Commodity Corner By Alan Brugler
Corn: Futures have rallied on a three month dry spell in part of the central Corn Belt, accompanied by active speculator buying. Much early corn had to be replanted, leaving the crop more vulnerable to heat during pollination. Old crop stocks are still burdensome at more than 2.2 billion bushels. Basis is likely to be weak all summer, and worse in the fall if both old crop and new crop are entering the transportation system simultaneously. Strategy: Maintain December bear put spreads or elevator variants to keep a floor on new crop that is above loan rate. Increase cash sales on 10 to 20 cent rallies. Hedge old crop on trading cycle highs, and try to move the cash on basis improvements of 3 to 5 cents that occur on futures market pull backs. Soybeans: Futures went to new highs for 2005 on ideas that final acreage will be below the March estimates. Continued strong export sales are also drawing down old crop stocks. A national average yield of 38 bushels could drop us back to pipeline supplies and $7.50 summer futures if the acreage is smaller. The United States Department of Agriculture reports planted acreage on June 30. Strategy: We’d limit gambling stocks of old crop to 15 percent to 20 percent of production. Long November 660 or 680 puts make sense to put a price floor under new crop. Look at selling out-of-the-money puts against the 680s to offset high summer options premiums. Wheat: World production is likely to be smaller in 2005/06. That will be long term supportive to prices. However, U.S. ending stocks are likely to rise. A stronger dollar is also making export sales more difficult. The main bullish argument is the commodity index funds buying. They want to own undervalued commodities like wheat as a portfolio diversification and inflation play. Strategy: We recommended heavy new crop forward sales and put options in March. Consider adding bear put spreads (or minimum price contracts if basis is OK) to protect cash wheat that you intend to store for post-harvest basis gains. These create a floor but not a ceiling. Livestock: Consumers, squeezed by higher fuel prices, appear to have balked at record high retail meat prices in April and May. The value of the pork cutout (wholesale value of hog cuts) is down nearly $20 from last year’s peak. Beef carcass prices are down about the same. We’re also into a period of rising cattle numbers, and rising average carcass weights. Futures are technically oversold, so rallies of $2 to $3 can occur anytime. Feeder prices will likely remain high, due to health embargoes against some Mexican states and the closed Canadian border. Strategy: Based on the post 1996 average annual trading range, nearby hog futures could go as low as $48 by next spring. Hedge coverage has paid well over the past 30 days, and should continue to do so. Maintain those profitable cattle crush spreads for August to November placements, and look for a place to lock in breakevens on December and later placements. Disclaimer: There is a substantial risk of loss in futures and options trading, and losses may exceed the initial investment. Not all risk management tools are appropriate for all producers. This article should not be seen as a solicitation to trade futures or options. 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. Brugler Marketing offers sophisticated analysis and daily risk management advice to Ohio producers through its Ag Market Professional and Special Research Reports publications. For additional information, call 402-697-0657, or visit the Web site at www.bruglermktg.com | |