CFGAG News and Views          vol. 31      February 1, 2012

"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."

"Let the Battle Begin!" 

We lead off this month with a quick glance back at the January 12 Reports from
USDA, and once again, the trade was caught leaning bullish corn and bearish
beans. Corn traded limit down early, and stayed there for most of the day.
Beans traded down over 50 cents early, but came back to finish well off
the lows. Were the numbers that bad for corn? Not really, but expectations were
for much lower stocks and yields, while one could argue bean numbers were well
anticipated, and have rallied nicely off those lows. The last two weeks have
seen all grains rally only to sell off on Monday, January 30. All we have to do
is look at a chart of the Euro, and we can see what market is driving grain
prices, as the chart of the Euro is almost a carbon of the corn chart. So much
for South American weather, which by the way is now seen as favorable overall
for Argentina and Brazil. Yes, there are still some pockets of problems, and
there has been some permanent damage especially to early planted corn acres,
but for the most part, weather is no longer a lead issue. What can drive prices
higher? We list some possible factors:


1)Tight producer holding of grain, strong basis

2)Long term weather concerns in the US.

3)Demand at this point remains strong

4)Good export sales on any break so far

5)Possible agreements on Euro debt issues

And for the negative side


1)Weather market appears to be over in South America

2)Warmer than normal winter equals less feed use?

3)Debt issues in the US and Europe- still no definitive resolution

4)Without blenders credit, ethanol margins look slim out into the summer

5)At the high end of recent price range, many end users of corn unprofitable,
crush margins for beans weak as well.

What seems to be developing is simply a trading range. We can see clearly on the
chart of March corn that so far, the $5.75 low has held, and the
most recent low after the report was 5.93. We have not been able to
trade above 6.51 1/2 price that was the close on January 11. From
that observation, it would seem reasonable to look at cash sales of old
crop corn in the 6.40-6.50 area, as long as basis is strong. Every
day that goes by brings us closer to a new crop, and there is plenty of
wheat around the world to substitute. We all know markets can do anything, and
China can always rock the boat with some new purchases, but examining the
risk/reward at this time pricing some grain at the high end of this range seems
prudent. Selling strong basis is always prudent, as one can always reown those bushels
on paper if bullish developments warrant, but selling cash now
when "everyone else" is holding, may work out well. Watch
the condition of the grain you have in storage, as the warm and moist
conditions we are having here are not the best conditions for stored grain.

Oldcrop beans found some resistance around 12.30 or so, so a move back into
the 12.20's should also be considered if basis is good.

For new crop corn, we are still looking to protect a price near 6.00
if we can get it. Today starts the price calculations for crop insurance,
so keep an eye on the close for December corn and November beans. The
higher we can sell above the average price for February, the
lower our "deductable" is for net farm income. New beans around
12.20-12.30 area may also be a good place to start.

We started a new feature last month to help "track" some
options and their premium cost. These are not recommendations, just examples of
some strike prices with corresponding futures month prices. By looking at these
every month, we should get a feel for time value decay, as well as some sense
of volatility depending on price action. If you like this, or want more, let us
know. You can always get updated information by calling us, but this should
give us some historical reference to look back on through the year. With each
newsletter archived, you can follow these price relationships all year long.

From  the technical side, we have the following numbers from our computer to consider:

March  Corn               Support                Resistance

                                 6.14                      6.54                                                                    

                                 5.90                      6.80

                                 5.66                      7.06

Beans              11.26                    12.56

10.75                     13.12

                                10.22                     13.71                               

In conclusion, we look forward to the long awaited "battle for acres"
arguments that will come in the days ahead. We will hear predictions of
drought, flood, disease, and insects that have not even hatched yet. We will
debate the issue of corn on corn acres verses a return to more even rotations
in Illinois and Iowa where yields on continuous corn have been a problem the
last two years. There will be lots of "talking heads" with warnings
of much higher prices, and many more that will predict gloom and doom for
commodity prices as Europe plunges into recession, and drags us all down with
them. We also will be reminded that world population is getting bigger, and
more folks world wide are entering the "middle class", and will want
a better diet than in years past. As for the weather, sitting here on January
31 in Northern Indiana with the thermometer reading 58 degrees, Im not sure
what to expect. I remember one year ago today, we measured 20 inches of snow.
The shoveling today is much easier, and my heating bill is almost unbelievable
for the winter so far. What we see every year are extremes, and the only
constant is that farmers will deal with whatever comes, and produce all they
can. I would bet that there is already a lot of equipment being prepared,
planning being done, and details being firmed up so that the first good day,
seeds will go into the ground. I have learned over the years to have confidence
in farmers as we work as late as needed, and do whatever it takes to produce
big crops. For that reason alone, I will be patient and hope that the
"too" season, the worrying of the market sooth sayers, the weather
bulls et all will give me a shot at 6.00 corn for my new crop.
But...........the closer we get to March 30, the more active in price
protection I will be. If you need any ideas on marketing, or want to do some
planning, we are available to meet and provide some possibilities.We are also
connected with some cash marketing programs, as well as some good crop insurance
people to assist as well. We are only a toll free call away!

Important dates to remember:

  • February 9th Supply/Demand Report
  • Weekly Export Sales every Thursday
  • Month of February= Crop Insurance prices set
  • February 23-24 USDA Outlook Meetings
  • Februarry 24 Cattle on Feed Report

Mike Daube      888-391-6330

Allen Gard       800-205-1700