Many producers are asking us what they should do with leftover inventory from the 2012/13 marketing year.
After harvest has finished, the combines are put away and fieldwork has been completed, many producers are now turning their attention to repaying bank loans, income tax planning, replacing equipment – and all these decisions revolve around marketing the 2012 crop.
Basis levels have narrowed since harvest as ethanol plants and other end users fight to secure enough local inventory to meet demand. With the tightening basis levels and year-end approaching, producers can look to merchandize some of their inventory.
Many years, the market will offer producers a difficult decision. A carry is normally offered, meaning the May or July contracts will be priced higher than the current months to give producers an incentive to store the crop, pay storage and interest charges and withstand price risk for five to eight months until they sell the crop in the summer.
Producers then have to decide, is the price offered today for future delivery the best price available or will there be more profitable opportunities in the future?
This year, however, summer month prices do not have a premium or a carry; in fact, prices are cheaper in the summer than current months.
July corn is currently 12 cents cheaper than March corn while July soybeans are 43 cents cheaper than March soybeans.
This makes marketing decisions very easy. In business 101, you are taught to buy low and sell high. If you follow that rule, you should buy the July contracts (re-ownership) and sell the March contracts (inventory levels).
Producers are clearly being told that they should merchandise their current inventory levels and avoid all storage charges, stop interest charges and use the money for cash flow needs.
To maintain ownership, producers should buy the July futures or options contracts, have risk defined to the futures or options market and enjoy their winter months without worrying about spoilage of their corn or soybeans.
Corn closed the week $.02 1/2 higher. Last week, private exporters did not report any private sales.
In the weekly export sales report, corn sales shows 10.4 million bushels slated for 2012/13. This is below the 16.6 mb that is needed to stay on pace with the USDA forecasts of 1.15 billion bushels.
Corn looks to remain in a trading range as supply issues are well known by now and the demand puzzle moves to the front of pricing. The lack of exportable corn demand looks to cap rallies, while the downside should be limited with lack of supply due to the summer drought keeping the basis tight in most regions.
Corn looks to be carving out a downside technical support area of $7.10 with upside resistance at $7.65.
Last week’s high was $7.67. Producers should look to re-own sales on weakness to the $7.10 area and reward the market with cash sales into resistance.
Strategy and outlook: Producers are now 80 percent of 2012/13 crop and are also 40 percent sold of the 2013/14 crop. Re-own 50 percent of the 2012/13 corn crop with July calls if futures touch $7.12.
Soybeans closed the week $.20 higher from last week. Last week private exporters reported 290,000 metric tons of U.S. soybeans sold to China and 20,000 mt of bean oil to an unknown destination.
In the weekly export sales report, soybean sales were 11.7 mb, which is above the 8.6 mb that is needed to stay on pace with the current USDA forecast of 1.345 bb.
However, it is the second lowest weekly export sales this year. Soybeans have had a 90-cent plus rally despite good weather in South America.
China returned as a buyer of U.S. soybeans and the market responded to their buying interest. I think the trade has pretty well factored in a huge crop in Brazil and Argentina and the market will rally in December if weather problems develop.
Prices will need to close above weekly resistance of $15.71 to confirm seasonal lows are in place. This was previous support that was broken and will serve as resistance on rally attempts. Producers can re-own sales if support is reached.
Strategy and outlook: Producers are 80 percent sold of the 2012/13 production and are 40 percent sold of 2013/14. Re-own 50 percent of 2012/13 production with July soybean calls if futures hit $13.50.
Brian Hoops is president and senior market analyst of Midwest Market Solutions Inc. Midwest Market Solutions is a full-service commodity brokerage and marketing advisory service, clearing through R.J. O’Brien. He can be contacted at 605-660-1155.
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