Clear Focus Hedging News and Views
March 1, 2024


 "Maybe A Turn?"

   If January was depressing in terms of prices paid to producers, February was no help, at least the first 3 weeks, but last Monday the 26th offered at least a little hope for the corn market. We started the day session making new contract lows, but finished the day taking out the previous day's high which technically is very good, and followed that day by closing higher each day. At this writing we are 20 cents off the low made on Monday. Is that confirmation of a winter low? Hopefully we get a higher close today which would look very good on the weekly chart, and possibly encourage the funds, who now hold a record short position in corn to cover some of those and get prices up to a level that we need to make some sales. First notice day for the March contracts came yesterday, and with no corn deliveries, higher than expected bean deliveries combined with good corn export sales and poor bean sales, the corn market gained some while beans slid back. March 8th will be the next USDA Supply/Demand Report, and the bean counters are projecting a possible cut in bean exports, a possible increase in ethanol use domestically, and a cut in Brazil production numbers compared to last month. All the numbers are important, but the bottom line is the carry out projection, higher or lower and by how much. Along with the reports coming on the 8th we are looking at the following for price direction:

1) Weather in South America: Harvest of beans has been going well in Brazil, and Safrinha corn is being planted on time. Will it rain now?

2) There is a big difference in private and government production numbers in Brazil. Who's right?

3) Export sales have been good for corn, weak for beans, and ok for wheat. Will lower prices encourage more buying?

4) China has been buying beans from South America, and corn from Ukraine. Can we get some of that business?

5) Farmer selling via March basis contracts was reported to be heavy. Is that over? Have near term cash flow needs been met?

6) Will funds keep selling or start taking some profits ahead of major risk times?

Number 6 is interesting, as no one really knows or can predict what the funds will do. Some are trend followers, some are long only, and some just trade.We talk about risk generally in terms of risk to producers, but consider the risk that end users and short funds have as well. If you are an importing nation, are these prices attractive to you? Are you concerned about weather developments over the next 60 days? If you are managing a big fund holding big short positions, are you concerned about not only the weather but also the big USDA reports out in the next 60 days, including the Planting Intentions and Quarterly Grain Stocks on March 28th? Our point here is, all have major risks in the near future, as producers are still "long" in the bin and in the field, funds are short, and end users have been buying "hand to mouth" taking advantage of the big 2023 crops. Looking back to last month, we still feel the following offers good choices in general, we repeat the following with some adjustments to strike prices versus last month             

1) Buying short dated December, May expiration calls at strike prices of 4.60- 4.800 depending on your view of price potential and how much to invest

2) Sell old crop corn when basis is good, reducing storage costs/risks, interest costs, and supplying cash flow

3) Place orders for HTA contracts or futures contracts on new crop at prices above the strike price of the calls you bought at reasonable levels

4) Beans are very similar, using short dated May expiration of November beans at $11.50-$12.00 strikes, for instance, and be ready to sell beans above that level

5) Once sales are established, we will monitor option values, fund positions, and weather developments to guide us in rolling options up, extending time or exercising potential

6) Plan is reducing price risk, staying flexible, and making sales at levels that should be profitable with upside potential

         We like ths plan for a number of reasons listed below:


     1) Selling cash grain at good basis levels is good, especially in big carry out years. If production goes well, or demand falters, waiting to sell could be costly. RISK

     2) Re-owning with options keeps upside open until April 26th when short dated May options expire. We think by then a lot of cards will be on the table. While not as reactive as futures, the options give us a chance to do two things, re-own old crop and sell new crop against giving us a chance to establish a floor price that is profitable, but also maintains upside. Reduces margin risk, adds profit potential, and gives us a chance to capture carry later on.

     3) IF we rally above technical resistance levels, calls can be exercised and stops put in and rolled up depending on time left to expiration. Call us on this

     4) IF we sell off hard due to any black swans, cheaper calls can be bought later to cover more time in the growing season IF NEEDED

If you remember, on October 31, 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 it was something that would be of interest. At the close yesterday, February 29th it settled at 13 cents. We will continue to hold that sale but if it goes below a dime will consider cashing in ahead of the start of the growing season, or new developments in South America.

In conclusion, it has been a long winter without much sunshine either outdoors or in grain prices. One thing we know from history, neither will last forever. We are entering the "too" season, too hot, too cold, too wet or too dry somewhere. It is very possible we will get a decent short covering rally sometime soon, but will we be ready? Do you have orders in or at least discussed different choices in terms of HTA'S, futures or put options? Volatility is quite low right now, and options are very cheap relative to the last 3 years. We don't want to miss a chance at a decent sale in this "carry" market, as a $4.70 HTA or Futures sale rolled out could easily be $5 corn by next July if current spreads are any indication. Carving out extra nickels and dimes can make a lot of difference at the end of the year, so make sure we have talked about every way you can do that on your farm, and as always, examine your risk areas and plan accordingly!

Have a Blessed EAster on March 31st and join us in giving thanks for all our Blessings.

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
March 8th  : Monthly Supply/Demand and Crop Production
March 22nd: Cattle on Feed, April options expire

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