Good afternoon friends!
Corn 335’6 -12’6
Soybeans 1043’4 -12’4
Chi Wheat 383’4 -6’0
KC Wheat 398’0 -13’4
Cotton (H17) 71.17 -.85
Markets were lower today across the board. Red almost everywhere except the equities markets. It’s basically the exactly same price action as we saw at the end of August. I am only going to write about corn this afternoon. It sort of applies to wheat, but I don’t have the time to explain it this afternoon as I am a bit jammed up. I did want to get thoughts on the corn market though as I know some people have a decision to make soon on corn so I wanted to get my thoughts out there in mass.
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What we witnessed today was the beauty of the free market. When more market participants are forced to make decision, the price for making that decision changes. In the case of the last two deliveries, its the farmer selling physical corn in exchange for cash against a deadline, in this case December 1 or first notice day. If your basis is 35+ then you are selling cash with a 2 handle on it. There is a reason why the seasonals have performed on corn lately, I think its the supply weight and the financial condition of the producer more times than not wins out in favor of the side that is not forced to make a decision. That seasonal changes and gets positive as we get into 2017.
So what do you do about it? I would recommend re-owning, I think there is a lot of value on the curve at certain prices. But only do it if you want to keep your corn. Meaning, if your contracts call for delivery in December but for some reason you don’t want to sell (i.e. low prices, no storage, taxes) and your cash flow is adequate (I know this is a tricky area, if a producer is flush with cash then they don’t really have the same decision) then I think its a no brainier to re-own. Look at the rest of the commodity complex, copper known a pretty good leading indicator is up 30% since post election. LOOK AT SOYBEANS! Corn and wheat haven’t caught that wind because the supply is heavy right now. Also,that seasonal I mentioned earlier, it turns positive as we get into 2017 .
Could you lose cash flow in the short run? Sure, this thing seems to like 3.20 front month futures (2014 low, Z16 low was 3.15 ) so maybe look at 3.30 May or 3.40 July as the place to establish a long position. Maybe look at a collar strategy (not every trade is for everyone). Regardless, you get your operating income and can use low margins to simulate the product in a hedge account. That simulation could be negative in the short run, but I think given the change in economy signals we are seeing regarding US growth I think corn has value in the low-mid 3.00 range. If you sell all of your exposure now because you must, the market is timing you not the other way around.
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