Marketing for those who cannot predict the future

first_imgShare Facebook Twitter Google + LinkedIn Pinterest CornBrazil’s corn production loss estimates are fluctuating between 200 to 400 million bushels. While this may sound high, it is actually helping to ease some large carryout concerns. Estimates are showing the U.S. will likely have the largest corn carryout in the last 10 years come August. This hasn’t happened since before the 2007 ethanol mandate, which coincides with the last time corn traded below $3 for an extended period.Adding to the mix, China continues to be a wildcard in terms of storage and carryout. Estimates of China’s corn storage levels range between 4 billion by the USDA to 9 billion bushels by some Chinese firms. Also, there continues to be rumors of quality issues with the stored corn. China may have to export some to blend off lower quality corn and replace with fresh inventory this fall. All these unknowns make it difficult to be bullish corn without a weather issue.BeansBeans continue to trade wildly as questions regarding production issues in Argentina circulate. Regardless, Argentina is sitting on the largest bean supply carryout in the world, so there isn’t a supply problem on paper. These production issues only represent about 20% of last year’s beans in storage in that country. The U.S. bean supply is still burdensome. We face the largest carryout in over a decade. Even with fewer acres than predicted a month ago, trend-line yields would create a situation that doesn’t warrant current prices.Funds have been on a buying spree, which may be what is supporting higher prices right now. This seems similar to last July when corn prices rallied quickly on fears that didn’t match the bigger picture. The $10 beans of today may be the $4.50 corn of last summer, where only 4 months later corn was trading at $3.50. Time will tell.Market ActionEarly this week I was concerned this recent bean rally may be short-lived (similar to last year’s corn rally), so I purchased 9 Nov puts for 10 cents on 40% of my anticipated 2017 production. These expire in late Oct, but I’m using them for the 2017 crop. This position provides unlimited upside potential (less 10 cents) and peace of mind that I won’t take less than $9 for some of my 2017 beans (again for 10 cents).While I hope I lose all the money I paid for these puts (because that means values stayed high), I wanted to be sure to put protections in place to reduce my farm operation’s risk.While farmers have a tendency to be optimists (i.e. prices will go higher), It’s important to remember things can always get worse. Right now the best outcome for prices would be a drought. Unfortunately, a drought usually hits southeast Nebraska (where my farm is) the hardest. So, for me it’s a catch-22 (price vs. yield). That’s why it’s important to put protections in place against all scenarios because no one can predict the future.Jon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at jon@superiorfeed.com.last_img

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