Clear Focus Hedging News and Views
June 1, 2024
“Rally’s Come and Go ”
The month of May has been interesting, as we came into the month with a really good start to planting only to see widespread rain bring progress to a halt in many areas, and in the most extreme cases, bringing in some replanting necessary. Some areas are still struggling to get the planters into the field for the first time, and producers there wonder how we could sell off last week after the rally the previous week when it looked like we would not get the bulk of this crop in the ground “on time”. Monday’s crop progress report did not cooperate with those thoughts and reflected a near “normal” percentage of the corn and soybean crop planted, and enough of a window to complete the process in a timely manner. Did we really catch up that fast, or were the numbers lagging to begin with? Hard to say, but the bottom line is that trader “perception” seems to be that we will finish, and we now have ample moisture to get this crop off to a good start, able to withstand some summer dryness issues, and still be more than adequate to meet demand. Maybe? What could shake up this mentality?
- Threatening weather in other producing countries.
- Changes in world numbers in the June 12th Supply/Demand and Production numbers
- A weakening US $
- A change in our weather forecast is going into the critical reproduction phase.
- Possible surprises in the June 28th Quarterly Grain Stocks and Planted Acreage Reports
There are issues in Europe and the Black Sea Regions that are concerning, and the wheat market rally certainly reflected those concerns with a big rally that seems to have stalled out. Crop conditions will be posted for the first time this season on Monday, and it will be interesting to see what the numbers are, as the trade seems to think they will start out quite high. If you have been following our writings over the years you know how we feel about these reports, but they are numbers that traders use to decide whether to buy or sell, and we must respect that even if we don’t have much faith in them as truly indicative of final yield potential. Keep an eye on the trade expectations, and how the actual numbers compare when released at 3 pm central time.
Looking forward to the June 12th reports, we will be watching the following:
- South American production numbers: still a wide variation between the privates and governments
- Demand updates: ethanol continues to be solid, corn exports decent but beans and wheat lagging.
- US production numbers: will USDA make any adjustments?
- Carry out numbers for both US and the world
USDA does not usually change production numbers much in early June, but with the talk of switching corn to beans in some areas, or even some possible prevent plant as well, they could, so we will also be watching those as well, but the bottom line is carryout. Just how much “weather premium” is necessary at this point in the season. These numbers and the forecast going into July will drive the price discovery. In the meantime, here are our thoughts on marketing
Old Crop Corn:
We remain sellers on rallies, as we fear waiting too long to price old crop could be costly, as we will still have about 2 billion bushels on September 1st, and with new crop harvest starting, a decent crop may well bring the funds in selling and we could be looking at depressed futures and well as wide basis. The most recent rally in futures resulted in a weaker basis as funds bought back some short positions, but farmer selling was more than enough for the demand that was there. We like selling and using options to re-own if desired, simply lowering the risk to the premium paid instead of unlimited risk of continued storage with no floor. Buying some puts on sharp rallies can also work, if basis is undesirable.
Old Crop Soybeans:
We are sellers on any good rally, and hope last week’s turn lower can be reversed, but our confidence is low. We are not competitive in price with Brazil and Argentina, and they have beans to sell. The flooding in Rio Grande du Sol probably put the breaks on selling, but the strength in the US $ has also limited our competitive posture. The same idea for corn works here as well, we don’t want to wait to long and have wide basis and no rally in futures. Limiting risk to an option premium makes sense to us instead of holding out in this environment.
New Crop Corn:
We have been aggressive sellers via HTA contracts along with futures and options on rallies, making sure we at least have a price that makes a profit. We continue to suggest having orders in at levels above 4.75 December and own call options if you think we have the potential to fill the chart gap at 5.02. For the same reason as old crop, we do not want to wait too long, remembering how the funds went to a record short position not that long ago, and grain that must be moved at harvest presents the greatest risk to the bottom line. We do not want to be faced with the decision to sell at low futures prices along with a wide basis or pay storage that rarely if ever pays. Once the grain is in the hands of the commercial, they have no incentive to bid up.
New Crop Soybeans:
We are now fully sold via HTA contracts and futures contracts above $12 and are comfortable with those sales, and will only buy call options if the price action turns positive. We do not want to spend anything unless the landscape changes, like weather, government reports, or a weakening $. If so we would use the cheapest nearby, or at possibly ones that cover the time of critical development.
Following up on our sale of the $14 bean calls that were sold for 44 cents on October 31, the close Friday was 7 7/8 cents. We will put in orders to buy them back at 4 cents, and leave them there unless anything major changes.
In conclusion, we had a nice rally to sell into, and many did. We could easily have more if any of the above-mentioned items bring friendly surprises, but until the trade believes there should be more weather premium put in, we may be in a range where the highs are in for now. Charts turned negative yesterday, and we hope that we can recover next week, but hope never paid any bills. Put options are not unreasonable if you want to lay off some risk while holding for a rally. All we can say is we remain defensive this year given the carry out levels, trade issues and a US economy that has some problems as well. Our focus is on profit, and while not as good as we would like, is still profit, and far better than where we were just a few months ago! Fly the US flag proudly on the 14th, and every day to remind all your neighbors that even with all the bickering and political chaos, it is still the best place to be. If not, why are all these people trying to get here?
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Dates to remember:
Every Monday – Export Inspections at 10:00 am CST
Every Thursday – Export Sales at 7:30 am CST
Every Friday – Commitment of Traders Report at 3:00 pm CST
June 12th – Supply/Demand and Crop Production Reports
June 21st- Cattle on Feed at 2:00 CST
June 21st- July options expire.
June 28th- Planted Acreage and Quarterly Grain Stocks
Mike Daube (574) 586-3784
Allen Gard (573) 769-4193
Peter Schram (317) 910-1473