden rally in the U.S. dollar index above 78 in the lead month or if crude oil breaks below $75.
If you are more bullish but want a defensive selling strategy, consider putting in offers at your local elevator around the 21-day moving average. Right now this is at $9.60, which is a little lower than my taste; but it does provide a point you should not allow prices to fall below before moving inventory. Otherwise, keep moving the stops up as the market rallies.
Long-term, I'm still concerned that acres will grow domestically and globally, so the demand that everyone is expecting could be forced to show up. So far, exports have not been too impressive, but once November 2010 soybeans get above $10.50, don't allow them to drop back below $10 before protecting a portion of expected inventory.
We are coming to a decision point for wheat. The lead-month Chicago contract is starting to test $5.60, which represents a solid consolidation point. If lead-month wheat charts go above $5.80, there's the potential for a retest of the major overhead resistance in wheat ($7), just like $4.50 in corn.
Watch the market closely for solid technical follow-through to the upside. Once it breaks out to the upside, don't allow the market to close back below $5.50 before having stops in place.
Globally, supplies are big and, as of right now, demand is not kicking in gear to maintain this rally. It has been short covering and speculative buying that has caused the market to move higher; we need solid usage and continued supply-side tightening.
Just when many hog producers felt things were finally going to start moving back into the black, corn prices took off. Live hogs are trading right below a major downtrending overhead resistance level. A close above $56 would be a solid improvement, and a close below $48 would be negative. The market could slip a little, but as the domestic and general economy show better growth, the hog market could rebound, as well. Hedge in long puts only if we see critical support of $48 broken in December hogs.
Lead-month December cattle traded in an effective range for more than a year. We need to be thankful that cattle have not been worse during this poor economic time. While the stock market is showing gains, the increase in unemployment to 10% will keep consumers cautious this winter.
Work on controlling costs. By early March, have corn bought. As we move into spring next year, lock up interest rates on any retest back to 120.
The information provided is believed to be reliable. There is a risk of loss associated with trading futures and options. Anyone acting on this information is doing so at his or her own risk. Consult your Risk Disclosure Statement before trading. To comment on Outlook, e-mail Outlook@farmjournal.com. For information on risks and strategies or to subscribe to Bob Utterback's Internet site or e-mail service ($400 per year), call (765) 339-7704 or e-mail email@example.com. You can read daily comments from Utterback after markets close at www.farmjournal.com.
- Mid-November 2009