CFGAG News and Views vol 9               April 1 2010

 "There is a risk of loss when trading futures and options. The thoughts and opinions expressed in this article are those of the author, and while believed to be correct, are not guaranteed as to accuracy or content. Past performance is not indicative of future results, and each individual should examine their own risk capital carefully before trading."
"Cards are on the Table"
     The long awaited Prospective Plantings and Quarterly Grain Stocks reports are now behind us and USDA has their cards on the table. We got slightly friendly planting numbers as compared to expectations, but stocks numbers were anything but bullish, especially to old crop beans. There seemed to be a feeling in the trade that our carryout would drop dramatically in beans,  but that was not the case, and in corn, those expecting an increase were right. The big question was how the trade would handle these numbers, and old crop beans led the decline to close 33 cents lower in the May, with May corn down 9 1/2. Traders long the July/November spread were punished today, losing 22 1/4 cents on the day. Clearly the trade was leaning long old beans short the new crop, not unlike what we saw in the corn market last January. Everyone that had sold or were protected with futures and options are smiling this afternoon, and those with lots of grain to sell yet want to know "will it come back?".
     Now that the dust has settled, we can now look at our laundry list of thoughts and questions to think about and develop a plan. It is generally a good idea to get past the emotion of the day, take a deep breath, and focus on what we know as of the close today.
1) Barring anything completely crazy, we will not run out of corn, beans, or wheat. Supplies are plentiful enough for demand.
2) Planting intentions as of March 1 can change due to weather and price relationships. Most expect corn and bean acres to increase if weather is favorable.
3) Weather is still very important, just ask those folks who still have corn to harvest from last year, or those that have rutted up fields to repair before planting this year.
4) While plentiful now, corn supplies are not excessive with todays demand.
5) Most end users of grain are now profitable, something we could not say a year ago.
6) The pain of last years drying costs for corn may limit the planting date for those wanting to plant corn. Ask me about my LP gas bill from last year!
Major questions as we go forward include:
1) Will we get good planting weather? A good April usually means more corn.
2) Will end users step up and increase coverage? Will we soon hear of expansion in the livestock industry?
3) Will China have enough grain to feed a growing livestock industry?
4) How much grain must U.S. farmers sell and how soon?
All of these points and more can lead us to making some decisions regarding old crop grain as well as new crop. Remember the most important thing is to sell good basis, and we may see that get better as fieldwork begins and prices on the low end of the range. Anything in the bin can be re owned, but bad basis cannot be recovered. For those who have puts on, there are many ways to use them, including rolling down, exercising and rolling, or just taking some profit to add to sales later. Call us for specific ideas on sales and reownership, or some targets for new crop sales and protection.
     We also want to address an issue that comes up every year, that of "free DP". Let there be no confusion here, I hate the program. As we see it, there is only two benefits to the producer, that being able to move grain when convientient, and not having to worry about quality issues later. I dont know of any machinery dealer that lets you use an implement for months without paying for it, why should we let our grain be used for nothing? Let me be more specific on the negatives:
1) You have all the downside risk of futures price and basis declines.
2) You are counting on the elevator or ethanol plant being financially solvent. (Ask me about my experiances here in 1991)
3) Once the elevator or plant has the grain secured that they need, bidding up is no longer necessary
4) More gimmicks, like paying a premium now to get more new crop committed for later relates to number 3 above
5) You have one hope, that this years crop will fall short, and no plan on how to deal with the erosion of price and or basis if it doesnt.
Call us to avoid this trap, "free DP" is not free. There are risks involved that are manageble, and you do have other options.
     In closing, I want to refer to the last sentence above and take it one step further. Marketing is not free either. One must either invest the time and effort to do a good job, or pay someone to help cover the areas of need. There are plenty of services out there that claim to be "only interested in your well being". Most grain buyers I know are good people, they do take an interest in the foks they do business with, and often are good sounding boards for ideas. In reality, they are trying to buy grain as cheaply as possible, as their profits depend on the margin between bid price and sale price, and storage to capture carry. We as producers need them to be in business to buy our grain, but also must look at our own situation as individuals to see if we are giving up too much. As always, we are available to discuss your situation and share some ideas that we have to see if they fit your business plan.
Our technical targets for prices updated today are as follows:
November Beans             Support            Resistance
                                      8.80                 9.67
                                      8.69                 9.79
                                      8.50                 9.98
December Corn                 3.70                  4.27
                                     3.63                  4.35
                                     3.51                  4.47
Have a great start to planting this month, and call us if we can be of service!
Mike Daube   888-391-6330
Al Gard        800-205-1700
Ron Reed     877-304-2460