Too much grain, not enough demand

first_imgShare Facebook Twitter Google + LinkedIn Pinterest Goldman Sachs estimates that crude oil may trade below $20. Ethanol plants are running on extremely tight margins. ADM announced they may even sell some ethanol plants. Japan has interest rates at negative values to curb deflation. These headlines are not bullish long-term for corn and beans.  Combine this with good growing conditions in South America, the large amount of unpriced 2015 grain, and small increased carryout adjustments from the USDA report, the future of prices looks depressing.The reality is that there is too much grain and not enough demand.  New crop prices are tied to old crop and without a supply disruption from a large-scale drought in the U.S. within the next six months (the only bullish possibility I can see that would bump up prices). I’m looking for prices to remain range bound until more is known about El Nino or La Nina.  A functioning crystal ball that could tell us what the weather will be like this summer would be great right now.Investing in precious stonesWith Valentine’s Day this weekend, I can’t think of a better reason to talk about investing in precious stones. It’s not what you think though, I’m talking about rock.I recommend to all my clients to invest in a good driveway that can support a fully-loaded semi in wet or less than ideal conditions. Some farmers with on-farm storage have poor driveways, forcing them to move grain only when it is perfectly dry or frozen. This limits their marketing opportunities.Investing in good driving surface can pay for itself quickly. This is because there is increased marketing opportunities due to increased flexibility to move during wet and raining weather conditions. Now is a great time to be planning for opportunities down the road…or driveway.My 2015 and 2016 PositionsMy entire 2015 position is covered with a short July futures position. I still need to set the basis for nearly 90% of the corn in the bins. Some of my 2016 position is a compilation of short calls, which could be sales if the market would be above their strike prices at expiration.  In addition, I have Dec futures sold for 2016.If all of my corn options were exercised, it would represent another 25% of my 2016 production price set. Below are the prices of these options, I would be happy if futures prices would be above the option strike prices at expiration.  However, in many cases I doubt they will happen, so I’ll likely have to settle with just collecting the premiums.Options-CornDate Option PlacedExpiration DateStrike PricePremium Received9/15/152/19/16$4.20$0.187012/10/152/19/16$3.90$0.08001/29/163/25/16$3.80$0.08509/15/154/22/16$4.40$0.192012/10/154/22/16$4.00$0.100012/10/156/24/16$4.30$0.10009/15/1511/25/16$4.80$0.1820 My current over all futures, basis and carry positions in corn and beans are: POSITION – CORN20152016Corn Priced – Futures100%22%CBOT Price$4.58$4.50Market Carry$0.185$.30 estBasis on Farm($.20) est($.20) estCash Price$4.57 est$4.60 estPOSITION – BEANS20152016Beans Priced – Futures78%0%CBOT Price$11.15$8.85Market Carry$0.165$.30 estBasis on Farm($.30) est($.30) estCash Price11.01 est$8.85 estJon grew up raising corn and soybeans on a farm near Beatrice, NE. Upon graduation from The University of Nebraska in Lincoln, he became a grain merchandiser and has been trading corn, soybeans and other grains for the last 18 years, building relationships with end-users in the process. After successfully marketing his father’s grain and getting his MBA, 10 years ago he started helping farmer clients market their grain based upon his principals of farmer education, reducing risk, understanding storage potential and using basis strategy to maximize individual farm operation profits. A big believer in farmer education of futures trading, Jon writes a weekly commentary to farmers interested in learning more and growing their farm operations.Trading of futures, options, swaps and other derivatives is risky and is not suitable for all persons. All of these investment products are leveraged, and you can lose more than your initial deposit. Each investment product is offered only to and from jurisdictions where solicitation and sale are lawful, and in accordance with applicable laws and regulations in such jurisdiction. The information provided here should not be relied upon as a substitute for independent research before making your investment decisions. Superior Feed Ingredients, LLC is merely providing this information for your general information and the information does not take into account any particular individual’s investment objectives, financial situation, or needs. All investors should obtain advice based on their unique situation before making any investment decision. The contents of this communication and any attachments are for informational purposes only and under no circumstances should they be construed as an offer to buy or sell, or a solicitation to buy or sell any future, option, swap or other derivative. The sources for the information and any opinions in this communication are believed to be reliable, but Superior Feed Ingredients, LLC does not warrant or guarantee the accuracy of such information or opinions. Superior Feed Ingredients, LLC and its principals and employees may take positions different from any positions described in this communication. Past results are not necessarily indicative of future results. He can be contacted at [email protected]last_img

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