Sell Little Commodity Price Bounces

April 21, 2015 12:00 PM
 
Sell Little Commodity Price Bounces

Unless a weather scare occurs, producers should plan to sell corn and soybeans as price spikes arise and buy calls as needed to open upside potential, says Bill Biedermann, Allendale, Inc.

Power Hour Noon Logo“The demand side is, hands down, bearish,” Biedermann says during the “AgDay” Agribusiness Update segment for Monday, April 20, 2015. “The supply side is up in the air. That’s what’s driving us right now. We’re trying to get a supply rally going. If we don’t get an adverse weather situation, you’d better sell little bounces. You can protect the upside with a call in case you’re wrong.”

Plenty of question marks mean the supply side of the equation is “up in the air,” Biedermann points out. That means for now, debate over acreage, soil moisture conditions and yield will drive the market from that angle. Overarching those predictable arguments, though, is an unprecedented global supply.

“We’ve got 3.8 billion bushels of soybeans in world inventories, and we’ve got 188 million tons of corn in inventories compared to 135 [million tons] just a couple years ago, and that’s more normal,” he explains. “We’ve got the largest world starch inventories ever.”

On the demand side of the equation, the strong dollar is putting U.S. producers in greater competition against those from other countries. Avian flu might also present a challenge to grain farmers as meat inventories back up in the U.S. and demand wanes. Also consider activity of funds, which have been bullish for the past six years, Biedermann says.

“Now they’re bearish because we’ve got  a deflationary policy, or a noninflationary policy, to keep that in control,” he notes. “With the strong dollar and potential rising interest rates, these funds are getting out of commodities. They’re not in an inflation trade anymore.”

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