Don't Panic on the "Breaks"
Sep 07, 2011
A great trader once told me, most every big "bull" market will always give you another chance to get back in.
I am becoming fearful that we may start to hear more rumblings about better yields coming out of the areas of Illinois and Iowa in the weeks ahead. This may prompt the market to start second-guessing itself and be cause for some type of retreat from the higher end of the trading range. Fears of increased acreage in South America, and here in the US next season, along with pressure from the outside markets, may eventually provoke even greater fears and cause the market to actually test the lower limits of the trading range that I mentioned above.
In the end, however, I have to believe we will eventually find a way to gain more traction and once again test the upper limits of the range on weather-related fears, shortage of supply, increases in global demand, etc. A great trader once told me, most every big "bull" market will always give you another chance to get back in. My point is that I wouldn't chase the rallies if you are looking to spec. If you're a producer, don't panic on the "breaks." Use the rallies to make your cash sales, and recognize the fact that you might have to store any unhedged or unpriced bushels until brighter days come back around.
I still promote making your cash sales NOW if you are going to need cash flow during the remainder of 2011. Those who have the means should consider some type of limited risk reownership plan to protect their upside on the bushels that they sell. If you are purely a cash marketer, get yourself to around 60% sold and look to store the remaining bushels. Pulling the trigger on 10%-15% of our 2012 crop isn't a horrible idea either, especially if you have some of your inputs locked in and the current prices pencil well for you.
My thoughts are that without some type of positive government intervention such as QE3, we may find the agricultural markets stuck in a trading range, buoyed by hopes of higher world demand and thoughts that extreme weather conditions could prompt a shortage at any given moment. Without QE3, the US dollar may find more traction and strength on increased fears of a European meltdown, which ultimately works against the agricultural markets.
As for today, we got an early bounce out of the gates on reduced USDA "condition ratings" and the "outside" market push. The "outsides" are being helped by news overnight that the German courts have rejected a series of legal challenges to the eurozone rescue measures, while insisting that the German parliament must in future be consulted in advance about any new bailout measures. The decision is definitely being viewed as a short-term victory for proponents of the "bailout" and in particular the ruling German government. The kicker is that the courts have ruled that the budget committee in Berlin must give its prior approval before any German government guarantees or money can be given for future emergency lending to other members of the 17-nation eurozone. You and I both know it is only a matter of time before another European nation needs some type of bailout. The question now becomes, will the German parliament pass the measures or block the deal?
After the higher move out of the gates, we needed more "bullish" news and really didn’t get it. What we got were reports of better than expected weather and better yields in both corn and beans by grain analysts at Country Hedging. Remember, the market is still massively "long"; if traders look to square up ahead of Monday's USDA report, there may be some additional pressure as well in the next few days. The theme as of late has been to "buy the breaks"; my hunch is that during the next couple of days we may see the trade take more of a "sell the rally" type attitude.
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