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sw363535
Honored Advisor

Re: Floor Talk February 13

Jim  the issue here is that some will take enormous risk forward contracting and speculating on their belief in those who "profess" to predict the future.  I believe the producer who decides now to lock in sales for the 2014, 2015, 2016 + crops based on this kind of speculation cannot protect himself if his bet is wrong.

 

I can handle the brokers sales pitch to generate revenue with predictions --- we all can take it or leave it.  But when usda becomes involved in the pitch --- I see it as  tampering with the market place and I think there should be some level of responsibility when usda feels the need to project anything that is no more than a projection based on assumptions.

Either that of they become no better than the door to door marketing  promotor who wants a commission on your sales.

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Jim Meade / Iowa City
Senior Advisor

Re: Floor Talk February 13

Most marketers that we've seen who have been around for a while would probably agree that a producer may want to have some percentage of crops forward priced or hedged on the board in some years.  For example, maybe it would be reasonable to have 10-20% of production priced for 2015.  Dec 15 corn is trading around $4.65 today.  That is over the cost of production for most.  A projection that Dec 15 corn could be $3.30 could support that conclusion to sell a little.  As time passes and more information is available, projections are refined and the resultant price will change.  It could double in a drought or go down even further with the collapse of demand.  One would make more sales decisions over time and as prices change.  I don't know of many responsible marketeers who are in the all -or-nothing camp for very long.

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sw363535
Honored Advisor

Re: Floor Talk February 13

The percentage of commitment is not relevant if that producer is not in business two years from now and still has those production committments hanging over his head.

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Jim Meade / Iowa City
Senior Advisor

Re: Floor Talk February 13

What are you talking about?

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sw363535
Honored Advisor

Re: Floor Talk February 13

Many producers who need the forward protection the most do not have the financial support to face off margin calls waiting for the promised price levels.  For many, forward contracts to deliver are necessary to set a position and those are reversable only as a gift from the purchaser.  But even a position on the board is not one a new tennant is obligated to fill in the months after a health issue invades.

 

I struggle with the desire or promotion that older producers or leveraged young producers (or anyone for that matter) should take marketing actions 12-24 months out.  It steals options and occasionally locks them into serious financial problems.  I have seen a couple of older guys that suddenly needed to find retirement( and a tennant) deal with some struggles trying to lay off contract obligations that were $1 off the market.  It sure limits the possibilities of helping a young farmer get started.  Often It limits the tennant to a local big operator that can absorb the positions.

 

Difficult times come and go ----- it's part of the business -- or should be----- and Jim, I would be even more adament about the issue if the usda was projecting $7 corn for the next 5 years.  Even bigger mistakes would be encouraged.

 

I don't see it as a huge market manipulation for profit as much as one more example of how much bureaucracy wants to be involved in the economy.  Perhaps even has a egocentric feel that the economy needs government control.  And why wouldn't they when ethanol is built on government grants and subsidies.( and a thousand other examples)

Their interjection into the economy is the primary reason many of our costs will not go down with the price of corn.

 

We have been the recepient of the benefits of big government's manipulation of the economy and we will be the victum at some point of too much government input.

 

 

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425Cat
Advisor

Re: Floor Talk February 13

Well written piece sw
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hardnox
Advisor

Re: Floor Talk February 13

I've never regarded an underwater contract as anything other than a mark to market loss if I couldn't fufill it for any reason.

 

And believe it or not, I had one once!

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425Cat
Advisor

Re: Floor Talk February 13

Around here some are charging a lot more than market difference for unfulfilled contracts. They say cattle hogs and chickens won't eat paper. I do use htas so I don't have to deal the basis risk
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Jim Meade / Iowa City
Senior Advisor

Re: Floor Talk February 13

No one should get in over their head, and some may have to avoid certain options because the risk is unacceptable.  One way to mitigate risk is to keep a close eye on the market and use appropriate stops or other tools.

 

At the same time, marketing over a broad time frame is appropriate for some and for those USDA projections are important tools inthe info arsenal.

 

I don't see USDA as involved in market manipulation.  I see those who see this as conspriacy theoriiests who are blaming others for their own marketing challenges.  It's a cop out. 

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roarintiger1
Honored Advisor

Re: Floor Talk February 13

No one has answered my earlier questions........ Why are these predictions put out at this time of year?  And what purpose do they serve?  Why are they wasting their time now with this as opposed to waiting for the March 31st report?  Anyone want to take a stab at these?

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