07-24-2012 11:02 AM
There has been plenty of talk on this board and elsewhere (my broker, for one example, and my buyer) suggesting that a short crop has a long tail.
In other words, the high may come early to and as the demand is killed, prices will drift down for a long time.
There are many suggestions that those with crop insurance might want to anticipate a lower Oct average price by selling futures before the predicted price decline (they admit the decline might not happen or might not happen in Oct).
Here's a U/Ill paper on the subject of how to hedge (lock in) a price.
I'm sure you will all want to comment on that, but my real question is on timing the high. I'm not talking about how we all want to and how foolish that all is. what I'm asking is whether conditions have changed so much that past experience doesn't matter?
Specifically, in the years since some of the drought markets or other big weather markets, we have much more fundn actiivty. We have nearly 24 hour tradiing. We have a lot more demand. The social media and publc awareness is incredibly more widespread.
So - will public interest drive prices higher and higher as more and more people "discover" the drought and therefore run prices up more than we'd expect and maybe do it later and maybe for a longer time?
So, how likely is it that the high will be in Aug or Sep and it will pay to hedge the Oct averages that set insurance payments?
What do you think are the key factors in determiningn when the high will be?
07-24-2012 11:17 AM
I don't think things have changed much from last year, and we're witnessing something similar. Yeah, I get that crop conditions last year weren't nearly as poor as this year. However, crop conditions started falling off a cliff in July prompting a big rally lasting until right up to the first of September. The July contract was right at 8 bucks then. The long tail had it falling all the way to around 5.50 as it went into delivery.
From what I've gathered from past problematic years, in most years the high was set between June and August. However, there are outliers out there like the poor 95' crop that didn't top out until July of 96'. Assuming we may have seen our high, I would guess we'll eventually take it out next summer because we just weren't high enough for long enough. There hasn't been enough pain inflicted on endusers yet to destroy demand.
Playing the crop insurance harvest price game is okay, but one should only do it with a put rather than a straight hedge especially if one has contracts that they won't be able to fill. Let's say one locks in 8 bucks on a hedge and it goes to 10 during that time period. They just lost 2 bucks and will be left scrambling to buy out of cash contracts with 2 bucks less than where the futures price is. If one had 5 buck cash contracts, it will take them down to 3 bucks.
07-24-2012 11:24 AM
Jim judging from the last couple days we may already be in the tail and it looks like a short one. I don't think anyone can call the market anymore. Since 2008 there are so many more money people jumping in and out and so many more things affecting the world economies that everything is just a guess. We are in uncharted waters as far as marketing right now and it is as exciting as it is scary.
07-24-2012 11:43 AM
07-24-2012 11:45 AM
This thread is pretty entertaining. Does the past matter?....even the concept of the question brings a chuckle.
The TIMEing hasn't changed much in a millenium really, mostly the same. The more emotional things become the more predictble they become (usually, not always).
To quote from the cultural icons...THE BEATLES...from the apparently meaningless past.....
"Signs...signs...everywhere are signs.."
07-24-2012 11:54 AM - edited 07-24-2012 11:55 AM
The Five Man Electrical Band......1971......"Long-haired freaky people need not apply."
07-24-2012 12:04 PM
I believe a number of factors will control the price of corn. First harvest in the corn country maybe done in early Sept. If the corn price then is not over $7.50, I believe it will be put in the bin and not come easy or until rains return. In my area, Wisconsin, quite a bit will be corn silage. I was offered last night 60 per ton for all my corn. No harvest cost. At 17 ton, it would be easy way out. I believe the highs will be in May.
07-24-2012 12:24 PM
It all depends on how one manages risk whether storage pays in short years or not. Take last year for example. If one locked in the July futures before putting the corn in storage on a hta, it worked pretty well because of what the basis did even though there was no carry at the time. I'd say this year will be very similar where basis could get rather stout next summer. However, yeah it doesn't really pay to store in a short year as the price goes down more than the basis appreciates. It took the worst drought in several decades to get prices above what one could have received last fall. In 1988, it was very similar. When the futures retreated, they never looked back. 2002 is another great example. I vividly remember guys putting corn in the bins in 02' passing up nearly 3 buck corn only to get just above 2 in July. But again, the basis appreciation was decent making it worthwhile to store if one locks in the futures on a hta when it's high.
The problem this year is how the market has behaved. Corn really has done nothing more than consolidate near the all time high. In problematic years, the market usually is in a parabolic move similar to how soybeans have been trading only to fall off considerably making what looks like a reverse V in the chart. I don't think there's been enough pain inflicted to call a high yet in corn.