Outlook: The Tables Have Turned

October 25, 2013 09:57 PM
BobUtterback Oct2011

It has been an interesting journey since the August 2012 highs. We are seeing basic economic relationships in action; when prices are driven too high and destroy demand, they give incentive to producers to increase supply. Thus, we have a major high. Eventually, when supply comes online, prices must fall to where demand is ignited and production is curtailed.

Such macro events take time to deve­lop. How low do prices have to get to reignite demand and curtail future production? It is difficult to answer because of all the moving parts of the situation. This is why active risk management is so critical.

Sales Index Key

Excellent sales opportunity.............10
Excellent buying opportunity...............1

Corn 12 3 45678910

The market lows should be close. Once the bin doors shut, we should see a modest firming in the cash market as end users bid up cash prices to secure inventory. The problem is a big supply of unpriced corn in the bins will lead to aggressive pricing on any moderate bounce. Initial resistance in lead month corn contracts will occur at $4.65 and a stone wall at $5.

Focus on storing corn, selling the carry and waiting for basis to narrow. If anyone is holding out for higher prices, plan to wait until next summer. If a yield reduction event occurs, you will be 100% correct. If we see solid to better yields, you will have two years’ worth of grain to sell below the cost of production. Can you handle the risk?

Beans 12 3 45678910

The bean pattern will be similar to corn but slightly more positive if late-planted beans come in with lower yields. If lead month soybeans have a harvest low in the $12s, we might see at least one attempt to go to $13.25 before the first of the year.

Sell on a solid Decem­ber/January bounce. If you want to go for the higher prices, use a known risk strategy such as buying deep-in-the-money calls. Farmers will need to unload the 2013 crop early and will look hard at selling November 2014 beans. Prices are below what you are used to; 2011 to 2013 was the exception, not the norm.

Wheat 12345 6 78910

Solid price recovery this fall has caught the attention of the bulls. Focus on when to add to the July 2014 hedges currently in place. Try to be at least 50% sold between $7 and $7.50. To move beyond these prices, a major world producer will need to experience a significant supply reduction event.

Cattle & Hogs 123456 7 8910

When feed can be bought below the cost of production and historically high profits occur, livestock producers have to act. This will be the challenge in 2014: How aggressive should you be in terms of locking up profits at the risk of potential increases in the future? It sounds easy, but it’s really difficult to manage all of the emotions of greed, fear and hope.

While both cattle and hog breeding herds are low, it’s likely that inventories will expand. To protect all investments, start looking at mid-2014 and early 2015 time frames and ask yourself what price is necessary to lock up all potential profits.

More than 30 years of commodity insight helps Bob Utterback guide farmers through a disciplined approach to marketing. Contact Bob:

E-mail: butterback@farmjournal.com

Website: farmjournal.com/outlook

This material has been prepared by a sales or trading employee or agent of Utterback Marketing
Services Inc. and is, or is in the nature of a solicitation. This material is not a research report prepared by Utterback Marketing Services Inc. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. Distribution in some jurisdictions might be prohibited or restricted by law. Persons in possession of this communication indirectly should inform themselves about and observe any such prohibition or restrictions. To the extent that you have received this communication indirectly and solicitations are prohibited in your jurisdiction without registration, the market commentary in this communication should not be considered a solicitation. The risk of loss in trading futures and/or options is substantial, and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Utterback Marketing Services Inc. believes are reliable. We do not guarantee that such information is accurate or complete, and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

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