Market Outlook

November 6, 2009 02:39 AM

Set a Plan, Let Market Determine Pace

Progressive Ag has a rather simple approach, says the company's Randy Martinson. "We look at what the monthly price chart has done for the past 13 years and price when the market is in the top third of that range."

They'll price as much as 18 months ahead of harvest, in increments small enough that producers will be willing to follow the advice. 

They also tend to use fixed-price or hedged-to-arrive contracts early in the game, when the longer period could mean larger margin call requirements on futures hedges.

"We adjust the speed at which we make sales depending on how the market is acting," Martinson explains. For the 2009 crop, that meant speeding up sales, "especially for soybeans, because we expected more acres to be planted," he says. "At the same time, strong early demand put bean prices at a significant premium to corn, making sales more attractive." —Linda H. Smith

Key Market Factors
> The strength in the dollar seems to be over.
> Big crops are being binned slowly.
> Strong usage keeps stocks from growing much.

Percent Sold and Market Value on Oct. 1, 2009
Click here for the Adviser Track Records Table


Dollar, Exports

When investor money rules the markets, outside factors may be more important than impending frost. "The market was wild today because of the plunge in the dollar index," said Gavin McGuire of eHedger in mid-October. "All commodities rose—even those that wouldn't be affected by weather or yields." A weaker dollar, of course, is good news for U.S. ag exports.—Linda H. Smith


Bottom Picking

There's a chance a bottom is being made, says Bob Utterback of Utterback Marketing. In general, there are three types of bottoms:

The "V" bottom, a violent break followed by a sharp rally, is the hardest to predict and implement positions.

The distribution bottom takes a moderate time to develop; it is the best for creating a long position. In this category, the double-bottom low is most desired, Utterback says. "This often occurs after a USDA report. The market bounces, say, 5% to 10%, but then corrects back to the previous low. Sometimes new lows are made, but just barely. Once the low is confirmed, short liquidation and new buying develop."

The extended bottom, the most common type since 1970, has a very long period before recovery begins; positions in the market can become very expensive.

"Buying on fall lows is not a slam dunk," Utterback adds. "Historically it is just better than a flip of a coin. Right now, both short- and long-term patterns are negative. I expect a seasonal low by early November, but I think we'll only see a modest seasonal rally into spring. We must see building demand and a reduction in stocks for the bears to lose power." —Linda H. Smith


Top Producer, November 2009


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