Last week, I attended the Commodity Classic in Tampa, Florida. After listening to speakers provide analytical breakdown of the markets, my impression was that most had a generally optimistic price outlook. Yet I came away with the idea that farmers should focus on strategy over outlook. The market is offering historic opportunities and risk. There were a few recommendations by advisors in which CALL option selling opportunities were suggested. We'll focus our attention on these strategies because, in a year with tight supply, we want you to be prepared for most anything to happen.
Often when it comes to marketing, farmers wait until they get enough information to make decisions. However, by the time they get enough information to make a decision, the market has already moved. Therefore, marketing is challenging in the sense that you need to make decisions in front of unknowns. One could argue that the corn market has had a couple significant warning signals in the last two weeks, indicating that upward momentum may be slowing or, in fact, has turned.
Yesterday’s monthly USDA
supply and demand report swirled through the markets and caused another set of
strong rallies in many prices. The corn data caught traders particularly
by surprise as the USDA increased demand for both ethanol and sweetener usage.
New crop wheat prices have been in a steady uptrend since the end of June, when July 2011 futures bottomed at 5.43-1/2. As of Tuesday of this week, the market reached a high of 9.09, or a rally of just under 4.00. So what's driving prices?
The USDA report released this past week for grain stocks and supply and demand had a friendly tone, and the market reacted as such. As expected, both corn and bean carryout dropped slightly, and this was enough to keep the long-term uptrend intact. Traders continue to trade the inverse of the directional trend of carryout, which has been down since June 30.
From a perspective of analyzing the report, there are a few key numbers that we think have bearing, and then just as importantly, the reaction.
We're hearing from a lot of producers who would like ideas moving into the January 12 report. Mostly, they would like to know what we think the report is going to say. While we understand this need and want for information, there is not a whole lot we can provide that will dictate where the market is going to go. In other words, we cannot control what the report says or how the market will react. Your odds (and our odds) of out-guessing the report and the reaction to the report are not good.
As 2010 comes to a close and 2011 is upon us, there are differing sectors of the agricultural community which are feeling the effects of volatility and high-priced markets or low-priced markets. Grain producers looking ahead to 2011 (or even 2012) are seeing real opportunity presented as the new year starts. For dairy producers, 2010 is another year that, for the most part, they would like to forget, as was 2009. Time changes many things, and it's highly likely that, by the end of 2011, there may be a flip-flop in price activity for dairy and grain.
The market is currently offering opportunities for 2011 and perhaps beyond. We have talked to many producers recently that feel uncertain about what to do and, therefore, appear to be willing to do little or nothing. On one hand, tight global supplies of commodities and strong buying interest from end users and the speculative community have helped to propel prices upward. Therefore, making sales could be a mistake, right? Maybe not.
The market was caught off-guard last week when the USDA's
Quarterly Stocks Report added 300 million bushels of corn into its final stocks
figure. Pre-report estimates were close to 1.4 billion and the final number was
1.7 billion. So what happened? We'll try to answer that with the USDA's
explanation, as we now believe we know it. In addition, we will counter that
with our own thoughts.