Beans closed lock limit up and corn was not far behind at 23.25 cents up which completely erased Friday’s losses. The attitude at the close tonight was Project (A) would be higher but I would not be surprised to see a higher open and a lower close due to overbought status.
So what’s the game plan? As I’ve been saying for weeks my expectation has been to be a buyer in August. I would have preferred a much more sideways trading band to develop a base but we have to accept what the market gives us. As I sit here in the middle of the Corn Belt, we have been blessed with very good growing conditions. I, however, have to suggest we have missed the last few rains and the corn and bean crop has gone from about as good as it get’s to looking just average. All the wet spots are starting to show and some of the corn is even giving up. This all suggests to me the corn yield is not going to meet USDA's expectation. The issue is how much decline will we see? Unfortunately, a lot of these questions will not be answered until the combines are in the field and the bin door shuts.
My game plan now is for feed buyers to get inventory locked up in the cash if at all possible. If you are reowning previously sold inventory, I like buying nearby in the money calls more than futures. If you want a more long-term attitude, I’m focused on buying December 2009 corn on any 5 to 15 cent correction. If you are using futures, I would seriously look at selling some sort of deep out of money call to give yourself some downside price protection. A close in December 2009 below $5.90 would force me to rethink my long position.
As for beans it’s all about the yield. As I’ve reminded all my Farm Journal clients, a loss of less than ½ bu. takes us below 100 million bushel. A loss of 1½ bu. (which more than likely would be greater with any type of frost in the northern Corn Belt will bring carry dangerous close to zero. How high do you have to take bean prices to ration usage? At this time it’s not $12.89 beans!
My suggestion continues to be long November beans between $12.20 and $12 but don’t allow it to move below $11.70. If you can’t handle the stress of futures, I like buying serial in the money calls. If cash flow is tight, focus on trying to buy at least $1.50 to $2 upside vertical call strategy in the January contract. Bottom line: It’s all up to Mother Nature right now which means major price swings. This implies you should not overtrade your account and be very careful about how much risk your assuming in the position.
Finally, wheat saw a very exciting day to the upside. I would suggest it’s being dragged up by the corn and beans. My bias continues to be the higher we go this fall, the more acres will be planted due to lower input cost. I would suggest you not allow July 2009 wheat to trade below $9.05 before having a floor in place. With all the market volatility, I have to say this year would be an excellent year to be a buyer of puts and roll up rather than sell futures or cash and handle the cash flow of margins or loss of upside potential.
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