Scaling into Corn and Soybean Sales

October 21, 2010 08:14 AM

AgResource was 80% to 85% hedged on 2010 corn and soybean crops into mid-August, when they exited all positions for modest profits. They sold 100% of the wheat crop in early August. Now they expect a bullish phase in ag markets to run at least six months. Possibly longer depending on U.S. and world weather. 

"It is unlikely that a final 2010 or 2011 price top can be completed until record large U.S. corn and soybean crops are confirmed next summer," says Dan Basse. "Based on our view that 2010 corn yields will continue to slide to 152 to 154 bu./acre, a rather dramatic demand rationing phase lies ahead, with difficulty in securing an additional 4 to 5 million acres for corn production next year. It is not unreasonable to expect seasonal highs of $6.50 to $7.25 for corn and $12.50 to $13 for soybeans with normal South American weather. Poor weather in South America, the U.S. or China will produce new all-time highs."

Realizing that farmers have cash-flow needs and can’t store this year’s entire crops into spring, AgResource plans to scale into sales above $6 nearby corn futures and $12 in soybeans. "This is not a crop year to quickly lose ownership," Basse says.

What could go wrong? China’s economy could face some turbulence in the last half of 2011, Basse believes. "But it’s a managed economy and should be able to maintain a 10% growth rate for the next nine months." 

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