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By Alan Brugler
Ag Market Professional

Corn: The market has rallied nicely since November, on post-harvest basis recovery and speculative buying from folks who believe that grains are undervalued assets as compared to gold or crude oil. But then, you’ve thought that all along! Futures normally turn steady to lower after the January USDA reports before heating up again as we get closer to planting season. We currently project a 1.5 to 2 million acre swing away from corn due to high input costs.

Strategy: Nearly all Loan Deficiency Payments (LDP) have been taken or locked in vs. loan grain. The combination of the recent rally and the LDP gives you a pretty good net price, and some sales should be made for either cash flow or deferred delivery (taking advantage of the premiums for May to July delivery). Those with storage hedges and long calls to protect the upside can continue to earn the carry by holding those positions.

Soybeans: The South American crop is just coming into the critical flowering and pod filling stage. If significant problems develop, U.S. futures could go to $6.75 or higher. However, with very poor U.S. export sales and large projected stocks of beans and soy oil, an OK South American crop is likely to eventually mean a 50 cent or larger decline in U.S. prices.

Strategy: Reward the speculator driven rally with some additional old crop cash sales. We favor forward pricing or using HTA’s on up to 25 percent of the 2006 crop in the $6.25 to $6.50 November futures area, as part of a scale up approach. The next layer would be $6.75 to $6.80.

Wheat: Wheat takes no prisoners, and there have been several "trending" moves in the last three months. U.S. prices are too high relative to Australian, French and Russian origin. Export sales dried up in late December and early this month. A correction is needed to stir up buying interest. July futures are at price levels, which the market is above less than 25 percent of the time, and winter wheat acreage will be larger in 2006 than in 2005.

Strategy: You should probably have no more than 20 percent of old crop remaining and plan on selling it by March. Light new crop forward contracts or put option floors make sense for 20 to 25 percent of expected production. Think of it as rewarding the market for the rally. Such sales make less sense if the market drops back into the $3.30s.

Livestock: Meat supplies are rising, thanks to both expansion and cheap feed. The re-opening of beef exports to Asia has provided a relief valve, but sales expansion will be slow. Domestic demand typically is reduced when fuel and heating prices are high, but the statistics lag reality by several months.

Strategy: It’s time to buy put options or bear put spreads to protect any and all cattle on feed, as the 45-week cycle is supposed to top between mid-December and late January. Hogs have a more complex seasonal pattern, but prices are still at profitable levels. Thus, some hedging is appropriate on 1 to 3 day rallies.