Published on: 15:52PM Apr 27, 2009
While farmers are getting ready to move to the field aggressively to catch up on field work the market has been having some interesting things hit. The big news today pushed by the 24 hour media is the swine flu. It should be noted it has nothing to do with the actual pork product. This is an air borne disease. Nevertheless pork was down limit today and may not bottom out until mid week. The implied reaction is reduced exports, back up in supply and eventual reduced breeding due to low profit. Lower breeding gives way to reduced feed usage. This caused beans to be down over 60 cents and corn 15 cents lower on project (A). The market recovered in day trading session.
I have to say I believe the corn, bean and hog reactions are over doing it today but when fear strikes the market it’s difficult to stand in front of the freight train. I would not be surprised that within 10 days the corn market has a completely different profile. Granted there has been some field work done in the Midwest and even some corn planting but we are going to catch–up slowly. I continue to believe the market is very close to fair value for this time of year. The only question is how much of a bounce are we going to see?
On one side of the equation there is decent usage and weather delayed plantings while on the other side you have big farmer holding and the power of the corn planting to catch up with these new hybrids. I strongly believe it’s going to be difficult to get Dec 09 corn above $4.50 but a retest of the $4.25 to $4.35 is still better than a 50/50 chance. As for the fall lows I’m still in the $3 camp so it’s critical we get some hedges in place between early June and July 4th.
In regards to beans, I’ve been friendly to old crop and bearish new crop. This is why I recommended buying the July/Nov bean spread. It looks like the Chinese are getting close to buying everything they want. Second, it’s still up in the air how many planted acres are going to come on board for new crop. While I still like the spread I have to say it looks like we have lost the upside momentum of the spread. I would not want to see the spread go back below 90 if you are in the speculative recommendation.
As for new crop beans we’ve had plenty of chances to sell beans above $9 in Nov beans. If you are holding out for $10 Nov beans I believe you are going to have to go for broke. Specifically, you are going to be forced to hold all the way to August and hope for a dry weather event. Right now, no one is willing to go that far in the future and make an absolute statement about weather. There are patterns but as you know weather seems to surprise us the most at exactly the wrong time. I encourage you to get a floor under your 2009 beans by buying an in the money put first and selling the cash second. If you are inclined to want to speculate for higher prices in beans I also encourage you to have a known risk play (specifically some type of call strategy) rather than being net long. Just like today, the ability of the beans to move hard makes it very difficult to be speculative long even though you have strong convictions of your strategy.
If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at [email protected] or [email protected]. Tomorrow we will talk a little about the bonds, gold and crude oil.
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