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Re: a chart to keep you awake

I have no problem saying what I said last year and will say about the same this year: 

 

the game has now changed because they have quit moving the goalposts every year (RFS) and the commodity money mania is over; now it is just a weather issue.  Same 'ol.

 

The N. Hemisphere grows anything near a normal crop and prices are going to be a lot lower.

 

As to $3 contracts back at the turn I'll blow my own horn a little. Nobody knew how quickly the ethanol legislation would impact prices back in Fall '06.  When the market closed at new highs in the middle of harvest that year I said that one should listen to the market and move immediately to cover everything if you have any sales on.

 

 I sold "too soon" in the late 2010 recovery although I did argue strongly against selling in the hole that summer when Purdue's favorite private advisor and others were stampeding farmers into panic sales. Got to admit that I didn't see the QE echo commodity boom coming.

 

I am pretty bearish the world financial system in general although not in a goldbuggerish "bleed all patients" sort of a way.

 

 

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Veteran Advisor

Re: a chart to keep you awake

The world needs to have singles hitters, too. I was not launching any ad hominem attack on Nox, just pointing out that his stance on thinking he should invest in precious metals might be better served by just hanging on to some gambling stocks of golden kernals instead.

 

It is true that emotions drive a lot of things, and I discovered that I personally don't stand up well to million dollar margin calls or high priced put insurance. The government currently provides a relatively cheap way to hedge new crop via crop insurance, and I don't see the great risk of doing nothing this year.

 

I am quite content to wait for the sweet pitch once again and hit it out of the park, and am well positioned to store two years of sub $4 corn if that would be the event instead. Not likely in the current world dynamics, but possible and a scenario that would still have me eating regularily. If anything, $4 corn would provide a good buying opportunity in the land market as prices would tumble quickly in that sector.

 

And as far as selling $8 corn last fall, who didn't?  Probably the guys that hedged a substantial quanitity didn't. The grow it, bin it, sell it crowd hit two years of home runs, in cleaning out 2011 and accelerating 2012 sales. Hard for me to believe that we have close to 6 Billion bushels of corn on hand as of March 1. TIME will certainly tell the story as the summer progresses.

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Advisor

Re: a chart to keep you awake

Redeye will be just fine if he has RA insurance and a bunch of grain bins. There will good carry if we produce a monster crop.

Predictions are usually folly; usually given to serve ones desire to be right.

 

Be thankful you had a crop to sell at 8 bucks. Many of us thought we would be harvesting with a bush hog; some did.

 

Don't have a problem hedging if you got the bushels coming and the price is above cost of production..

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Senior Advisor

Re: a chart to keep you awake

Some general thoughts.

 

Gold is not grain or vice versa.Gold has limited industrial use but is otherwise purely speculative. Grain is consumed and is a necessity and has a higher priority. Linkage between the two is limited.

 

Hedging protects for a certain kind of risk. If you think that it does not have inherent risk itself is simply delusion. It is a cost pure and simple, and at times it is worth taking if your tolerance for risk is limited, including the problem of not being able to hold off if the time interval for selling is required to be short..

 

Strategy and risk also are impacted by the time interval between production and  when a commodity has to be liquidated in order to cover obligations, resulting in less opportunity to wait out the usually minor bumps (like reports) and take advantage of fundamental changes in your favor. Doesn't mean 'risk is eliminated. It just reduces the necessity to sell during shorter interval 'blips' and downturns.

 

Yes, the federally subsidized crop insurance changes everything! Just how much risk is there when the variables of production AND prce are protected at high levels. Just how much hedging is needed in this environment. I'd argue - not much.

 

If you told somebody in the equity markets he needs to spend as much money to hedge their bets on an annual basis as recommended to most farmers for grains they'd think you were simply nuts. Yes, there are specs out there that make a complex game out of anything to eke out dimes and nickels on a fairly reliable basis, but a few stops and sell orders are probably as cheap as anything. They might be ecstatic if the govenment offered them insurance - but maybe that would be too expensive too.

 

I'm a small operation, I rent almost every acre, I don't have to borrow for operations, and something like a report or the jockying of opinions before the crop is planted are not big concerns to me. My time horizon isn't short, I can look at major trends over time and be an opportunist. Yeah, I know it isn't supposed to work and I should have been wiped out a long time ago. What can I say? It works for me very well. And i perceive myself as managing risk and having equity in my grain. Nothing is guaranteed.

 

I do gather a LOT of information and I know my industry. And I've been at it for some time. There are more than a few ways to skin a cat.

 

 

 

 

 

 

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Veteran Advisor

Re: a chart to keep you awake

so what are y'alls opinions of corn/beans commercial net position and implications for price near term?

 

any understanding relative to historical levels and future market influence?

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Advisor

Re: a chart to keep you awake

Don't do much research there CX. Can you give us a little 101

 

All I know is my local bean buyer popped his basis 30 cents in two days. Unheard of in this area

 

Cat

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Honored Advisor

Re: a chart to keep you awake

Excellent thoughts from everyone.

 

The one additional point I would make is that all 3 of you are demonstrating some very unique production, management, investment business tactics. You all seem to think you have unlimited capital. This assumption does not mean holding unpriced grain for 2 years is a wise use of capital. It certainly wasn't from 83 to 86, or 74 to 76, or any other 2 years following a drought. The carry may not be nearly as large as you think is guaranteed?

 

With over 33% of the corn sold out of the field nationally, the are many who obviously don't have the capacity needed to play the game. Looking back on it, to retain such huge levels of excess capital, you had to buy less land or grow much slower. These decisions also had a cost, at least an alternative cost which no one ever calculates.

 

Palouser's point about crop ins is a good one, but VERY farm/region specific. This just highlights why having a plan with tactics you can live with mentally is of great value. Most importantly, crop ins is not available for 2014. One of the reasons it is actually more important to have 2014 sold now instead of 2013.

 

Sure, we will all sell the carry and capture it CAT. We just don't think doing so on the whole crop is practical or a good use of capital is all. That was not the approach Red was advocating.

 

Appreciate your thoughts and thanks for the clarification.

 

Palouser, your comment about hedging stocks really does not apply btw. We farmers have 100% of our assets committed to one very specific segment of one very specific industry that is propped up by government mandates and subsidies, at the generational peak of its price to earnings ratio. Farmers are just way over-invested in one thing. If we are going to take risks owning land, owning rusting equipment and bins, owning trucks that are liability magnets, and owing inputs, and owning grain in the bins unpriced (as Red suggests), haven't we already invested enough in agriculture? Transferring a little price risk on just the grain hardly seems like a big deal. Especially when we can do it at extremely high profit margins. 

 

Yes, hedging has costs. Sometimes large, sometimes not, tools and tactics are critical to managing the cost. NOT hedging also can have some HUGE costs in 6 or 7 out of any 10 year time period.

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Advisor

Re: a chart to keep you awake

As my father would say "Everyman is right in his own mind"  In times like these a little grain in a bin can be a hedge against inflation , monetary failures, bank runs etc.

 

I understand all about carry and storing grain Time, don't worry.

 

 

Time did you and the "Little General " compare notes before this weeked.

 

Unlimited capital? not sure anyone thinks that especially if you have lived long enough to have a few gray hairs.

 

Time it must be a part of your personality to want to be right and in doing so your message carrys a hint of ridicule to those who disagree or have another way. 

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Honored Advisor

Re: a chart to keep you awake

Obviously agree with hedging against inflation, that is why we own as much land as we could cashflow :-)

 

CAT I am not worried about you. We seem to do things is very similar ways. Probably very much alike I suspect. My comments were specifically directed to Red's "storing 2 years in the bin comments". You never suggested that. Like I said great comments from everyone. Where is the ridicule in that?

 

As has often been the case in the past, my communication skills let me down I fear. If pointing out the weaknesses in other approaches is ridicule, there can be no learning, by me or by others.

 

Thank goodness it is TIME to get back in the fields and off the websites :-)

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Advisor

Re: a chart to keep you awake

I suspect we're all getting a lttle edgy to get the planters rollin. Still early though

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