Outlook: Market Concerns Brew

November 5, 2016 02:32 AM
Outlook: Market Concerns Brew

Now that corn and soybean harvest are basically done for the year and the bin doors are shut, it’s time to take a step back and evaluate where we are.

1. While there were pockets of yield stress, especially in the eastern Corn Belt, overall producers have enjoyed another strong yield performance. 

With large supplies, producers will have to decide how aggressive they want to be on unpriced grain in the bins. While some might feel the gross dollars are adequate; it seems many producers are displeased with the flat price on any remaining unpriced corn and soybean production. Looking forward, how much impact could historically high soybean yields have on the final production numbers in January? Will those concerned about cash flow restrictions push more corn acres to soybeans in 2017?

2. Corn and soybean export expectations are strong and hopes are high export demand will improve with the lower prices. 

Just meeting weekly USDA export projections is not enough; we have to exceed it. Due to livestock revenue losses, an increase in feed usage is limited along with modest improvement in ethanol exports. Overall demand is strong, but any perceived reduction in demand could have an immediate negative impact on prices.

3. The U.S. Dollar is creeping back up toward 100, and oil seems to have hit a high above $50. There are mounting concerns the U.S. economy will see recessionary pressure in early 2017 regardless of who is elected.  

The tipping point is not far away. How will the uncertain U.S. macroeconomy affect demand growth prospects the bull desperately needs in 2017? If the Federal Reserve does follow through with its promise of higher interest rates in December, will the stock market begin 2017 weak, which could bleed into how commodity traders view the first quarter of 2017?
4. With all the advances in technology, predicting weather is still a mystery for the most part.

Since I’ve been involved with the markets, the weather has been a major influence on price volatility every year, month, week and day. That won’t change in 2017; in fact, it is even more of a dominant factor when deciding how much risk to take. Trend line yields in South America and the U.S. could cause real price pressure on grains and oilseeds next fall. Prices will have to be forced low enough to reduce planted acres and stimulate demand. I don’t know how low prices would have to go, but I feel safe in saying it will be below current costs of production.

Your strategy for 2017 should be to batten down the hatches and get through the year with as little damage to your bottom line as possible. This implies selling December 2017 corn as close to $4 to $4.20 as possible and selling November 2017 soybeans as close to $9.80 to $10.20 as possible. At the same time, develop a marketing plan to have the flexibility to react to a summer weather event if it occurs. That’s why I like buying September corn calls above $4.20 and November soybean calls above $11 while trying to get the premium cost reduced as much as possible. These calls become courage calls so crops can be aggressively sold during any weather scares that occur from April through July.

The bear storm clouds are developing. We don’t know if it will be a mild summer shower or a real spring tornado; we just need to get things ready for some potentially rough conditions ahead. 

Any opinions expressed herein are subject to change without notice. There is a significant risk of loss in trading futures and options, and trading might not be suitable for all investors. Those acting on this information are responsible for their actions. 

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