Menu

By Alan Brugler
Ag Market Professional

Corn: The market continues to chew through the record large crop. Export sales are not occurring at the rate needed to meet USDA projections for the year. Usually that means a period of lower prices. The market is building in a 1-2 million acre increase in corn plantings for 2005 due to producers concerned about Asian Soybean Rust. The expectation is a reversion to historical yield levels.

Strategy: Rewarding the market for basis improvement (cash gaining on futures) with cash sales. You can guarantee a 16-17 cent return to your home grain storage with June or July forward contracts or hedges. Use of bear put spreads accomplishes the same thing, but lets you profit from any spring planting rally.

Soybeans: The South American crop appears to be in very good shape. A few continuous cropping areas are already harvesting, with a lot more volume by the middle of February. We had excellent first quarter disappearance for soybeans in the US, but projected ending stocks are burdensome, particularly given the South American supplies in the pipeline. We currently expect a 2-3 million acre drop in U.S. planting intentions due to Asian Soybean Rust. Given normal weather and large stocks, the first 2 million acres of reduction don’t count (in terms of potential for generating higher prices).

Strategy: Sell LDP’d beans 30-50 cents over loan rate. Keep put spreads in place to protect stored inventory against a Brazil related sell off in February. Consider holding a few beans into summer. We like selling November 620 calls for 30 cents or more on rallies, essentially hedging some new crop at $6.50. This position will see margin calls if the market rallies further.

Wheat: World production jumped more than 66 million metric tons from last year. That’s a lot of wheat to digest. US export market share has been excellent, but at lower prices. Traders were looking for USDA to show smaller winter wheat plantings for 2005, particularly in soft red wheat.

Strategy: The Brugler Marketing Price & Probability forecast suggests low odds of March Chicago wheat getting much above the $3.40’s. Downside risk from that study is $2.82. That’s also about as far away as futures tend to get from the USDA cash price estimate. Clean out old crop before the end of February. We’re maintaining March bear put spreads to protect prices until we’re cleaned out.

Livestock: Both pork and beef continue to take a licking and keep on ticking. Political maneuvering around the Canadian border re-opening is keeping beef prices volatile, as domestic supplies aren’t growing much. Ditto for hogs, as the December USDA report showed little or no expansion interest on the US side of the border.

Strategy: Cattle futures are still in a long term uptrend. So is the cost of feeder cattle. Use cattle crush spreads to guarantee of profit on cattle before they are placed. For hogs, we favor using at-the-money put options and spreads on 100% of production to keep a very profitable floor under prices while leaving the upside open.

Disclaimer: There is a substantial risk of loss in futures and options trading, and losses may exceed the initial investment. This article should not be seen as a solicitation to trade futures or options. Not all risk management tools are appropriate for all producers. Past performance is not necessarily an indicator of future success. Opinions expressed are those of Brugler Marketing & Management LLC, which is solely responsible for the content.

Brugler Marketing & Management LLC is a registered Commodity Trading Advisor and member of the National Futures Association. It offers sophisticated marketing analysis and risk management strategies to agricultural producers through its daily Ag Market Professional and Special Research Reports publications. For additional information, call 402-697-0657, or visit the Web site at www.bruglermktg.com.