Reader question about corn sales
5/12/2008

Q. I'm a Canadian farmer growing seed corn for Pioneer. I've been warned by them in my contract that there will be times during the marketing 2008 year that we will not be able to lock in our pricings of 2008 production because of the expected elevator malaise that happened with the Minneapolis wheat conundrum. The lack of liquidity from those small banks that used to cover their margins is no more, as this credit meltdown mortgage conundrum has put these small banks balances in jeopardy. They are reigning in all risky loans. So as a farmer, we will [get the short end of the stick] once again as the vagaries of this mortgage crisis has rippled down to us and we have to help pay for the corruption at Jurassic Park Avenue for their creation of monster CDO's.

What do you suggest that I do as a farmer? Do I flat out ladder in, in the money corn options, because I'm of the fervent belief that the corn pricings in 2008 will match the year they were grown in, and the ADM's of the world have ceased to allow a farmer to lock in 2009-2010 production due to lack of liquidity.

Ordinary folks have no idea the pricing of food is coming down the pike. How do I take advantage of 2009-2010 corn when I don't grow commercial corn, only seed corn, which gives me approximately a one year time horizon to sell on a year to year basis.

A. I see no change in the elevator position. They don't want the margin exposure and the end users they sell to do not want to buy high-priced grain. This implies the producers will have to be responsible for defending his/her price in the future. First off, there will not be an easy way to do it, and cash flow will be high.

I am working with farmers in the U.S. right now and, even with higher input costs, the cost of production for many producers who can produce a 200 bu./acre crop is between $3.80 and $4 with ALL COSTS included. When you look at 2010 at $6, this implies a current $2 overall costs working margin. This level of historic profit will not stand in agriculture unless we see crude oil extend to $200 barrel. Even if this occurs, the domestic and global economy will not be able to handle the strain.

My greatest fear: Over the next 24 months we move into a Stagflation-type economy that will force domestic and foreign governments to overreact. In the end, demand will essentially be killed, supply will increase, and the protection for producers will be reduced.

Bottom line: More than ever you, the producer, are responsible for your long-term future.

Option A. Get out now at higher land prices, count your money and move to a far off island.

Option B. Fight to control your current and future profit margin by working aggressively to reduce costs and lock up prices.

As I suspect, you want to choose the latter. I suggest the following:

1. Sell the most deferred contract possible even if it is to cover 2009 inventory.

2. Decide if you are going to be a “pure” or “selective” hedger. Because of the high profits being offered, focus on being a pure hedger.

3. If your choice is to be a hedger, you need to decide how you are going to handle a market rally.

a. Buy calls in lead month to defend deferred futures. While you offset your long-term loss exposure, you must understand you must meet all the futures’ exposure.

b. Sell futures in the deferred as suggested; sell 60¢ to 80¢ out-of-the-money lead month puts for the explicit objective of getting premium value decay. Please note that, if you can still buy the call, they should be considered separately.

General suggestion: In regard to selling futures, I would not really start pushing you to use futures until mid- to late June. If the market hits your price objective before then, buy 2009 puts with the objective of rolling into futures once you get into the late June to early July.

Finally, if you are able to sell the 2010 (say between $6.20 and $6.50) between now and July 4 and we get a decent correction (say 60¢ to 80¢s off the summer highs to the fall lows), you have another important decision to make during the August to October time period.

1. Since we are betting on the long-term low going back to $4 by the fall of 2010, don’t be overly eager to liquidate, but be prepared for a rally from the fall lows to the spring highs to buy acres.

2. Aaggressively sell puts to reduce the net delta close to 0.5 and then focus on buying calls in the July 2009 to defend against upside price strength when there is a technical breakout of overhead resistance.

PLEASE NOTE: I am currently working on putting these general comments into a seminar presentation I plan make in July. You are invited to attend. If you cannot attend, but you can get a group together and can pay for my speaking fees and travel expenses, maybe I can go your direction.

Bottom line: The numbers are going to be big and the decisions are going to be hard, but the pay off is tremendous. Good luck. I hope this helps.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Utterback: Prepare to be a Multiple-Year Seller 5/12/2008
Bob Utterback, Farm Journal Economist

The difficult start to planting is especially significant this year when we need excellent crops. This has not gone unnoticed by the trade; in fact, corn is at record highs and making new highs daily. The issue now is what’s ahead. Frankly, I believe we are in store for some very scary times!

One has to assume from Memorial Day weekend to the Fourth of July [a traditional time period of strength because of concern about weather’s impact on pollination] will have an even greater potential for price volatility. The conditions are set up for a perfect storm to hit corn and to a lesser degree beans like we saw this winter in Minneapolis wheat.

So what’s a producer to do? I strongly encourage all producers who have established short futures to consider rolling them into long puts, or if cash sales have been made, to buy calls against them from mid-May to early July because of the fundamental uncertainty.

With the market at $6-plus, my focus is on trying to get everyone mentally prepared to be major multiple-year sellers. Why? Simple economics: If we experience a significant price event because of the fear that national corn yield is going to drop below 152 bu. and force a significant amount of demand rationing, I believe several things will happen that will have a long-term impact.

* First, livestock producers will throw in the towel and start to cut herds across the board for chicken, turkey, hogs and cattle. While this will temporarily hurt livestock cash prices, it will set into play a price spiral that will drive meat prices sharply higher in 2009, and at the same time reduce overall feed needs for corn and soybean meal.

* Second, politicians will be forced to move to reduce food costs. It’s been my experience that, by the time the government is aware of the issue, discusses the issue, develops the policy and then implements the corrective action, so much time has passed that their policy shift becomes more of a problem than a benefit. My biggest fear is by the time we get into 2009 and 2010, the farm program benefits for the producer will not be what is needed and will put producers at extreme risk and at the same time reduce DEMAND and STIMULATE PRODUCTION.

* Third, I would suggest the U.S. dollar has reached a bottom and will start to gain momentum against other currencies. If that continues into 2009, we will see a pronounced impact on agricultural exports to the negative side.

* Fourth, overall, input costs have risen significantly. We all know they go down very, very slowly. The net impact is all the gains producers may enjoy this year and next could easily be given up in the future. A period like 1983 through 1992 could develop for producers where profit margins are extremely tight. If the cost of production is close to $4 and your cash price is $4.50, you’ll be making no more than when prices were at $2.50, but with a whole lot more money and risk!

Bottom line: I know it’s not going to be easy but you really need to push yourself in using all the tools available to get 2009 and 2010 sold if we experience a major rally this summer.

This article corresponds with Bob Utterback’s “Outlook” column in the upcoming Late Spring 2008 issue of Farm Journal. Read more of Bob Utterback's comments in his blog, Outlook Today.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

My concerns regarding corn, beans and wheat
5/9/2008

In regard to corn for all grain sellers and feed buyers: You must now become acutely aware of your risk exposure. I assume many of you have sold a considerable portion of 2008 and part of 2009 and 2010 at this time. I know your sales are hurting and it’s easy to simply ignore and hope the issue goes away, but that’s not a management style I would suggest in these markets.

You must have a limited risk exposure to your upside risk exposure from late May to early July. The market will get increasingly concerned that corn planted acres are not going to grow as desired and the potential for yield to drop below today’s USDA estimate of 153.9 are HIGH. In the end, carryover has real risk of declining below 500 million bushels.

Suggested action: Any new selling at this time should be for the next 30 to 45 days in long puts or short calls rather than a cash sale or short futures for the 2008 crop. This effectively gives you coverage, but ability to benefit from higher prices.

In regard to beans: I have to say I’m very surprised by today’s price action. The carryover increased to 185. Long term with more bean acres I really believe carryover is going to move closer to 400 plus for the 2009 season. I’m in the camp that prices have greater probability to move down to $8 than moving sharply higher. The trade disagrees right now and wants to put premium for weather and the continued unrest in Argentina.

Suggested action:

1. Get a $12 price floor under the 2008 crop is a valid selling position and defending with a $4 to $5 upside vertical call in the March 2009 contract.

2. It should be noted with all the acres coming in, you don’t want to sell off the combine. If you must, you really need to get the basis locked up immediately.

In regard to wheat: Today’s report confirmed that big production is going to occur domestically and internationally. The only thing now that can lift the wheat complex is if corn and rice continue to rally causing demand to be substituted to wheat. While this action is going to occur, the pressure of an upcoming harvest should keep price pressure on wheat during the month of May. The real test for the bear will be how the market trades as it tests recent lows. If we start to consolidate, the hope for $6.50 wheat could drop quickly. My concern looking forward is if corn and rice stay strong, the wheat market is going to have to fight for acres as it comes into fall. My suggestion is after mid-June, you might want to take off your bearish hat and become neutral to the market.

Suggested action: All hedgers in short futures or long puts should prepare to reduce the level of coverage as we move into June. If you are in at exceptionally high prices, I’m not really excited about taking off the hedge. You need to e-mail us on this one.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Corn moving higher on weather concerns
5/8/2008

The corn market moved sharply higher today under continued concern that close to 50% of the crop is going to be planted later than the optimum mid-May time period. As traders start to look forward to potential yield, impact discussions are already suggesting that with a 155-bu. yield, carryover could decline below 500 million bushels or just about what the market needs for pipeline supplies.

In addition to the potential for lower yield, the hope for increased corn acres to be planted due to higher prices is also declining. If we start off with harvested acres at 78.8, it really starts impacting the long-term carryover. A yield of 155 bu. gives just about a 12.2 crop with a potential 800 million lower than usage so carryover drops to 481 million bushel. That’s scary, but the real danger starts to show if yields drop down to last year's 151, you go back to 180 carryover, and heaven help us if we drop yield down to the six-year average trend yield of 147.

In summary: The market is getting nervous and reflecting it in higher prices. A breakout of the current consolidation range could drive prices significantly higher by month end if the rain continues. We are on alert to be a long-term seller, but we will not be extending coverage at this time. It’s time to sit and wait, but be talking to your banker and Utterback Marketing Services adviser about how you are going to take advantage of this potential HISTORIC PRICE EVENT to sell 2009 through 2011 inventory.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Grain Outlook
5/5/2008

Corn appears to be content to trade in a sideways trading band. The rains forecasted for the Midwest Corn Belt did not materialize as much as expected and planters are now starting to run full steam in the Central and Eastern Corn Belt while the Western Corn Belt remains behind schedule. The upcoming May supply and demand report is expected to be a neutral report. I continue to believe that weather will be the dominant factor. I’m already hearing about what’s going to happen if U.S. average corn yields are below 155 bu. Many in the trade are suggesting that if yields were seen below 155 bu. we could potentially see a carryover below 500 million bushels. This would set up a situation in corn much like Minneapolis wheat was last summer.

Bottom line: One needs to remain cautious in all selling strategies until mid-summer. Feed buyers should be aggressively protected for most of 2008 production needs and look to aggressively protect 2009 on any solid correction.

As for the bean market, it opened with a short term technical bounce but could not hold. The inability of November beans to hold the $13 level is not good. We would not be surprised to see a consistent lower price action all week down back to last weeks’ lows of $12.50. Long term beans are getting materially weaker. I don’t like what I see on the supply and demand balance sheets. Some are suggesting carryover will more than double in the upcoming production season with increased acres. If this were to occur, one would suggest the downside risk more than out weighs the upside. Overall, as a producer I would be leaning to get some protection in place. I like getting a floor in place around the $12 level and defend with a limited vertical call strategy. As for speculators I would rather be a call seller rather than a futures player. If however futures is your bias I would be a seller above $13 plus but risk no much more than 10 cents from entry.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Significant price moves in the market today
5/1/2008

We are now experiencing the new world of higher trading limits. This week we’ve seen significant price moves in beans in relation not to domestic issues but more in relation to foreign issues. The strike down in Argentina one day appears on then they fire a guy and the next day it’s off. With July beans down more than 60¢ you can more than likely guess which way the tone is today. I would expect the strike will start to fade from the market as a dominant factor by the end of the week.

As I look over the next few weeks I see two themes that will more than likely dominate. The first being the slow corn planting progress and the concern that more bean acres may be planted. The second is the talk that the dollar has bottomed. While this will not have an immediate impact on soybeans, I do believe it has the potential to have a negative impact on exports if we start seeing the dollar move above the 82 level.

So what strategy do I suggest right now?

I still like selling cash beans for $12 any time you can. For many Midwest producers you would have to look at the March 2009 selling time period. Once you get the cash sold, focus on taking, say, 50¢ or more, which reduces you to a, $11.50 floor and buy a $14/19 vertical bull call in the March 2009.

Let’s just think about what you accomplished. You have a floor around $11.50 cash with the potential to gain in value between $14 and 19 between now and March of 2009. I don’t have the solid cost of production figures, but let’s just blue sky and say that your total operating costs are now at $8.50/bu. If you can lock up a $3 net profit overall cost with a 40 bu. production you are looking at $120/acre for return to labor and management. I’ve been doing this for several years and I can’t recall when the market has given me this level of profit before the seed is out of the bag! So my suggestion is to take some stress off your shoulders, lock up your floor and give yourself a solid upside price potential and then focus on farming, which is what you really like doing.

End users and feed buyers:

You should have a problem now as we move into summer, especially for corn. I strongly suggest from mid-May to early July you should have 100% of your needs covered. In fact, you may want to consider increasing the coverage further into 2008 and part of 2009. I know everybody wants to wait for the August to October lows. This year the correction from the summer highs to the fall lows may be in serious jeopardy if we see corn yields decline much below 155 bu.

So right now you need to be on high alert: Strive to buy December corn between $6.20 and $6.05 by no later than mid-May. To lower the risk, you can focus on buying a put under the market and selling a deep out of money call. This essentially puts you into an artificial long call position cheaper than you could actually buy the call. Granted, it’s a more complicated position than just buying the call, but the premium savings is significant. The reason I don’t like a straight long position is I simply don’t trust the funds to play nicely. I could be right being long, but a few days early and be blown out of a futures positions before we really get the opportunity to see the risk of the summer weather event.

In summary: I believe end users and feed buyers are in a very dangerous risk time period. You need to be taking out some insurance now to protect yourself from a price move event in corn much like we saw in Minnesota wheat if corn yields decline much below 155 and acres are not increased over the March estimates.

If you need help implementing a feed buying strategy, give us a call at (800) 832-1488.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Reader question: What is your take on the corn market?
4/30/2008

Q. What is your take on the corn market? Next 10 days?

A. It's all about the weather. On one side of the issue, it’s wet and cold and producers are getting a slow start, which should keep prices very firm for this reason alone.

However, next week we should start to see planting progress. It’s going to be slow, but I have a strong belief a significant amount of the crop is going to get produced.

My expectation for the corn market is to see only mild setbacks (15¢ to 20¢) in May with 20¢ to 40¢ upside potential. The real risk of this market will be in June. If confirmation is seen that planted corn acres have not jumped and concern over corn yields start to develop for potential below 155, the market has no choice but to send prices higher to ration usage.

Long term, the real risk of the market is the end user (specifically livestock producers) who need a solid sell off in prices from the July highs to the falls lows, which may not be seen to the degree of correction that they need to keep their budgets in the black. I believe I’m pushing it in saying December corn can get back to the $5 level by fall. If it moves much below this level I anticipate the end users would be looking to attack the market like a dog going after a nice bone!

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Market higher on weather concerns
4/28/2008

Today’s higher price move was all about the weather. We are behind in the planting progress and the weather over the next two weeks does not look like it’s going to cooperate to make it easy on farmers to get everything in before May 10, which is a magic day for many producers. After that, if a significant amount of the Midwest crop is not planted, you will start hearing about cutting of the nationwide yield. This is not what the market wants to hear, especially since we are down on acres and demand so far is not really being rationed with higher prices.

The problem for the market, however, is we are at historic highs and it’s difficult to judge how bullish the market can move up before demand rationing occurs. With the funds involved in the market we know that prices can now exceed fundamental justification. While not on the front burner now, I suspect it will not be long after mid-May that many bulls will start saying we could potentially do to corn what was done to the Minnesota wheat market. This is sending chills down the back off all end users because they know in the present economy it’s going to be difficult passing along price increases to the consumer.

With corn, you have to bow to the pressure of higher prices because of planting delays. I still have faith in the American farmers’ ability to overcome problems and get the crop essentially planted before the end of May.

So this would suggest two highs. One on fear the crop is not going to get planted over the next 10 days or so, the other major high will be right before pollination in late June to early July if dry weather develops. My bias is you need to be moving close to 50% now on sales of 2008 and at least 30% on 2009 and 2010. I’ve been suggesting a put format rather than an outright futures or cash sale. If the market moves higher, I will be rolling up the puts daily and slowly increasing the percentages sold.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Some producers are planting corn
4/25/2008

Producers are starting to run hard as soon as the ground permits. I’ve just started to see planters run here in central Indiana. In talking to my local clients, a lot of corn is going in fast. If the rains hit Sunday through Tuesday, it will set us back. Next week’s planting progress will show the numbers behind, but it will also show some progress. As I’ve said before, I believed the market would have a high about five to 10 days before the planters really start to run. This is just about what happened. As for the low, I think it will bottom out after the May Supply/Demand report. You should be prepared for a low some time between May 15 and Memorial Day weekend.

As we move into June, if and when the market takes out the April highs, it should be considered positive. Overall, my game plan is to sit tight this week. Look for a little more correction to buy on and then go long sometime in mid-May for a price bounce into June. As for hedgers, my overall game plan is to continue to rollup puts that are in place. I would be pushing to sell old crop inventory now or be prepared to wait to late June to sell. As for multiple year sales, I’m suggesting if and when the market starts to push above the $6 level in 2009 or 2010 you have to start looking at a scale-up selling program.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Choppy price action
4/23/2008

Today’s action was choppy for the grains. The corn market opened higher from yesterday’s sharp gains, but could not hold; soybeans opened higher and remained firm in the old crop, but weak in the new crop.

The oil market continued its advance and pushed just below $120, natural gas was up 13 at 10.73, $7.60 at $922, which all continues to suggest commodity inflation is still alive. However, I am starting to pick up a lot of talk about how much longer the higher commodity prices can hold up before we experience a consumer revolt.

This eventually leads to the question of when the influence of higher prices is going to ration usage. So far consumers are not driving less and the economy is still plugging along. None of us like it, but we are not reducing consumption.

In regard to corn, we are hearing almost daily about how corn ethanol is responsible for all of the price rally. My concern for long-term support for the ethanol blending credit and export tax are to be renewed in 2009 time period are declining. So, yes, long-term demand rationing is taking place, but it’s not present today.

The concern over the next two months is really going to be about weather. We first have to get the crop in the ground and then we have to get it pollinated. These are going to be two very uncertain time periods to get through. My bias is that now is not the time to be selling futures because of the margin risk exposure, but equally now is not the time to turn away from $6 corn.

The big question is many elevators are now offering futures to arrive cash contracts with 15¢ to 25¢ charges. The advantage of going with the elevator is you don’t have to come up with the money to implement the decision. The downside is you give up flexibility and you are paying a solid premium for the right to be short. Which way you go really depends on how hard you want to work at trying to improve your selling price. Either way the key is to start getting a base under your production at these very attractive prices and then try to improve on your base price as the market moves higher.

Good luck.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Why are soybeans rallying?
4/15/2008

This is a question I am receiving from several producers right now. With the potential planted acres and increased stocks shouldn’t beans be headed lower?

Here are some things to think about right now.

1. The tone has shifted and if weather permits we will see more corn planted. This is still a weather play, however. By Friday, the fields will be just about ready to start working in. The market will be watching very carefully exactly how much rain we get over the weekend and next week’s planting progress.
2. Rowland one of our trading advisers came up with these interesting statistics. Argentina’s Ag tax has some very interesting implications on price. Soybeans are priced in tons, which is about $515/ton and the tax is at 44% or another 225.60, which brings total cost up to $741.60/ton or around $20.18 per bushel before freight cost. This effectively helps to raise the world clearing price.
3. The Chinese still have incentive to buy from the U.S. It’s currently reported on the Chinese Dalian exchange prices at $20.70 U.S. price. The freight rate currently is around $2.99/per ton. The nearby May futures are at $13.95; when you add on the freight rate, you get a price around $16.94. The bulls are suggesting there is $3 upside price potential in U.S. bean prices.

While prices are already historically high we have continued to have demand willing to buy our beans because of higher prices worldwide. The issue is at what price will the Chinese and other foreign buyers start to see true demand rationing? Everybody from here on in is going to be watching exports like a hawk. If they start to show weakness, you know prices will start to slip.

Marketing implication: Now is not the time to be net short the futures or cash. I really like selling beans at current prices because of my long term belief that demand will be eventually rationed; but, I simply can’t suggest you take the risk of being net short. This implies you either forward and defend with at least a $4 upside call strategy or you main maximum flexibility and buy a put and roll up and wait to sell cash when you are comfortable about yield. I continue to believe prices are going to start rationing usage and stimulating supply globally. The only issue is we don’t know how fast. Common sense tells us to start scale-up selling very hard over the next four weeks. If the market experiences a major weather scare in June and July, you can use the rally to sell 2009 and 2010 at a price in excess of $14 in beans and perhaps more than $6 corn.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Grain outlook
4/14/2008

Nearby, soybeans closed up almost 40¢ on the chance of frost in Argentina and the speculation that the quality of soybeans would be in question. Add to this a weaker dollar and most of the grain markets closed higher, while outside markets were mixed.

As for corn, if you look at the December corn chart, not much has changed. The gap made on April 1 is still critical support. Overall, speculatively I would be a buyer of any planting time correction; as a producer I believe you need to be scale-up selling because of the profit being offered. This is a classic case where the objectives of the speculator directly conflict with the objectives of the producer/hedger. This is why it’s important to decide what your objectives are when dealing with the market.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.

Overall, carryover in corn came down as everyone expected. When you combine this with wet weather, the what if’s begin to surface. At the same time, we all know the funds like a bull. I would not be surprised to start seeing active buying of corn and selling of beans and wheat in spread relationships. As for how high can we go, right now I would continue to suggest July corn will find it very difficult getting much above $6.25. Are higher prices a possibility? You bet. The only problem is the higher we go now, the more long term problems we will cause ourselves. The talk about corn ethanol is already a serious storm of protest. If we take corn above $6.50, I will assure you it will move up to a gale force wind to change government policy in regard to corn ethanol. This all suggests the biggest risk is for producers of 2009 and 2010 production, if we get the deferred contracts into the $5.80 to $6.20 price range.

Overall, our bias is for the market to continue to improve in price prospect until the concern over spring planting dissipates. I’ve been telling clients the high more than likely will be in about five days before the planters start to run from Ohio to Illinois. So you must trade this market like a weather market. If you are long, you want to let profits run, but maybe start looking at placing defensive stops or long puts below the market at critical support levels. If you’re a producer, you really need to start a very aggressive sell-up selling program. My bias is you place stops below the market as your target prices are reached and adjust up daily if we rally. I fully expect this price action will end in violence rather than a calm top! So, waiting for a top to be made and then selling will be a difficult way to go.

The recommendations and opinions contained herein are based upon information from sources believed to be reliable. However, that information may be incomplete and unverified. There are numerous factors that can affect the markets, which cannot be fully accounted for in the preparation of these recommendations. Those following these recommendations do so at their own risk. The firm and/or customers of the firm may take a position that may not be consistent with the recommendations herein. Any recommendation does not constitute an offer to buy or sell or the solicitation of an offer to buy or sell any commodity interest. Commodity trading involves risks, and you should fully understand those risks before trading.