Outlook for the Near-Term in Grains
Jan 01, 2014
We are excited about starting another year of working with farmers to improve their bottom line. As we start the year we will be looking for some important final numbers from the USDA in the January report. Our bias: Corn and soybean yield will improve slightly, which will offset the increase in demand projected in the December supply demand report. We expect the market is nearing a price level where price stability will be developed.
Simply put, we are nearing a level where the bears will find it difficult to push prices significantly lower. As for the bulls, many will be relying on the seasonal trends to rally prices but one must be aware that the fundamentals really don’t look promising.
In our opinion the only real hope the bulls have for higher prices lies in a good old fashioned weather event. This implies the earliest the bulls will have some fundamental hope will be in late April to early May, but more than likely it will be late June to early July confirmation of hot and dry conditions before the bulls can flex their muscles.
To help producers develop, implement and monitor the various risk management opportunities ahead, we are starting a consultation service where we merge crop insurance with cash sales, options and futures strategies to evaluate and manage risk. If anyone is interested in a periodic review of their position and want to develop a one-to-one relationship with a professional at UMS, call Bob or Laura at 1-800-832-1488.
We don’t believe March corn will move much below $4.10, even if the January 10 report is bearish. And it’s going to be very difficult getting the July corn back above $4.75 until we have actual confirmation of significantly lower planted acres and yields trending well below 152.
Speculative strategy recommendation: After the January reports use any oversold condition to focus on selling July $4.00 or lower puts on an oversold condition.
This complex has been the strongest of the grains and oilseeds. The continued strong demand by the Chinese for our soybean products pushed Jan soybeans over $13.50. Unfortunately, the recent slip in the Chinese soybean export pace plus expectation of an improving crop in South America has stopped the soybean market in its track. Moving forward, the bears are banking on improving yields in the January reports for the U.S. crop plus the potential of Chinese cancellations once the South American crop comes on board has many bulls heading to the sidelines.
Looking forward the biggest concern is that the new crop  could still have a headwind to deal with because of the growing expectation that acres are going to grow in excess of 4 plus million acres.
Even with the growing list of bearish fundamentals, we are concerned it may be difficult for the old crop soybeans to break much below $12.50. The seasonal pattern over the last 43 years and even the last 13 years all strongly suggest the January to March time period will be difficult to move lower.
Speculative recommendation: Focus on selling out-of-the-money July soybean puts on an oversold condition after the January reports.
The wheat complex fell on hard times in November and December. It all started with improving crops out of Canada and then confirmation that the U.S. crop was strong as well. Similar to corn and soybean, we feel we have to suggest the wheat market is nearing a time period and price level where some price consolidation will be seen. While many may imply this is an indication of a buy signal, we suggest refraining from buying wheat for a significant flat price rally.
In fact, we would not be surprised to see wheat become the short leg of the classic long corn/short wheat spread as we move from March to July. We assume those following our previous recommendations are currently holding hedges in the Dec contract because of the carry. After the January reports focus on selling May puts to help offset any seasonal bounce we may see between January and May.
If anyone feels they need to put structure into their risk management program and would like to discuss marketing strategies, call Bob or Laura (1-800-832-1488). We will also try to answer questions in upcoming blogs and we welcome emails to firstname.lastname@example.org or email@example.com.
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