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Veteran Advisor

What say Da Bears?

Right before harvest we had a couple of bears bragging about their hedge accounts and all the money they were making and how beans were going to $7, and corn to under $3. What happened? I got excited and cleaned my bins out right before harvest, and I think they owe me some money now with beans over $10, and corn pushing $4. At least I kept the new crop, though.

 

WIth cheap oil, a strong dollar, the supposed bin buster of a crop, you would think that the bears would have been right. What exactly is going on here? I am confused.

18 Replies
Veteran Contributor

Re: What say Da Bears?

Red, I would not sell physical grain based on anything the infamous bears on this site have to say...  Especially that vr-drop-in-the-bucket...  He is always looking to create a frenzy, to support his position.

 

The bears always spout: "short crop, long tail".  The opposite is also true, with good reason!  As much as demand and purchasing is curtailed at "high prices", the opposite occurs when more grain becomes available.

 

Prices never stay low forever as well...

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Highlighted
Veteran Contributor

Re: What say Da Bears?

In fact, I have done quite well with physical grain doing exactly opposite what "vr-drop-in-the-bucket" has to say...

 

Smiley Surprised

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Senior Contributor

Re: What say Da Bears?

Free dp has come out here already.  Think with the mou tains of grain supposedly sitting around wouldn't of had that this year. No big crop in this fringe. To chilly to early.

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Senior Advisor

Re: What say Da Bears?

I don't see how you make any money on a hedge account.  A hedge account means you have an even position - you don't really own any grain.  How can you make money on something you don't own?

 

Yes, you have grain in the bin but you sold it on the board.  As the board price goes down, putting money in your futures account, the cash goes down, taking money out of your grain equity account.  If I make a dollar on the board I am losing a dollar in the grain bin.

 

I don't understand the reference to cleaning the bins out before harvest.  There were chances to sell grain considerably higher earlier this year, so why was there any grain still in the bin?  It must be a bull who holds grain into harvest in the face of nearly constant predicttions of high supply and lower demand.  Maybe I don't get what you are saying.

 

A strong dollar is bad for grain prices as US grain costs more than grain in cheaper currencies.  A big crop, maybe a bin buster, should put pressure on prices.  Cheap oil I don't know about.  Cheap oil should help developed and developing economies and maybe develop some demand that was not there before.

 

I agree with you 100% that the analysts talked this market down hard and I fell for part of that, myself.  I sold some 2015 beans at what looks to be now a very cheap price.  I did OK on some earlier sales but regret some of my later ones.  As you say, prices rebounded and surprised many of us, me included.  But the price rise didn't hurt my hedge account because I lsold my cash at the same time I bought back my futures, so it was always a break even.

 

I think a factor that all the analysts missed is the confluence of a lot of on farm storage and farmer prosperity.  In the past, when we had a big crop the farmer couldn't store it and probably needed cash flow, so the grain all pushed into a market that responded by paying cheap prices.  This year, farmers  have more bins (we all know that) but more farmers are sitting on a couple of good years and don' t need the cash as badly, so farmers are not selling.  This is the first time I think that this has made a big deal in the  market and I think it has confused the analysts.  It's going to confuse a lot of people from here on out because a bunch of farmers with grain on the farm and money in their pocket is a lot harder to get a handle on than a few elevators wtih corn piles sitting outside on the ground.

 

It would seem to me that analysts in the future are going to need to consider additional metrics to try to determine farrmer selling and storage psychology to a greater degree than in the past.  Just my thoughts.

 

How is this going to influence my marketing?  I probably should sell more incrementally.  But I should do a lot of thigs that I don't always do, so we'll see.  I'll admit to getting caught up in the price decline this fall and selling some 2015 too cheap.  Why is marketing tuition always expensive?

Advisor

Re: What say Da Bears?

Nice opportunity to average in sales and clean up what wasn't sold at much higher prices.

 

Makes a very nice average, thank you, and with above average yields a very nice gross, and net.

 

Which I believe can only come in handy in what will be a much more challenging environment going forward.

 

No crop insurance payout, though, Smiley Sad

 

PS, for whomever said that prices can't stay low forever it is probably true in the very long term but it can be as Keynes said,

"longer than you can stay solvent."  Like 1989-1995, or '98-'03.

 

Although the terms of government support are much more generous now, I'll grant you.

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Honored Advisor

Re: What say Da Bears?

Farmer prosperity is not the only reason for not selling this fall.

 

Antidotal evidence is pointing to many were under their cost of production and the notes at the bank weren't due yet. They stored it with a hope and a prayer. Working so far.

 

 

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Advisor

Re: What say Da Bears?

Can't complain about buck being bearish when buck covered hedges to the short side and hedged his presold grain (sold at much higher prices)to the long side. You also can't say buck is always short when buck is profiting to the long side.
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Senior Advisor

Re: What say Da Bears?

It doesn't matter to me much but I have no idea what you've done as it's always after the fact in the market when you say you've changed positions and mention them. Otherwise I'd say you took a real pounding when prices arrested and then rose. You said you rolled to the new crop to make money but seems unlikely. Just sayin.

 

Even the real pros got caught on this one, though that's not really saying much, considering the track record of the pros tends to not beat the market.

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Advisor

Re: What say Da Bears?

You can't take a pounding when starting hedges are at much higher prices. You are playing with house money at that point and it is all profit. You still planning to go to ferguson pal and song we are the world.
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