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Plan B

On new crop.

 

First rule is don't take a bad price until you have to. Too early to get an itchy trigger finger but it now appears that nothing fundamental showed up, following a not-bearish Jan report, to trigger a big short squeeze on specs. They've now lightened positions and the powder is gone.

 

We'll see if USDA throws us a bone today but beyond that it is hard to see where a rally comes from for a while. An oil bottom and general commodity recovery, I guess.

 

So it is back to the 90s. Sometime before the last week in March I'll probably buy relatively cheap OTM SX and CZ calls- around .40 and .80 over the market- and hope that there is enough of an acreage/planting rally to get sales off against them.

 

Not getting anything done will be painful but the most painful thing is making a sale that you feel like you have to make but at a very unsatisfying price, then there's a big weather problem and you're stuck.

 

The calls cover that.

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4 Replies

Re: Plan B

You can also just buy puts if the spring rally appears.

 

In my experience, that ends up costing about twice as much as the strategy I decribe because Implied Vol rises sharply during the rally and tends to be pretty low in a winter doldrum.

 

The positive is that it is a bit of an additional poke in the eye if you don;t get sales off and also eat most of the cost of the call.

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BA Deere
Honored Advisor

Re: Plan B

Nobody`s done anything with new crop, lot of old crop held by farmers. The endusers are just such nice guys and gals, they are looking out for us, they are offering "free DP" ..bless their hearts. 

 

I`m afraid alot of producers are going to have to get out of their old crop and put some mid $3 new crop sales on the books..and until that happens, a guy might as well take a nap.

 

It`s money flow that moves markets higher, we need farmer sales of old and new and then maybe Ol` Yeller will announce QE or negative rates or something to drive a stake in this undeservedly high dollar.  Then our friends the hedge funds that are always long may bail on equities and come back to grains. hope hope hope   🙂

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Re: Plan B

I'm with Goldman, I think we see 3 more 25 bp raises this year.  If the stock market drops another 20-30%, maybe not but things in the grain world will have gotten pretty ugly by then, barring some unforseen production problem.

 

Back to NIRP or even mild ZIRP probably only gets you a 90-92 DX. Might defibrillate the bull a bit, but not hugely.

 

Always hard to reinvigorate those animal spirits after they've gone through a cyclical blowoff.

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BA Deere
Honored Advisor

Re: Plan B

Well, the fed has put themselves in checkmate, if they didn`t raise .25, the gig would`ve been up after all their threats to do so.  The thing is, I don`t think the weak economy can stand it, I know that a 1% rate shouldn`t be really any worse than a zero rate, but that`s how bad it is.

 

But why should 92¢ stop the dollar?  Just 2 years ago in 2014 the Dollar was in the low 80`s, how are things any better for the Dollar now than 2 years ago?  Other than the "cleanest dirty shirt" theory.

 

When our corn was $7, we (rightfully so) had to daily justify to the Bears as to why corn should be $7? and what can you do with $7 corn to make money?   Well, let me turn tables, why should the Dollar be in the mid 90`s?  Why shouldn`t the Dollar be .75 or even lower?

 

http://www.zerohedge.com/news/2016-02-09/7-trillion-bonds-now-have-negative-yields

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