Mid-Minnesota Farm Management Education

Wednesday, February 7 at 8:00 am  
 
 

February 2007 Market Update

The USDA gave us a shocker in the Final Production Report on January 12th.  The corn crop was cut to 10.535 billion—down 210 million!  This puts the ending stocks at an extremely tight 752 million bushels—a mere 3-week supply. 
 

The market’s job now is to go high enough to ration the remaining supplies so we don’t run out and encourage enough acres be planted to corn this spring to have enough supplies for the next year’s demand. 
 

WHEAT

Crop conditions have improved dramatically this past month as three storms have recharged the soil moisture.  With acres up this year and good soil moisture, the ending stocks could easily climb 200 million from the current 472 million. 
 

2007 WHEAT CROP

Dec. Chicago futures has resistance at 5.10-5.14.  We are selling in Chicago and will roll to Mpls-. if and when there is a 30-40¢ premium. 
 

Producers have 50% contracted.  If we have a drop and can exit ½ of these hedges at 4.70 and then resell again at 5.00-5.10. 
 

2008 WHEAT CROP

We  are 20% sold at 5.00.  If we get a chance, we can take a profit at 4.60 and then resell at 5.00. 
 

CORN

The USDA surprised the market by cutting 2006 production by 210 million bushels!  Carryover at 252 million is only a 3-week supply.  Index funds that were rumored to buy after the 1^st of the year have actually been selling some of their positions to balance their portfolios.  They may be buying the cheaper energy complex.  Other spec funds have been buying.   
 

Current estimates are for a 7.3 million acre increase in corn planting this spring.  With the current outlook for higher usage (ethanol) and an average yield (152) our carryover could be cut again to 350 million in the 2007-2008 crop.  We need more like a  8.5-10.0 million acre increase.  The planting report comes out on March 30^th. 
 

2006 CORN  For producers who are lucky enough to have some corn left—consider selling the cash ($3.70 for March delivery) and if you want upside potential you can buy a bull call spread—buy the Sept $4.20 call and sell the $5.00 call for a cost of 20 cents –this gives us 80 cents of upside for a cost of 20 cents and- more importantly- our cash corn is sold at a great price.

2007 CORN

As we noted in last month’s letter, the only safe way to sell-- is to own puts and have the upside open.  New crop has hit $4.00 again as the markets attention is on renewable fuels.  Government incentives in the new farm bill will focus on renewable fuels. 
 

Buy 3.70 puts at 25-27¢ and if we take another spike up, we will roll up our protection. 
 

2008 CORN

We are 45% sold and need to switch to puts or stretch out sales.  If we get to $4.00, we will have to sell some. 
 

2009 CORN

We are 10% sold at 3.30

             10% sold at 3.50

*Sell another 10% at 3.70.

By 2009, we may have new fuel technology(switchgrass) or alternative energy sources. 
 

BEANS

Weather remains favorable for South America.  El Nino is bringing them plenty of rain.  Hopefully it will do the same for us. 
 

Farmers will  plant 4.6 million less acres to beans in 2007.  That will help draw down the carryover. Currently it is pegged at 575 million (record large). 
 

2006 BEANS

Farmers can sit on the last 25% of the  crop—the March 30^th planted acre report could be friendly. 
 

2007 BEANS

We are going slow on sales because of the reduced acres in 2007.

We 30% sold  10% at 6.40

        10% at 6.80

We will sell another 10% at 8.00 and buy puts on the rest of the crop. 
 

2008 BEANS

Sell another 10% at 7.60. 
 

HOGS

Cash market has rebounded slightly.  What will hog producers do if faced with $4.00 corn for the next 3 years? Some liquidation is inevitable.  Hedge on a February rebound.

We are sold Feb. – 67.00

April – 68.00  

May – 77.00   

June – 74.00   
 

CATTLE

The seasonal top is right around the corner. We have had a weather rally—is it over??  Higher feed prices should encourage smaller weights and eventually tighter supplies.  Have cattle hedge through October on this seasonal  strength. 
 

FUEL

Energy prices have dropped dramatically.  Lock in at least ½ of fuel needs here—1.82 cash.

Remember to use only marketing tools that you fully understand and that you are aware of all the risks.  Learn to use new tools by starting slow and gaining experience.  The key is to have a Marketing Plan based on a sound cashflow marketing scenario with realistic price levels and then make sure you follow through!  Again, this letter is meant to inform--not to solicit any marketing service or expertise.  You, as a producer, must make your own marketing decisions and decide how to proceed with any of the scenarios presented.  If you have any questions on these marketing strategies, please call Jan Asmus at Delta - 320-589-4345.