CFGAG News and Views           vol. 24      July 1, 2011

"There is a risk of loss when trading futures and options. The thoughts and opionions in this article are those of the author, and while believed to be correct, are not guaranteed as to the accuracy or content. Past performance is not indicative of future results, and each individual should examine their own risk capital carefully before trading."

Another Shocker!

Maybe not, as the June 30 USDA reports once again led us to a limit move in corn, which has become the "norm" the last few years. There is no use spending much time going over the news, but simply summarize it as this. The USDA "found" 370 million bushels of old crop corn verses expectations, and also found we planted a lot more corn than the trade estimated as well. Carryout projections are now around a billion bushes, a far cry from a few months ago when some had us under 500 million. It is not hard to explain the "find" of old crop corn, as we have been concerned about those numbers since last fall when corn was being piled outside before harvest began, and basis showed no extreme tightness of supply. What is difficult to understand is the increase in planted acres and harvested acres. As we referenced last month, there was about 13 million acres of corn to be planted on June 1. Did we really get all those acres in the ground? States like North and South Dakota showed big increases in corn planting just a few days after a State FSA director in North Dakota claimed that 6.3 million acres of cropland in that state would not be planted, about 25% of the total cropland. Even Ohio, the state farthest behind schedual because of constant wet weather showed a small increase in corn acres.

Since the report was issued at 7:30, we have received numerous calls and complaints about USDA, the Board of Trade, Hedge Funds and you name it. There are countless theories of "scheme and device" being thrown about, and many emotional words attached to them. While we can certainly understand the question of plantings here in the eastern belt, there is one fact that stands out, and it may not be popular. But we say it anyway. If we practice good risk management, buy crop insurance, arrange price protection according to net farm income goals, and pull the trigger on sales at good prices, then what happened yesterday does not matter. We can waste precious time and energy crying foul, even if there is good reason, but until a resurvey or new game changer, we live with what they give us. Here in Indiana, it was simply the worst spring planting season I can remember. There are still some fields not planted, and some that should be replanted, but won't. We finished planting beans here yesterday for the "first time" as the wet holes finally supported the weight of the drill. It was very difficult to sell anything, but a plan is a plan, and having enough corn sold above $6 and beans above $13 to pay bills and live on gives comfort on report days. Right now, after a few weeks of more favorable weather, side dressing done, and things look much better, but still a long way to go before we can put grain in the bin.

We need to remember that the Feb. average price of corn at $6.01 is still a good target to sell at or above if we get another chance. Selling below those averages reduces our revenue projections made in the spring. Keep that in mind when looking at sales or price protection as we move through summer.

Soybeans on the other hand, had a decrease in planted acres of 1.2 million from expectations, and should be the first grain to find support. We have a lot of August weather to deal with, and we should find good buying support on any breaks until we get a better handle on the acres lost to flooding, double crop planting conditions, and weather forcasts in late July and August.

With the big selloff yesterday, and more weakness overnight in corn, we need to take a glance behind, and then focus on forward. For months we have known the "bullish" arguement, and tried to point out the other side, identify risks and potential market movers to the downside. It is ironic that we now point out that the "bearish" side is very well known, the reports yesterday has that side very clear. We certainly have more downside risk from here, as no one can tell how much fund liquidation is yet to come. What we do know is that liquidation will end at some point, and end users will decide when and if they want to own more grain. So, with all the "bears" loaded up from the reports, are there some reasons to be bullish at some point? Heres a quick list:

1) Planting intentions and actual plantings may be very different

2) There were 13 million acres of corn to plant on June 1. When will this crop pollinate, and how long before the first frost?

3) Weather looks good now, what if........................???

4) It looks like the rumored China corn purchases were confirmed this this the start of a big buy, or the end?

5) Many acres were planted in less than ideal conditions, and excess moisture could spell nitrogen loss down the road. Did we see that last year?


There is a long way to go before harvest, a lot longer than last year when crops were much ahead of normal, but in no way do we want to sound overly bullish. The numbers yesterday were not good for corn, and we simply offer reasons we could rally and still achieve some of the origianl goals of 6-6.50 corn sales. Volatility will be with us a long time, we just need to have a plan and execute it when emotions run high. Market prices are driven more by money flow, and eventually if end users are profitable. It appears that $6 corn caused some rationing to take place, and $7 is simply to high. Keep that in mind when preparing your plan.

As for hedging ideas, the same basic strategies we have been using all year are still valid. We still think corn over 6 is a good price, and worthy of consideration. Beans are still in a range of 12.80 to 14.20, and seem to be content there untill something changes. Sales in the upper end of those ranges are still good targets.

From  the technical side, we have the following numbers from our computer to consider:
Dec Corn                Support                 Resistance
                                 5.72                      6.15                                                                    
                                 5.46                      6.51
                                 5.05                      6.90

Nov Beans                 12.57                     13.42
                                12.29                     13.71
                                11.75                     14.00                               

In conclusion, it is really hard to take the calls from good folks that want to kick themselves for not selling more before the report. When everyone is bullish, and we get some numbers 3 weeks ago in the WASDE reports that say one thing, and then the numbers  yesterday totally refute that notion, it is even harder. As stated earlier, if complete risk management of the crop is planned and carried out with crop and price insurance, then those events are non-events, just good fodder for chatter over coffee. Yesterday, lots of people lost lots of real money. Was it preventable? Does it mean its not coming back? The next 60 days will have a lot more to say than yesterday, we have seen many "game changers" in the last few months alone. Remember last year when everyone was bearish until the Russian drought news was played over and over, how the world was running out of food and rioters ruled the streets? How many days of "hot and dry" would it take to make yesterday a forgotton blip on the screen? Again, with a plan for profitability, and execution of said plan, it really doesnt matter. Call with questions and ideas, we love them both, and take a few minutes to celebrate 235 years of existance for the greatest country in the world on Monday. Many have sacrificed so we may have this opportunity to live and prosper, and a salute of the flag for which our nation stands, under God, let us thank them again.

Mike Daube      888-391-6330
Allen Gard       800-205-1700