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by Alan Brugler
Ag Market Professional

Corn
USDA says the 2004 crop is 11.741 billion bushels. Corn ending stocks are projected to be 1.819 billion, the worst since 2000-2001. USDA also raised projected Chinese production by 4 million metric tons, increasing the odds of more export competition. On the other hand, harvest is wrapping up and producer selling is drying up. Those factors tend to firm up the basis or the price.

Strategy: The market is rewarding producers for home storage with big carries. Growers need to lock in the futures selling price on rallies, and let the cash market come to them. Take more loan deficiency payments on signs that basis is finally firming. You can use a portion of the LDP earned to buy puts to protect stored grain.

Soybeans
The big story is the discovery of Asian rust in the United States. This changes everything, but nobody yet knows how! Supplies of soybeans are burdensome, with U.S. ending stocks at 460 million bushels, and world stocks at 61.4 million metric tons. USDA studies project a maximum 9.6 percent yield loss the first year of the rust, about 300 million bushels. That includes a ton of assumptions! One question is whether producers will switch vulnerable acres to corn or cotton, rather than fight. Roundup Ready beans lose their attraction if you have to make three more trips for fungicide coverage.

Strategy: Maintain January or March long puts (or minimum price agreements) to protect cash beans in your bin and to replace the loan deficiency payments that were taken because of the firming basis. Huge world stocks could still result in new lows by spring. Look to roll that put protection to higher strike prices on rust related rallies and speculative short covering.

Wheat
USDA trimmed the spring wheat crop estimate by a paltry 6 million bushels. New crop winter wheat is in excellent condition, but fall crop ratings have little correlation to final yields. World stocks are substantially larger than last year, but U.S. exports have held up well, thanks to the weak U.S. dollar.

Strategy: The Brugler Marketing Price and Probability forecast suggests low odds of March Chicago wheat getting much above $3.40. Downside risk from that study is $2.82. Increase cash sales or add put protection on rallies, and keep an eye out for 2005 crop opportunities.

Livestock
Beef production is expanding, with cheap corn leading to higher weights. USDA projects an $82 average cash price for the fourth quarter and much of the first quarter of 2005. The anti-dumping duties on Canadian hogs are expected to result in fewer hog imports, but more pork imports (there are no duties on the pork).

Strategy: Livestock prices have been volatile, but attractive. Upside volatility is good, downside is bad. Buy put options (or spreads) to protect profits (recently $30 per head or more in hogs). A similar strategy will work for cattle, but you may need a rally first to match your breakevens.

I’m looking forward to seeing all of you at the OFBF annual meeting Dec. 1.