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Bryan Doherty: Report strategy
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. Therefore, you should concentrate on strategy and be prepared for whichever way the market moves.
As an example, if you're heavy on cash inventory, it may be wise of you to become more aggressive selling and take some of the dollars off the table as well as some of the potential risk away. Or, consider buying put options, perhaps in March or even February. You might recall that last year's report was surprisingly negative, and the market responded with a harsh sell-off. This led to a downtrend for nearly 6 months.
The year 2011 will be different, however, as is most any year. Moving into the January report, there seems to be a growing expectation that world supplies could confirm near- to-record low levels. Uncertainty throughout the world, with weather concerns since mid-summer, is creating a lot of friendly undercurrent for agriculture commodities. Dry weather engulfed Europe and Russia in summer. Argentina and southern Brazil are currently dealing with dry weather. In Australia, significant flooding is reducing the wheat crop. The western states in the U.S. remain dry, which could have an impact on wheat production.
The real key for the January 12 report, however, may be in how the USDA determines demand for corn and beans. Typically, higher prices suggest lower demand. Yet, high prices also reflect rationing of supply. There are expectations that the corn crop could be lowered from its earlier production estimate of just over 154.5 bushels per acre. As for soybeans, it is our belief that the USDA has been underestimating the 2010 U.S. crop at 44 bushels per acre. Surveys with our farmer base suggest few have had yields less than 44.
Whatever the numbers are, the market will react. We encourage you to be prepared and avoid a lackadaisical attitude that the market has to go in a certain direction. Make sure that you're keeping yourself well balanced, and that includes looking into 2011 for pricing opportunities as well.
If you have comments, questions or suggestions, contact Bryan Doherty at 1-800-Top-Farm, Ext. 129.
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.