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For corn, 2009 a 'love-hate year'

Agriculture.com Staff 12/31/2009 @ 1:23pm

Corn: 2009 was a love-hate year. From a production standpoint, for some it was the "crop that could have been" while for most -- it was a "miracle crop" with many clients saying there is either "a great God" or "wow these genetics are incredible" and a few saying both. For marketing, it was a year where people argued all year that the market needed to move to 560 to retrace last years sell off from the 800 high in 2008 but that never happened.

The economic collapse damaged the ability for demand sectors in livestock and ethanol to pay up and the improving crop following the late planting season was enough to cap rallies. As for a marketing year it was actually fun. Most client's employed a BOX program that locked in a minimum price around 400/440 and a maximum price around 500/520 (variations of this as every client puts on positions on different days/weeks).

We did not spend much. We were all ready to start selling cash and futures in the 500-560 area when we "got the big rally" everyone kept advertising. But in the end the market never rallied and those minimum prices we had locked in paid out. All in all it was a low stress marketing year until the last 60 days of the year when fund buying came out of no where and ran the market up. This was a wake-up call to the effect excessive speculation can have on our markets when commercial abilities to use the futures for delivery are not in balance.

This brought a new debate in Washington to the forefront. 2010 will start bullish with rebalancing and then it will be the year for big announcements. The CFTC will announce their direction on position limits and speculation. There will also be ruling on OTC derivatives that will likely include Ag contracts. The USDA will debate CRP policy. The EPA will announce their decision on E15 blend, RFS-2 and define carbon credits. Economically, it will be the year where the market debates whether hyper inflation (+6%) or a modest 2.5% will rule. As for corn, it will be the year we all hope that the livestock sector recovers, the ethanol sector gets 15%, and the export market can catch up. AS for the market...all indications are end stocks will be relatively flat in the 1.6 billion area.

That is not excessive and thus weather will be critical. Barring a weather adversity, we think a big trading range will continue. But if there is a weather adversity, then the market should exceed $5.00. That means that a marketing program that provides you a floor while keeping the upside open is advised. Take a look at a 450 floor with a put. According to this chart, the blue line shows our 450 floor at a really great price. As can be seen here there were only a handful of days in which the market traded high enough to put this hedge on. Two red lines are also on this chart each showing the options we want to sell to pay for our 450 put. Selling the 520 call is the top red line and is our ceiling. All of last year there were no trades within 40 cents of our ceiling.

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