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SC Iowa | Hello Dave-- I KNEW someone would catch my post on a Christmas morning.....I had been working on gathering some data on 95/96 to refresh my mind, and just happened to find a few moments "between Christmas engagements" to put them in the form of a post , at least that's my story!!
We are quite obviously in market conditions not seen before. One reason being the value of ethanol being somewhat tied to crude oil as one of the pillars of support. Now, I'm not looking for $40 crude anytime soon, but we have to be aware of the pressure something like that would put on ethanol values once we start exceeding RFS production levels.
In the short-run of the next four months, the job of the market should be to insure plenty of acres get planted, which makes a market-ending selloff in the next 60-90 days tough to believe.
To really put a halt to the bull market scenario likely requires a crop size of 88+ myn acres and a US yield in the 160 bracket--otherwise we get to the end of the 2007 harvest and have to go through the whole process of getting even more acres planted in 2008 all over again..
CRP--don't know if those acres will have a lot of effect for the 2007 growing season, most likely for 08 and 09.....some hurdles to work through with the environmental/wildlife folks which might mean 1)land exiting program having to meet some type of index value and/or 2) individual farms only being allowed to farm 80-90% of land with balance being left in CRP for conservation/wildlife purposes.....
I've been a believer that we would see less CRP ground come into production-----but never underestimate the power of economics to change a person's mind...
Soooo, how do you play something like this for the new crop production??
1) Buy put options (expensive) and keep rolling them up
2) Sell in small increments with the ideal that 3.25-3.50 corn, or higher, is "good enough" and don't worry about
3) Do nothing and see where the top is.....the difficulty with that is that you still have to sell someday, and it's REALLY hard for folks to sell the downticks, if you adopt this strategy
4) adopt a "time and price" strategy...ie; I will have 15% of new crop production sold by the release of the January 12 crop report if Dec 07 futures reach 3.75...if they haven't, I will still have 15% priced by that date....
A lot of folks are having to "live with" the 2.50 corn they forward contracted, we might just have to "live with" 3.50 corn on forward sales if this thing blows up due to weather and/or much higher crude oil values..
I think this is a lot easier for those who have a "known" value on land costs over next 2-3 years...that is rents are locked in, or high percentage of ground is owned.....you can at least figure your costs, and returns, more closely than the person who cash rents a lot of ground and is subject to the upward pressures on rent that are coming at us...
Just some ramblings, as always "my opinion only"
Ray J | |
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1995/1996 Corn market
