October 7, 2011
If you are a Corn or Soybean producer,
do NOT sit back and think,
“This stuff is going to bottom here soon”.
My impression is there are TONS of farmers out there, who, just a little over a month ago, were waiting for $8.00 December Corn and $15.00 November Soybeans to really do any significant selling. All the talk has been SO bullish for SO long, and after so many people feel like they sold too low last year, it seems as though everybody was holding out for that one last upside surge to start “unloading with both hands”.
But it just doesn’t work like that, and the Corn and Bean markets never hit those big round numbers, then spent the entire month of September doing nothing but sliding lower and lower and lower, while, I suspect, farmers everywhere kept waiting for “a good rally” to get SOME selling done…and that rally never came in either market. Now, they’re all sitting there thinking these markets have come down so much ($2.00 in Corn, $3.00 in Soybeans in a single MONTH) that they MUST be ready for a rally that will allow them to do some of the selling they’ve already missed…Lately I’ve heard and seen comments like, “They will bottom with the upcoming October 12 USDA report”, or, “This stuff has GOT to go back up. Farmers won’t sell at these prices”, and to both of those sentiments, I say, “Those are just HOPES”, and I firmly believe both of these markets still have a LONG way to go on the downside…
Nobody wants to hear this, and I definitely may be wrong, but my guess is we have entered one of those two or three year periods in Corn, Beans and Wheat where they just keep sliding lower…back to levels which might seem unimaginable in today’s so supposedly fundamentally bullish supply-demand environment…No, we’re not going back to $2.00 Corn or $5.00 Soybeans, but I do think we could eventually see (maybe sooner than anyone would think possible) $3.00-$3.50 Corn and $8.00-$9.00 Beans…Right now, this is not important though. What is important, I believe, is that you do not fall into the trap of waiting for that rally to market your crop, and waiting some more, and then finding yourself FORCED to do some selling deeper in the hole a month from now…or next February/March when massive crops start coming out of South America…
For me, the bottom line is, there is a monster amount of selling that farmers already would have done that is now waiting in the wings…that most of the sell off we’ve already seen has come more from speculative fund liquidation than anything else…and the next leg down in prices will come from all those farmers, ALL TOGETHER, finally deciding, “I don’t like it, but I HAVE to get some selling done now…whatever the price.”
Believe me, I don’t just throw stuff out there for shock value, but for some months I have been looking for December Corn in the low $4.00 range and November Beans under $10.00…and I still think that’s what we’ll see…
What can you do about it? What should you be doing? Are you worried about selling here, and then seeing the market take off on the upside? Or are you commodity user (like feeding livestock), and in spite of my two cent opinion, think you should be hedging against higher feed prices? If any of these questions apply to you, DO give me a call and let’s talk about some of the many ways you can use buying futures options (with their limited risk) and maybe protect yourself to some degree from what really are the most volatile market I think I have ever seen.
Look. If you don’t know the first thing about futures or options, absolutely give me a call. I promise you I can put it all in plain English and give you a crystal clear understanding of how this stuff works…And beyond that, even if I am wrong right now, in today’s lunatic marketplace, with the major swings we are routinely seeing in the prices of everything, if you intend to stay in farming, I think you absolutely NEED to know something about how you truly can use options as a form of price insurance…I’d add that, most importantly, owning a put (protection on the downside) in a market, like Soybeans for example, still does leave the door open for upside gains if we do see those magic $15-$18 prices I’ve seen SO many people talk about.
Anyway, just for perspective, here are a few long term charts…The main thing I’d point out with them is, I don’t care how bullish all the fundamentals supposedly are, prices are still at extremely high historical levels, and there is still PLENTY of room to fall on the downside…Don’t kid yourself. Corn CAN easily be at $4.00 and Soybeans at $10.00...We’ve all seen roaring bull markets turn violently bearish too many times to not understand this time around is no different at all…
While I do have opinions on Cotton, Wheat, Cattle and Hogs, I’m going to leave it with these two charts for now as I think they are the two markets that I think farmers should immediately be the most concerned about…
I don’t write this newsletter on any particular schedule so if you’d like to see it whenever I do sent something out, give me a call and I’ll put you on my email list…
And again, if you want to talk about any of this, I urge you to pick up the phone and call me…whether it’s at night or on the weekend. I know you guys are busy all day and I work out of a home office so I am pretty much available anytime anybody needs me.
Toll free 866-578-1001