Outlook: This Train Is Slowly Rolling

December 6, 2013 06:21 PM
BobUtterback Oct2011

This year has had its mountain top views and bumps in the road. Farmers will need to put the brakes on overhead costs and have their marketing plans in place to capture any price bounce in the year ahead.

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The bin doors have shut, which should help basis a little, but limited flat price gains are expected. Be prepared for higher supply numbers when the final January reports are released; that could take carryover closer to 2 billion bushels. Odds are extremely high that March 2014 contract lows will retest the December 2013 lows on early year cash flow sales. However, excessive amounts of unpriced grain will weigh down the market until we can get some solid evidence of a weather-related supply reduction. Unfortunately, this will not be until summer.

It is a tough call right now. Move cash inventory if there is good basis. Look to re-own only if the market starts to take out the April highs in May. At that time, all short traders should roll into long puts, and feed buyers should be in a 100% position.

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Let me be very clear about upside potential—it will not be like 2012. We are starting out with big stocks, lower domestic usage and I doubt investors are as excited about commodities as they were in 2004 to 2012.

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Unlike the corn complex, we still have a reasonably tight old crop stock situation. We know China wants to be a big long-term buyer, but in the future.

As I write this, the South American crop looks good. If no problems develop, expect pressure on the market from late February to early March.

The trade is already talking about 2014 plantings. Many expect acres to increase, but how much? If the crop insurance price for December 2014 corn is below $4.60 and November 2014 soybeans is above $11.50, soybean acres will grow because of reduced cash flow exposure.

There is a very narrow window left on old crop soybeans. Previously, I recommended selling completely off the combine. If no weather problems develop in South America by early January, sell or hold until late summer and hope for a weather event.

My biggest concern is for the soybean complex. There is no easy way to go. If you want to stay in cash, you need to move quickly on downside breakouts to price and be ready to handle upside price exposure if the market rallies on weather concerns. Waiting until late August is simply a Russian roulette plan.

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Wheat should be rather quiet unless corn and soybeans get really negative. If anyone is short the wheat complex, focus on rolling all hedges to the December 2014 contract to capture carry and hope for some narrowing of the spreads if we see any type of winter injury concerns by March.

As for significant upside potential, I just do not see a lot. Wheat should be kept in check by ample global supplies and slow growth economies. The only thing we can hope for is some weather problems to creep into the production areas; I would view those rallies as solid selling opportunities.

Bob Utterback writes from New Richmond, Ind. Contact Bob:

E-mail: butterback@farmjournal.com

Website: farmjournal.com/outlook

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