Making an informed marketing decision requires knowing what bulls AND bears are looking for in price action. We’ll share our key thoughts on each market – followed by a verdict. So… grab a cup of coffee and let's dig in and sort it out...
CORN
Karen’s Thoughts: Just two months ago corn charts looked UGLY – with little hope for a recovery. But, change appears to be in the air now. No one expected exports to come on like gang-busters and rise above last year’s level - yet they have done just that. Uncertainty over South American corn yields due to drought conditions prevailing in Argentina could continue to stimulate trade attention for a few more weeks as well. But the big wild card that could impact corn prices is money flow. Commodities are gaining more attention in the world of finance and investing, and corn is something people relate well to… especially on a political level with ethanol. It’s interesting to see how a few weeks of time can change an outlook – now corn suddenly appears to have a chance to eat through the supply levels that looked impossible earlier, and money has been chasing it. Funds are VERY long futures now. Obviously corn prices can see a lot of potential up – or – down movement ahead, but this market has proven the ability to attract money and speculative interest. Scott’s Thoughts: A fresh round of export data from USDA featured another impressive weekly total as more than 1.3 million metric tons of corn was sold. But the real challenge on the corn export pace comes in next week’s update, as the daily export news reports have dwindled in recent days. That suggests that while buyers stocked up on supplies when futures dipped in January, corn demand may prove lackluster now that spot futures are back up toward the $2.20 area. If my assumption proves accurate, it would likely translate into a range-bound market. Price gains beyond the recent highs in March futures would attract farmer selling and push futures back down. A dip in prices back toward the January lows could easily attract fresh foreign buying (and shut off farmer selling) to inspire a price recovery. This is an admittedly simple view of the market, but I suspect it could dominate trade for much of February unless the index funds or pre-mature weather concerns can somehow inspire more buyer interest than I anticipate.
Our Corn Verdict: Get your targets in place now on your 2006 and 2007 hedge coverage! We’ve been enjoying gains on the reownership strategies we executed a few weeks ago for clients and our plans are in place to harvest those gains. Call Karen or Scott at 1-800-262-4643 to get your marketing plan rolling.
SOYBEANS
Karen’s Thoughts: It’s almost amusing for me to read all the negative “talk” about beans this year. In the right circumstances beans can turn into the “hot” market for trade attention and easily find reasons to move fast and furious in either direction. It’s also the market that can turn attitudes 180 degrees in a flash. It isn’t always what you see on the surface either – rallies tend to fly out of nowhere. Don’t think I’m getting all bullish over beans at this point – I’m not. What I’m attempting to do is to get you to think outside your box – let go of the emotional grip that comes with owning the product and take a “big-picture” look at what this market “can” do in the months ahead. It’s time to buckle down on marketing strategies and find potential price targets. It’s time to take advantage of moves up as hedging opportunities. It’s easy to put your head in the sand and believe all the “talk” about how prices “can’t” move up or give you pricing opportunities this year. Scott’s Thoughts: While weather concerns and sluggish export demand have been “the” featured talking points in the bean market, I think we could soon change the market focus over to farmer selling. I’m beginning to hear from a lot of farmers who are realizing that beans are very expensive to “sit” on – especially if they are stuck with a commercial storage bill. With March rent checks coming up and input expenses looming large, they need cash flow! That’s traditionally why we see a February break. I’m not saying beans are condemned to trade lower. But to avoid a break, this market will need a steady stream of bullish news from South America. Any hint of a normal crop could rapidly put the market’s focus back on farmer selling, big carryover and the threat of big acreage increase. Bottom line: Make sure you have your sales targets and game plan laid out in beans. Some additional price gains are possible, but make sure you aren’t getting more bullish as prices rise.
Our Soybean Verdict: The volatility we have been predicting is here! While that can be frustrating to bulls who want to see a “straight up” market, this volatility actually opens up doors of opportunity. We continue to rebuild reownership on old-crop inventory in bull-call option spreads after cash sale targets were hit in early January. If you are sitting on cash bean supplies, keep in mind that bull-call option spreads can be built cheaper than the cost of storage. Call Karen or Scott at 1-800-262-4643 to work on strategies.
WHEAT
Karen’s Thoughts: Ahhh… the power of a weather market. Just when it looked like wheat futures “had” to have topped out and the fundamentals “couldn’t” support higher prices – weather takes precedence. But keep in mind that as we get deeper into this weather market, volatility can increase more than expected. A growing concern that the current weather pattern is here for a long-term event has traders nervous about winter wheat prospects into spring. Keep an especially close eye on Kansas City wheat futures, as that market has seen record levels of trading volume and open interest over the last year. K.C. wheat is the center of trade for the southern belt where the weather attention is concentrated. Scott’s Thoughts: Fresh fund buying, potential export demand and renewed drought concerns spurred wheat futures higher once again in recent days. The challenge now, however, is to find enough demand at that price level to keep USDA from dropping the wheat export forecast in the February 9 Supply & Demand Report. Cumulative export bookings for this marketing year stand at 80% of USDA’s forecast. That sounds pretty good – except that the five-year average for this week is 85%. Bottom line: The U.S. is pricing itself out of the export market, meaning traders appear to have a sizable weather premium priced into futures.
Our Wheat Verdict: Southern Plains weather problems have sparked gains in Kansas City futures, but the support has also spillover to all wheat varieties. This is setting up a great opportunity for wheat producers who aren’t struggling under the rough weather situation. If you still have the potential for a good wheat crop this year, make sure you call Karen or Scott at 1-800-262-4643 for strategies to take advantage of this volatility.
