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By Alan Brugler
Ag Market Professional

Corn: Futures continue to grind into a harvest low, a fraction of a cent at a time. Sporadic rallies should be expected. USDA projects U.S. ending stocks at 2.319 billion bushels, and the average cash price for the year at $1.80. Declining freight costs have firmed basis (and local cash bids) dramatically since mid-October. However, basis is still not strong enough to suggest aggressive cash market sales.

Strategy: Loan Deficiency Payments (LDP) should be taken, or corn put under loan with a 60-day Posted County Price lock expiring after Jan 1. Firming basis makes new highs on LDP unlikely, even if futures decline. Grain in storage should be hedged in March futures to ensure those 4 cent/month storage gains. Forward contracts may work if the elevator is offering a historically strong forward basis. Consider bull call spreads to participate in any post-harvest rally.

Soybeans: Strong soybean meal exports and cheap basis fueled record soybean crush during October. The U.S. should dominate the world soybean export market until March. However, export inspections since Sept. 1 are 66 million bushels behind 2004. The usual cure for this is lower prices, and that may be necessary if the soy oil stocks buildup shown in the November National Oilseed Processors Association report is confirmed by Census data later this month. South American weather will be important, but there are no significant threats at the moment.

Strategy: Expected post-harvest basis improvement is well underway. It usually continues into December. We favor 3-way put spreads to keep a floor under March beans at $6.00 while holding out for stronger basis to improve our cash selling opportunities. We’re interested in light new crop sales if November futures reach $6.25 to $6.50.

Wheat: Hard red winter and hard red spring stocks are expected to be tight, but stocks of the soft red winter (SRW) varieties grown in Ohio (and traded at the Chicago Board of Trade) are more than ample. Traders "sold the fact" after USDA confirmed that Iraq bought 800,000 metric tons of hard wheat. Futures are seeking chart support and fund buying. Low prices cure low prices.

Strategy: We recommended advancing cash sales in last month’s column, taking advantage of a rally at that time. Long puts were also recommended to cover any additional wheat in storage. With the current lows in prices, it may be time to take profits on those puts.

Livestock: The avian flu outbreaks in Europe and Asia, and the foot and mouth disease outbreak in Brazil are all creating export opportunities for U.S. meat. USDA also sees reduced overall meat production for the balance of the fourth quarter, and most of the first quarter of 2006. Keep an eye on wholesale prices for market direction, but also remember that the futures market can and does "get ahead of itself" relative to the cash market. That leads to periodic sell offs.

Strategy: Near term prices are profitable, so stay current on cash marketings. Buying puts or put spreads makes sense to protect sales through year end. We’re leery of outright short futures hedges, as the speculative fund buyers see them as an appetizer!