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It is okay to be bullish, but...

Agriculture.com Staff 12/22/2006 @ 1:03pm

The long-term fundamental picture for corn looks supportive, even downright bullish. However, keep in mind this outlook is predicated on increasing demand. Or is it? In the heart of a weather market this summer, prices failed to rally much above $2.70 December futures. Yet, the same basic long-term demand picture was in existence then.

During summer, fund money did not materialize to buy corn. At harvest, when people were least expecting the market to rally, prices moved sharply higher due to fund buying. A significant influx of fund money propelled prices well over $1 higher. In the long run, funds may be buying for a reason, maybe demand. Yet, just as quickly as they entered the market, they could leave. December futures trading near $3.65 per bushel could quickly turn into $2.65. You are challenged trying to balance between outstanding value for next year's crop and the potential that prices could double.

Consider forward contracting 10% to 35% of expected production for 2007. December futures offer too good a value not to. Reinvest a portion of this value by buying December bull call spreads. Buy December 360 calls and sell 440 calls for a spread difference near 20 cents. While conservative, this strategy keeps you in the market, and you are "there" if prices move higher. Perhaps more importantly, by retaining ownership of sold bushels, this provides less of a reason for you not to sell more if prices move higher.

Early sales are hopefully your worst. If the market moves higher, be prepared to sell more and average your price up. However, if the bullish scenario doesn't play out, you at least have a portion of the crop sold at what might be some of the higher prices available for the year.

If you have any questions, contact Top Farmer at 1-800-TOP-FARM, ext. 129.

The long-term fundamental picture for corn looks supportive, even downright bullish. However, keep in mind this outlook is predicated on increasing demand. Or is it? In the heart of a weather market this summer, prices failed to rally much above $2.70 December futures. Yet, the same basic long-term demand picture was in existence then.

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