For Hedgers Only, 10/31/13

Corn: CZ closed down 2 cents at $4.28 ¼, which is a new 3 year low settlement. New crop CZ 14 corn fell to a new life-of-contract low settlement at $4.69 ½. At 7:30 AM the USDA released exports. The 3 week total was well in excess of expectations. 4.56 mmt vs. the average guess of 1.9 to 2.5. On the release of this news, CZ traded to its high of 4.36 ¼, but then spent the rest of the day grinding lower. A respected private forecaster released their crop production estimate. Even after accounting for a loss of 1.4 million acres they estimated a crop of 14.330 billion bushels on a yield of 163.3 bpa. Acres harvested came in at 87.7 million. Their average bpa rose from their October number at 159.4 bpa. Informa will release their estimates tomorrow. CZ took out the double bottom on the charts, posted an outside-day-down and settled on new 3 year lows. Technically, CZ is looking down at support at $4.25, $4.18 and then the contract low tick down at $3.98 ¼ posted on June 29, 2010. Hedgers: We were able to roll down our December $4.55 puts today and collect 20 cents a bushel. Protect 2014 bushels prior to next Friday’s USDA report.

Wheat: WZ closed down 7 ½ cents at $6.67 ½ which is the lowest settlement in 1-month. Exports came in at a disappointing 1.3 mmt while the trade was looking for 1.5-2.0 mmt. The WZ-CZ wheat/corn spread fell again today, down another 5 cents, to settle at $2.39 ½. In August that spread was $1.66 and we watched it open up to a high of 2.64 just 2 weeks ago. This spread is closely watched as an indicator or relative value between the wheat and the corn. It suggests there might be more weakness as traders take profits after the large $1.00 plus profitable move they had beginning in August. WZ has given back ½ of its 74 cent rally from the September lows to our 4-month highs posted just 8 days ago. Hopefully you made cash grain sales when we suggested them on October 23rd. That sale of 20% of 2013 wheat should have gotten you to 60% sold on your production. Wheat may carve out a bottom here after some profit taking, but it’s important to maintain put protection under un-priced grain until you make the sale. Hedgers: Get protection for your 2014 bushels prior to next Friday’s USDA report.

Soybeans: SF closed down 10 ¼ cents at $12.66 ¼. New crop 2014 settled down 10 ¼ cents at $11.58 ¼. The beans rallied overnight and into the export number which, as anticipated, was very bullish. Exports were 4.7 mmt vs. the trades expected 2.4 to 3.0 mmt. Interestingly, SX which is now in delivery, rallied all the way back to get that $13.00 print before taking a swan dive lower through the rest of the day. Jan beans rallied up to $12.87 ½ and then also trended lower. A pretty big outside-day-down on the charts. This was a typical buy the rumor-sell the fact action that we have seen all too often this marketing year with the beans. The funds remain net long as of the last COT report. Tomorrow we should get fresh numbers from the CME. It will be very interesting to see how much of the 150K plus long position the managed funds are still holding. As a firm, we have been concerned about the potential for a violent sell off should the funds ever decide to pull the rip cord on the escape hatch and bail on those longs. A well respected private forecaster released estimates for 2013 production. Their yield estimate was 43.1 bpa. They lowered their harvested acres by 600K acres to 75.8 million acres. Production was pegged at 3.265 billion bushels. For comparison, USDA 2012 bushels were 3.015 billion. Hedgers: Protect your 2014 production prior to next Friday’s USDA report.

Corn ended the month on a new 3 year low. Soybeans tried to rally on the bullish exports but failed to hold early gains. Wheat fell to a one month low just a week after rallying to 4 month highs. The US dollar rallied back above the key 80.00 level, rebounding from its recent 9 month lows. A higher dollar makes our exports more expensive for the rest of the world.

As you are all busy harvesting, take this weekend to catch your breath for a moment and catch up on your marketing. The USDA will release more data a week from tomorrow. It should be the most impactful report we will get before the January report. Don’t get caught flat footed here on your 2014 bushels. For your corn, consider spending 19 cents on a May short-dated $4.50 put to get you protected for the next 6 months. Your protection is good until April 25th. That is 175 days with a guaranteed floor at $4.50. This compares to a traditional CZ14 $ 4.50 put which would cost 34 cents a bushel, protection until November 21st 2014. (385 days).

If you insist on getting the traditional December put; as is your prerogative as a client.. then spend 20-21 cents on a CZ14 4.20 put. With corn sitting at 3 year lows, we as a risk management firm are not interested in having a large amount of money invested in puts. We think that 20 cents is a reasonable figure to spend on protection, especially with the uncertainty that is out there now.