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Greedy or playing it safe?

Jeff Caldwell 07/01/2011 @ 2:45pm Agricultural content creator and marketer.

Still licking your wounds after Thursday's bearish USDA reports? If you had (or have) much unpriced old-crop corn, you may have had better days after what the corn market's done over the last 2 days.

Thursday's response by the market to stocks and acreage numbers that paint a much looser supply/demand situation than thought just a few days ago shows how the market has evolved in recent months. There's just not room for error anymore, and numbers like those bearish ones released Thursday will, at least in the foreseeable future, have a lot more potential influence on prices than in the past.

"What we've really built is a huge demand engine.$8 corn is not a myth like we thought at one time. Any year we fail to grow a large crop, we're subject to those kidns of spikes in the market," says Don Roose, trader and market analyst with U.S. Commodities in West Des Moines, Iowa. "If anything goes wrong, these are the types of spikes we can't have. We are on the edge of back-to-back tight supplies. It's making everybody rethink their whole strategies."

One of those strategies -- one that's been hotly discussed since Thursday's USDA reports -- is grain ownership. The recent run-up in futures prices had many farmers cashing in and making sales to nail down profits and secure inputs for next year's crop. But, there are still those who are holding off on sales. Are they being cautiously optimistic, greedy or just hesitant in pulling the trigger? "For those of us who had corn left to price, too bad for us," writes Agriculture.com Marketing Talk member highyields.

But, corn is, according to market estimates Friday morning, still worth 78% more than it was a year ago. It's important to remember that if you have more corn to sell, says Marketing Talk member JohnQ. "Anyone still holding corn now gets zero sympathy from this farmer. What the hell did you want for corn anyway? Greed is an ugly beast," he says. "Corn is still very profitable at these levels. People (some anyway) have lost touch with reality. It's not like we're trading $2.00 corn and looking at LDPs!"


But, Marketing Talk member jimboree doesn't see it that way. For him, it's more about treating grain sales as a corporation would. Instead of seeing current prices as merely higher than a year ago and, as a result, selling whatever you can to nail down a profit, it's more important to always keep some grain in reserve in case prices turn back higher down the road.

"Without guys like me who do sit on some of my crop every year, you would never get these kind of prices. If everyone hauled in corn/wheat right off the field, how much would it be worth then?" jimboree says. "Oil companies don't crank their wells open full bore when the price is high -- they often turn them down! That way supply doesn't exceed demand. I learned long ago from older farmers that were successful. Always keep some in the bins!

"Farmers must not sink into the idea that 'Well, I have gotten $3 before, so $5 looks good.' That's ridiculous -- no other company or corporation would ever think that way," he adds.

Overall, Roose says he's heard thus far this summer that corn stocks have been "cleared out more aggressively" in the eastern Corn Belt, while unpriced corn remains a little more common in the western Corn Belt. For those farmers with grain that's still unpriced, now is a good time to look into synthetic options that can provide a price floor right now while the market's moving lower.

"Anytime you have grain this time of year, it's high-risk because the seasonalities are negative. The market will dance lower into harvest," Roose says. "But, things can change. Probably rather than having hard bushels, you're better off changing risk management strategies."

One thing is clear: Those farmers who still have grain to sell aren't lagging. The length of the rally leading up to this week has a lot to do with why there are still a lot of bushels out there.

"Farmers are very in-tune with their local grain prices. If they didn't sell all that they wanted to before yesterday's report, it wasn't because of ignorance," one floor trader said Friday. "Frankly, a lot of farmers kept selling little by little on this long bull market. And, it is just hard to tell yourself to get bearish when prices have been going higher for so long."


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