Clear Focus Hedging News and Views
December 1, 2023

"Wrapping Up"

Harvest here in Northern Indiana finally wrapped up today (November 30th) and it seemed like we crossed the finish line after 26+ miles. Excellent yields along with much higher than normal moisture levels kept progress slow to say the least. Adding to the problem were delays at the elevator and ethanol plants as many "extra" bushels had to go somewhere, and the volume of bushels combined with slack export demand to fill available storage much faster than we anticipated. Indiana and Ohio are still trying to finish up, while our friends in the west have long been done and fall tillage completed. Basis is reflecting that, as here in the east it is very weak, while west of here strong and gettint better. We "hope" that once harvest wraps up here, it will get better. Overall, with the market selling off ahead of first notice day on December contracts, it was pretty gloomy in terms of price. Today however, we saw some light, as weekly export sales were very strong on all the grains, and there were no deliveries posted on December corn when many were expected. That led to a sharp rally on the board today, and brought some hope for a Christmas rally. Will it continue? Here are some thoughts as to why it could:

1) Funds hold big short positions in corn and wheat, will they cover some of these before year end?

2) Weather in Brazil is less than ideal, crop estimates are already falling, but Argentina remains in very good shape

3) Once harvest is over, little to no selling is expected from the producers. What price would get your attention?

4) While no yield updates will be coming on the December S/D Report, demand numbers will be updated. What will the January final look like?

5) We are now the cheapest corn and beans on the world market. Will big export sales like today's be more likely?

6) Domestic demand remains solid, crush margins for beans and ethanol are good

While we are encouraged with today's price action, we are also very cautious, looking for more strength to end the week, and hopefully more export sales announcements. We also realize we are in a "weather market", with weather in Brazil extremely important. Next week's rain event slated for Monday and Tuesday will drive price discovery, as it is much needed over a large area of Mato Grosso. You can find good weather coverage on our website, with radar maps and other features to help keep up with any changes. We will be watching for sales opportunities, as we know how fast these weather rallies come and go, and we encourage you to look for good basis opportunities to set basis, and have orders in to sell in the cash or futures market at a price that makes you happy with the profit level. We have some targets we like for both old and new crop, and we will be quick to act on those if they hit, as we cannot overlook the potential of higher yield estimates in January, or big production numbers out of South America. Even if Brazil is nicked in yields compared to last year, Argetina may well make up the difference. Our best opportunity may well be in the next few months IF exports pick up and the US $ continues to weaken. Reducing our risk of holding grain too long to a cheap call option is our preferred line of thinking this year. Once we have a profit level that meets our goals, its time to get on it, and use options to stay around for any unseen developments. The corn carry out is just too big to get complacent, and while beans are tighter, look at any chart and see how long we are able to be over $14 in any month. We will be agressive sellers on any move to that level, and use call spreads depending on time of year and weather conditions. Again, lowering our risk level to options while banking a good profit seems like the way to go. Here are some ideas to consider:

1) There is good carry in both corn and beans, decide on what month you want to use and target a price, but look to set basis on any good move up. It could come soon depending on your location.

2) If you need to sell grain soon, consider option spreads like buying a March call, and selling a December corn or November bean call to pay for them. Details below.

3) Watch the next few weeks closely for fund short covering or big export sales. Prices are low enough to attract some buying, but we need to see it! Basis may be an indicator, call for updates.

4) Weather can also be a factor here as winter storms can create some spot shortages. Be ready to reward any good rally.

5) Once harvest is over, we sometimes forget to plan on marketing, preferring to just "watch it". A big crop needs to be sold sometime, and too late is not a good option!
6) Being "pro active" meaning deciding ahead of time what a "good price is" is important! If you don't know, it can get painful later.

As for #2 above, we like buying March $4.80 corn calls and selling $6 December calls to offset the cost, and for beans, buiying a March $13.60 or $13.80 call and selling a November $14 call to offset the cost. Why?

1) We like the odds of March corn getting back over $5 and with the $4.80 call would be willing sellers of cash on a good basis at that level. We can exercise that call if we really get a good rally, and we would LOVE to sell next year's corn at $6!

2) For beans, we would easily be sellers of beans above those strike prices IF we had the call in our pocket or basis was extremely good, and we would LOVE to sell next years beans at $14

3) Downside risk is limited, and a management plan will be in place in case of dramatic changes to the market landscape. We have ours written and would be happy to share it with you. Bottom line is we feel that any real rally will likely happen before the end of February when the March options expire, but if not, we will use May or July calls to offset. Again, reducing risk of holding cash grain too long to the cost of an option spread targeting a good 2024 price is attractive to us.

4) Beware of "gimmick" contracts from some commercials that offer a premium now but may require a "double up" later. You can do the same thing by selling options and know what your risk is. Too many have been the victum of not understanding the potential consequences. Call us if any offer seems "too good to be true"

If you remember last month, I sold a November 2024 $14 bean call for 44 cents, and promised to track the price each month to illustrate what the price action did so you could follow it and see if was something that would be of interest. At the close today, November 30, that call closed at 44 ½ cents. On October 31, November 24 beans were trading around 12.65, and today closed at 12.94. 29 cent gain in futures, only a half cent increase in the call option illustrates the time decay differences. When beans rallied above $13, the call did trade above 54 cents briefly, but fell back quickly on the sell off. We will continue to monitor this trade, and what if any action we would take given changes in the market, but for now, we are comfortable with doing nothing except waiting for higer prices to sell next years beans, but anything above $13.50 will get our attention.

In conclusion, we want to emphasize that these are just ideas and suggestions, that specific plans need to be made on individual basis. Everyone has different needs and goals, and prescribing a one size fits all plan is silly. What is important to us is making sure our decisions are made based on profitability and reduced risk. If a trade or plan elevates risk beyond your comfort level, we advise against it. Buying futures or selling options may sound great and actually work well, but if they cause sleepless nights or undue stress, walk away from them. If we can help your comfort level with other strategies, or better explain the risk and reward, that is what we do. We have developed these ideas to use ourselves, and would not suggest any idea that we would not do ourselves. It boils down to having a plan based on profits and risk reduction whenever possible. Profit goals can be elusive, but now that the crop is in the bin, we know what we have, when we need cash flow, and when we want to deliver the grain. Now its all about the price, and having a plan to execute. Have a Blessed Christmas, and a prosperous NEW YEAR, and thank you for working with us!

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 8th : Monthly Supply/Demand and Crop Production Report
December 22nd: January Options Expire
December 22nd : Cattle on Feed