Clear Focus Hedging News and Views
January 2, 2025
“Strong Finish to 2024”
As we turn the calendar to a new year, it was nice to see a strong finish to the old year in terms of price for what we grow. Beans and corn have rallied to take out resistance on the charts as weather forecasts in South America have added some concern with heat and dryness in Argentina and Southern Brazil over the next 2 weeks. January and February are critical months for their production, and while conditions so far have been very favorable, some weather premium has been added this past week. Whether we can maintain strength depends on continued weather concerns or added demand as we approach the January 10th reports. Final 2024 yields and Quarterly Grain Stocks will be updated as well as normal monthly Supply/Demand numbers. A lot of numbers with major implications for prices going forward! Here is a list of items we will be watching:
- Final yields: higher, lower, or steady?
- Carry out projections: up or down?
- South American production estimates
- Demand updates: higher or lower?
- Quarterly Stocks: How much and where?
As we write early Thursday morning, our focus returns to our number 1 mission, which is risk management. Where is our risk and how much do we have going forward, and how do we manage it? Year end rallies are great, but are we taking advantage of them? Are we protecting what we have gained over the past few weeks? Are we rewarding rallies with sales? While the charts look good now, how will they look when we open today at 8:30, and more importantly when we close at 1:15? Last week we had a reversal lower in corn only to take that out this week which reminds us that weather markets can take out technical changes very quickly. Was Tuesday’s action short covering in light holiday trade, or the start of more strength to come? Consider the following when analyzing your risk/reward ideas:
- Will cash grain sales increase post-new year for cash flow needs?
- Will weather markets maintain risk premiums or sell them off?
- Funds are long corn, will money flow in or out with rebalancing coming?
- Is basis improving in your area? Or widening?
- The US $ is quite strong: will this affect export sales?
- Export sales have been quite strong, but will the sales actually be shipped?
The bottom line to us is once prices are profitable, we want to protect them, as we are still in a “defensive” mode until we have a serious threat to supply. Corn at this price level makes ethanol production about a break even, so to maintain production at these levels for any length of time requires ethanol going up or corn leveling off or both. Beans may have a story in the oil seed market, as overall supplies are tight, but so far the market seems comfortable with the numbers. Basis levels in our area have been stable, as it seems that enough grain is moving to satisfy demand which is good for now, but will that change as cash flow needs increase? This is the time to plan out and get some things locked down to prevent what happened last year. Maybe it’s a HTA contract if futures are good and basis is not, or maybe it’s a basis contract to guard against big movement of grain this month and potential basis weakness. Call to confer any of these issues and constructing a plan of action.
Here is what we are doing here on our farm:
2024 Corn
We like to reward rallies and did so last Tuesday with another sale. We are covered 100% with put/call spreads on all remaining bushels and will continue moving cash on good basis levels when offered and will be happy to move all grain this winter and spring. With the funds long, dollar strength, and the potential crop size in South America, we would like to transfer our risk to a long put/long futures position that minimizes risk over the next few months instead of holding cash grain. Interest costs (or benefits) are part of this equation on our books, as money markets in the 5% range add up quickly!
2024 Soybeans
We are 100% hedged with long March 10 puts/short November $11 calls and comfortable with making sales over $10 in March futures, and using the puts to buy March futures against if we break back after making cash sales. This limits our risk and provides cash flow for inputs or investments, which we like to add to our sales price
2025 Soybeans
Given all the factors facing beans, we felt like we needed to “start” by doing an HTA for next November at $11.00. We need to move some beans at harvest in a normal year, so having some on the books at this price seems like a good starting point. We will also look to sell far out of the money calls similar to last year on weather scares to add to our price if warranted. Again, these are only ideas, things we are doing on our farm, which may not be suitable for you, but it at least gives you an idea of what we are looking at, and we can talk about ways to manage these positions as market conditions change
2025 Corn
With the recent rains, early drought talk has eased, but certainly not completely gone. What we are hearing is the possibility of more corn acres at the expense of beans and the December 24/December 25 spread has narrowed significantly. We added HTA orders for $4.48, $4.49 and $4.50 in case we get there soon. These are sales of grain we may not be able to store if we have a good year, and we DO NOT pay for commercial storage or use “free DP”. We prefer to use those $ for futures and option positions that give us flexibility and profit opportunity.
In conclusion, we remain on the “defensive” as long as carry outs remain comfortable. We now have corn at prices that if yields were good, there is profit to be had. Making sales when prices are rallying can be difficult, but targeting a price that makes you happy and putting orders in can be quickly rewarded and quickly gone. Please do not get involved with ‘free DP” offers, they actually hurt all of us as once the grain is moved, there is less incentive to improve basis, and until we have a legitimate supply threat, will cost us all basis opportunity. Consider the risk: you still have all the downside risk, and commercials have less basis risk. Who wins? Not the producer! Call us for other ideas and ways we can customize a plan to fit your cash flow needs as well as protecting profits and prepare for the major reports on January 10th. Have a safe, productive, and Happy New Year!
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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
January 10th – Supply/Demand and Crop Production Reports, Quarterly Grain Stocks
January 24th- Cattle on Feed at 2:00 CST
January 24th- February options expire.
Mike Daube- 574-586-3784 or 574-910-3818 (cell)
Peter Schram- 317-910-1473
Allen Gard- 573-221-9234