Clear Focus Hedging News and Views
December 1, 2022


"Peace on Earth?"

As we wind down the year 2022, the often wished for "peace on earth" is nowhere to be found. The war in Ukraine that began last February, and was only supposed to last a few days to a week rages on. The Chinese people are rebelling against the severe restrictions placed on them by the Communist Government, and large scale protests are growing and becoming more violent. China is also threatening Taiwan, Iran is rapidly developing nuclear weapons grade uranium, and North Korea continues to threaten its neighbors as well as the US. Presidential elections in Brazil are still being protested, and Argentina is dealing with 80% plus inflation, causing producers to hold grain as a hedge to rapidly rising prices. Maybe I should be more grateful to be living in Northern Indiana? Each one of the items listed above have impacts on our markets, and sometimes in big moves that quickly reverse. We have had 2 days in the last 5 trading days where bean oil had a 300 point swing from high to low during the session. US $ strength or weakness, war news, crude oil prices swinging $4 per barrel on "tweets" from one OPEC + member, poor corn export sales and shipments, are all market movers, let alone South American weather! And we have a possible rail strike looming on December 9. A lot of "moving parts" to price discovery, and many are expecting the post harvest rally to take corn back over $7 and beans $15. Will it happen? Our anser? We don't know, and won't pretend otherwise. Lets look at the corn market for things we do know:

1) Export sales and shipments are well behing expectations. Some are predicting USDA will lower exports 150-200 million bushels, adding to carryout

2) In the November Supply/Demand Report, USDA did increase corn yield a bit

3) Gasoline demand is lower, and stocks of ethanol higher than average. Will EPA increase blending rate requirements this month?

4) Brazillian weather has been much more favorable than last year. Beans went in on time, which should get the Safinha crop in earlier avoiding the usual late season dryness

5) The market is inverted, March is 7 cents higher than July at this writing. Why store for less?

6) Basis differences from one area to the next are huge. Some extremely strong, some extremely weak verses normal. Energy costs are making the differences more extreme.


Given the above, and combined with what we don't know, our position in corn is simple. We prefer to have old crop bushels hedged or protected, so have roller our hedges to March in hopes of better basis. Because new crop December is around $6.05, we like spreading the hedge with a long Dec 23 position, and let the market tell us what to do next. We feel that the down side risk on old crop justifies this hedge, as with the inverted market, and year end coming, sales may increase going into the new year. If the market does rally, we still have corn to sell to the cash market, hopefully at a better basis level, and a long new crop position to add value to our position. We feel like there is less risk in the new crop, as it won''t be long before we start talking corn acres verses beans and spring wheat, and comparing last year's insurance price of $5.90 to current prices, we feel with the higher input costs and current soil moisture maps, downside risk from here is much less than old crop. For those who have hedged 23 corn in the September contract, buying December 23 before a rally can add to the hedge price. Call us for specifics on this plan, it does require management and risk tolerance. Agian, because of all the possible twists and turns in the market place, we like being "neutral" having our old crop protected or sold, and covered with long new crop, using stops to manage risk. If you do have sales made, or want to price some on good basis, you can use the July (7 cents under March) or simply buy March calls, a $6.80 call is around 18 cents at this writing, or use the December 23 as illustrated above. Make sure we visit on this if you are unsure of the costs and risks involved, and what you feel the range of trade might be.

Let's look at the soybeans:


1) Price action this week: we broke through resistance, technically a good thing

2) Exports have been decent, but we need to maintain the pace if not improve it to meet projections

3) Brazilian weather has been good overall, Argentina too dry, and now looking at some near record heat.this week. Talk of less beans and more later planted corn?

4) China issues, Covid restrictions and government responses are potentially big price movers. Technology issues with Tic Toc may also enter the fray as the US tries to find a response to all of it

5) Russia/Ukraine developments
6) USDA did increase 2022 bean yields slightly in the Supply/Demand Report. Will we get more of the same in January?

Given the above, we are more likely sellers of both old and new crop on this rally. With the yields we had, on our farm we did price out our HTA contracts and are "sweeping the bins" at the $15 mark after Louis/Dreyfus went to 35 cents over the January last week. (They are bidding 20 over for January delivery) This is a price we are happy with, and we may choose to re own them at some point, but for now, we are happy to cash in. We know many are holding off until after year end for tax reasons, and that may be reflected in the basis difference we have now, we don't know, but are more than pleased with net farm income at this level so its done. We are also hedged on new crop at 13.97, and are happy with that for now, but with January 24 trading nearly even with November 23, we can always spread the position, going long the January and use stops to try and add to our price. This requires management and risk tolerance, and you should understand the risks involved before entering the trade, but that's what we are here for, to explain the risks and the use of stops to manage it. The bottom line is not being afraid to take advantage of a profitable price, there are ways to cover and manage a short position, but once that price is gone for whatever reason, ( and there are many) it may never come back. Make sure you know your costs of production and profit potential to get started, and call if you need some help analyzing your cash flow needs in terms of sales months and reownership time frames.

You can also create a marketing "window" by buying puts and selling calls at a price you would be happy to sell at if we rally

For beans,

Buy March puts/ Sell March, May, or July calls at much higher strikes ( call for specific price quotes, these change rapidly)
Sell cash or futures in January or March, buy a call spread, buying at the money March call and selling May or July $16 or $17 call. (selling time value to buy time value)
For corn:
Sell cash or futures and buy March calls, or call spreads, buying the March and selling the March or May at a strike price you would be happy to sell cash grain at.
Buy March puts, sell March or May calls at a strike that would be a sell target.
Remember that selling calls will incur some margin exposure and we would manage that by using some buy stops in futures if prices take out resistance. We offer these ideas as ideas only, not specific recommendations. Call us for specific prices and individualized management plan, and also to understand the risks involved with each one. There is simply too much volatility to offer specifics with the rapidly changing market news flow.

We want to emphasize again, many of these ideas involve management, and having a well thought out and clear objective for a profitable year is vital to a successful outcome. We like the flexability that thes ideas give, as we can change our minds as conditions warrent. For example, we swithched 150 acres from beans to corn last May when prices simply gave us too much profit opportunity. Selling corn for $7.77 per bushel was easy, just lift a bean hedge and sell the cash hta contract and go to the field, but it took a few minutes to run numbers, call the seed dealer, and go to the field. Easy to do, but setting aside margin money and planning for the new risks involved had to be thought out. We like to help with these types of decisions, as its what we do, and making others successful is a real joy of the work, but we do understand the fear of the unknown and hopefully we can use some experiance to ease some of that concern. Sometimes a price is just too good not to take and run with, and other times we want some more flexability and are willing to invest in some option protection instead. What you are comfortable with is the right answer, and hopefully we can make you more comfortable with these tools. No Till farming has come a long way since we started in 1980, and marketing tools have as well. Combine crop insurance with a good marketing plan and we have much more to work with than 40 years ago!


In conclusion, as we approach the Christmas season, we are much aware of all the blessings we have received this year, good crops, good prices, and best of all, the good folks we work with. You help us with ideas from weather to agronomy ideas that we like to share, and talking over markets is always good as we compare notes and regional differences. We appreciate all of you not only as business partners, but as freinds and neighbors. We have dealt with many challenges this year, but although they seem like once in a lifetime events, my bet is we will see more of them next year. This is why we want to make sure we get profitable prices locked in for 2023 when we can, and encourage all to double check your numbers, consider what you think a reasonable range of trade may be, and get a plan started. We wish you a Merry Christmas and a Happy and profitable New Year!


Dates to Remember:
Every Monday: Export Inspections at 10:00 am
Every Thursday: Export Sales at 7:30 am
Every Friday: Commitment of Traders Report at 3:00 pm
December 9th: Monthly Supply/Demand and Crop Production Reports
December 23rd: January Options Expire
December 23rd: Cattle on Feed


Mike Daube: 574-586-3784
Allen Gard: 573-221-9234
Peter Schram 317-910-1473