To protect 2016 margins, producers should begin to plan fuel purchases and restructure debt for a longer payback period, advises Bob Utterback, Utterback Marketing Services.
Fuel will be necessary to dry what could be a wetter-than-normal corn and soybean crop.
“That is a cost, and it’s mainly petroleum cost. It’s an input cost,” Utterback tells host Clinton Griffiths on the “AgDay” Agribusiness Update segment. “I always get asked in October, ‘Should I buy?’ I think right now, we should be looking in the next 30 days about heating oil, crude oil, thinking about buying primarily because we are almost on a double bottom on the charts. We’ve got this nuclear deal possibly resolved with Iran. If Iran sanctions are eased, the talk—and again this is “talk”—is that they will be releasing a lot of crude oil very quickly onto the market over the next six months, and we could get a flush in the market when we already have good supplies.”
He recommends thinking in terms of a “multi-year accumulation position” to protect inputs.
“I would use that flush in the crude oil market down into the mid-$45 to $40 level for a long-term multi- hedge,” Utterback says. “It’d be like buying corn between $2.80 and $3.20, or buying soybeans between $8.50 to $9.25. It could go lower, but boy, it’s not going to stay down there because production will decline, usage will go up.”
Meanwhile, farmers need to recall the likelihood the Federal Reserve will increase interest rates in the next six to eight months, Utterback says.
“I would try to do a long-term rate than a variable,” he says. “I think there comes a point here where interest rates will start moving up. If the dollar continues to firm, that is not going to be good for grain, so we’ve got to make sure that if you’re holding a lot of inventory and the market gives you a bounce and the dollar rallies, you’ve got to use that as a thing to basically neutralize your bullishness.”
Click the play button below to watch the complete interview with Utterback.