Menu

By Alan Brugler
Ag Market Professional

Corn: The large speculators bought back more than 100,000 contracts they had been short. This had more to do with commodity price inflation and a weak dollar than it did with corn fundamentals. Corn exports continue to lag year ago. Corn acreage is still likely to be up 1 to 2 million acres from last year, but the soybean rally has likely reduced the pressure.

Strategy: Last month we said "Expect a 15 to 20 cent rally (or more) once we find a plausible seasonal low." You got one, so reward the market. The smallest 12 month move from a low since 1980 has been 44 cents, so May or July should eventually go a little higher.

Soybeans: Soybeans have always been a favorite of the speculators when commodities are in favor. This is one of those times, with a dollar plus rally in less than 30 days. Drought in southern Brazil won’t result in a shortage of beans (world ending stocks still expected 10 to 12 million metric tons above the record), but it does force the market to build in more of a weather/rust premium for the U.S. 2005 crop.

Strategy: This rally is a gift for selling remaining old crop beans and getting some good "floor" coverage for 2005 crop via puts, HTA’s or minimum price agreements. Basis is generally poor, so we are biased against outright cash sales that lock in basis.

Wheat: World production for 2005/06 is expected to drop back below 600 million metric tons, which should firm up the stocks situation. On the bear side, the EU is subsidizing exports by 10 euros/ metric ton or more, and Chinese planners believe they will need less than 2 million metric tons of imports from all world sources next year.

Strategy: Sell any remaining 2004 crop on this rally. We have now hit the most likely spring high for July wheat, based on our Price & Probability Forecast © models. Thus, some forward sales are justified. To allow for 2/3 of all possible years, we could get into the $3.84 area. That means we have to keep a little back.

Livestock: The Montana judge’s decision to prevent the Canadian border opening on March 7 caught some packers short of cattle. Excel cut back slaughter hours, rather than lose more money on U.S. cattle. Other packers are trying to force wholesale prices higher. U.S. red meat production year-to-date is down about 2.6 percent, so the overall tone for meat prices should remain firm. Hog slaughter has retreated from the 2 million/week range, but pork prices can have a little bit of a sag once Easter ham demand has been covered.

Strategy: Cattle futures have long term support near $82. As we anticipated, back month futures rallied when the border opening was delayed. Long puts and put spreads look attractive at $88 to $90, with short futures hedges also viable above that level. April hogs look good technically, but keep those long April 76 or 78 puts for hedge protection.

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.