Outlook: There's a Right and Wrong Way to Sell

08:33AM Jan 24, 2015
Bob Utterback
( )

Now that the important January reports are behind us, the market is looking for new fundamental information to chew on for bullish or bearish direction. For the grains and oilseeds, it comes down to planting progress, number of acres planted and if yields track with 2012, 2014 or somewhere in between.

All the while, outside market forces will be trying to determine how the massive drop in oil values and the sharp rally in the value of the U.S. dollar will influence the future of ag commodities. 

There seems to be two lines of argument developing: 

  • Bullish argument. Cheap oil will put more money in consumer hands. With more money to spend, there will be greater economic activity to stabilize and improve demand. While this argument is structurally stable, it is not going to have the immediate impact commodity bulls want—in fact, it could be 2016 before we reap the benefits. 
  • Bearish argument. The U.S. dollar is strong because the U.S. economy is growing faster than the European and Asian economies. Weak oil values will send many parts of the U.S. economy into a deep recession as oil wells are sidelined due to operation below the cost of production.  

In fact, as the oil market struggles to make a long-term low and long open interest in grains builds, we should reach a point where speculative money will move aggressively from the grains and oilseeds to the oil complex. If this movement of capital occurs when producers are holding a large amount of unpriced inventory on-farm and trend line yields are confirmed, we will have several elements in place for the market to exceed fundamental downside targets this fall in basis, carrying charge and flat price.

Now more than ever, it is important “how” you protect the price of your expected 2015 inventory. 

I would like producers to be 100% protected on November 2015 soybeans between $10 and $10.50 basis the November futures before protecting more than 50% of expected corn production. 

In regards to corn, don’t expect the market to exceed $4.50 until April or May when the weather could delay planting. If producers do plant 3 million less acres of corn, then the market will be very responsive to any weather stress in June and July. As a result, have limited risk exposure on short positions between April and July for corn. Stay away from forward cash sales or futures sale. Buy an in-the-money put and roll up if the market does rally. Once we get into July, look to roll the put into a futures or cash position depending on your needs and storage room.

The theme for soybeans in 2015 is to have a floor in place and hope to improve it if the market gets nervous about the weather. I would not be actively looking to protect feed needs or speculatively reown previously sold inventory until September or October.

Overall, world wheat stocks are more than adequate for nearby needs, but world traders are very nervous about how Russia will react this spring. What will be the unintended consequences of inexpensive oil? Will Putin feel he is backed into a corner with only military opinions, or will he see the wisdom in calling an end to his expansion plan? 

If the July contract is in the $6.50 to $7 range, at a minimum sell all the inventory that must be sold off the combine and consider moving sales up to cover variable costs. Remember, right now, wheat should be bearish, but it is anyone’s guess which way it could go once we get to spring and trucks and tanks can effectively move.  

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. Contact Bob Utterback at (877) 898-4324 or ut[email protected] with questions/comments. See full disclosure at www.FarmJournal.com