Grain Re-Cap 9/19/2014

  • Posted on: September 19, 2014

September 19, 2014 Corn: December corn settled down 6 ¾ cents at $3.31 ½ which is a new contract low and 4 year low settlement. For the week corn lost 7 cents a bushel. Corn posted its high for the session in the overnight electronic market. Once the 8:30 AM pit bell rang, corn resumed its slow grind lower. The weather report continues to be benign and should favor farmers as they harvest. Early yield reports are in a word, impressive. Bulls continue to argue the FSA acres. However, doing the math based on the yields still gets us to a plus 4 billion bushel carry out. I heard from several clients today that their basis had dropped sharply. One client in Sterling Illinois told me their elevator was offering $2.75 corn for fall delivery, or roughly a -55 basis CZ14. The high price for CZ14 for the entire year came at $5.17 during the first week of April. Today’s low marked a drop of $1.85 from that high or 36% of its peak value. We were able to roll down our CZ $3.60 puts down to CZ $3.30 puts today according to our risk/reward parameters. Hedgers: No change in recommendations. Wheat: December wheat settled -14 cents to settle at $4.74 ½ which is a new contract and 4 year low settlement. For the week, WZ lost 28 cents a bushel. The higher protein KC contract also fell to a 4-year low settlement at $5.60 ¼. The high tick for WZ this year came the first week of May at $7.65. Today’s low at $4.73 marked a 38% drop in value from that high tick. Today the Informa grain summary pegged SRW production at 472 million bushel vs the USDA at 466. The HRW production pegged at 707 vs the USDA 729 million bushels. They also pegged all wheat production a 2,046 million bushels vs. the USDA at 2,029 million bushels. At the end of the day, the funds, which have been short wheat for weeks stepped in and sold more contracts every time there was a 2 cent bounce. The US dollar index remained at a 4-year high, settling slightly below the 85.00 level. Just 12 weeks ago, we tested support down at 79.00, which pencils out to a 7 ½ % jump in value over that time. Large physical supplies along with a strong dollar are working like a one-two combination punch to the price of US wheat. Hedgers: Continue to roll down deep in the money puts according to our risk reward parameters. Soybeans: November soybeans settled down 14 ½ cents at a new contract and 4-year low settlement of $9.57. For the week, SX dropped 28 ¼ cents per bushel. Yield reports are filtering in from across the nation and are, in a word, impressive. The FSA acres controversy continues to be the topic of the day for remaining bean bulls. However, a loss of even 1.5 million acres would be more than accounted for by just a 0.4% bump in average yields. Yield reports so far would suggest we will still be penciling in a 400 million bushel carryout for 2014. What’s also interesting is that exports were decent this week, but that info was not even seen as a speed bump for the bears in the express lanes. The high tick for SX this year came May 19th, at $12.79. Since then, SX has dropped $3.23 per bushel, for a 25% drop in value. Basis dropped sharply this week. Please make sure you are watching your local basis. That will impact your bottom line much more rapidly than even the fluctuations in flat price. Hedgers: We were able to roll down SX $10.20 puts today and collect more money on our hedges. Today we saw a lot of ‘extremes” in all the markets. The stock market moved to a new record high. The US dollar clawed to a 4- year high. Gold fell to an 8-month low and is within $15.00 of the $1200.00/oz. level. What ever happened to the guys on the TV telling us gold was going to $5,000.00/ an ounce and that the Dow Jones was headed for sub 1,000? With corn down 36% on the year from its high, wheat down 38 % and with soybeans “only” down 25% from its yearly high, will corn and wheat rally back, or do the bean have another leg down? As risk managers our job is to keep our opinions in check and just be dispassionate about where your risk lies. As human beings, however, it’s very tempting to get into the prediction business. Using the above examples of “experts” calling for gold at $5K, the Dow at 1,000 and “beans in the teens”, one can see the folly of relying too heavily on even the most brilliant analyst’s opinion . Our program is tried and true over time to allow you to maintain a price floor for the sell offs, while also keeping the upside completely open for the eventual rally to higher prices. If you are new to the program, or if you have questions, please call in and have a talk with one of us here so we can break it down to a level where you can see the value of risk management, vs. searching for the “hot” trade picker of the moment. Everyone has an opinion. Not everyone manages the risk. Have a great and safe weekend! CER