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Market Plus: Jul 29, 2005

posted on July 29, 2005

Market Plus: Jul 29, 2005

Pearson: Welcome to the Market Plus page on our Market to Market Web site. Be sure to tell your friends and neighbors about this opportunity to pick up even more info about what is happening with these very volatile commodity markets. I'm Mark Pearson. With me this week our senior analyst Sue Martin. Whew, Sue, I'm telling you what there is a lot going on in corn and soybeans. I want to talk a little bit more about price strategy and you talked about, you know, if this bean market keeps going up over the next seven to ten days you were kind of willing to take some money off the table. Talk about that.

Martin: I think that is probably based more on timing than most anything. But around the 5th of August and again around the 6th to, not the 6th but the 8th, 9th there is timing there that could put a high in here if we rally into that. And I would probably take some money if we've rallied into that a little bit and then step back and see where we are with this. The next time you get a break then all of a sudden you could take off and start to run from maybe around the 11th on into September. If we break into that time instead then the timings have endured it and rather than the high you're putting in a low and then that could set the stage to start to rally on in through the fall. And so it's real important how we encounter this first week or so of August as to what our fall really is going to be like. I think that the one thing I want to also really emphasize is $8.23 is our second count for the price of beans basis November. And usually in a year like this you would make your second counts. Our second count on corn for December was $2.78 and we got to $2.72, $2.73 so you have to window we might have been close enough. But on the beans I would think that if you get this market through the highs of $7.75 then we're going to really extend because this is a huge pinnant that we're in. If we take out the high side or the pinnant to the up side then we're probably going to go after the highs. You take those highs out your targets should be for right at $8.00 beans. And if you get over $8.00 beans, $8.05 to $8.20 I'm going to tell people to cash in and walk away from this thing because you're going to hear a lot of talk about $9.20, $9.70, $10.00 beans, try to ignore it and say thank you and go and start to market your crop and get it done because there will probably be some better price opportunities to protect yourself back into the market if you want to by calls or however you want to do it. Another way that people can be bullish here is to buy call spreads. That way you're not risking an awful lot but you stand to make what your spread is. Like, in other words, if you're buying a $7.00 or a $7.20 call and you sell an $8.20 call since we think, you know, our second count is $8.23 put in an $8.20 call and sell it, you lock in the difference of those two and then you have to minus out any extra premium that you've had to pay. But you're limited to what you're going to risk and then you can go and sleep at night and enjoy the ride. If it goes up you're excited and if it doesn't well then you didn't risk as much as you would have if you had been in the futures.

Pearson: Alright, I want to come back to corn and talk about price. Now, you said we did hit $2.72 around in there basis December as the second count. So, if I'm hearing you right we may have seen the high in corn?

Martin: It's very possible we have. That is why it's very important what we do for the next two weeks because what has been with us for a long time is in this corn market. And this is why corn waited until May to bottom this year is the fact that we look at big carry outs coming in, or carry ins from last year coming into this year and then with any decent crop at all and we know it's not going to be like last year, that was a fluke, but with any decent crop at all you would have fairly large carries yet going out. And the traders looked at that and like I say they have not even begun to think about what has been going on in China and the fact that we're probably going to see some pretty darn good demand next year in export business. And so because of that all there is, is bear, bear, bear on supply and that's all they're thinking about. So, that is going to stay as our black cloud until we really change it. So, we really have to have a true hard nosed bonified problem and they're looking at Iowa as picking up some of the slack that Illinois is losing.

Martin: Now, I think this past week when they started to realize that even though the crop could look green in the field from the road and they get out in it and they notice less ears and they notice smaller ears and then they pull back the husk and it looked like a nice, lush field and they pulled back the husk and 20% of that ear did not pollinate on a smaller ear now they're starting to realize, oh my goodness, the heat had an effect on the pollination. Now, Iowa, that is why they're so interested in Iowa. Iowa is the make or break of this market I think. And I think we're going to have some problems in Iowa, not necessarily just the southwest, eastern part of the state but there is other areas where we've had a lot of heat, maybe had a lot of rain to start off with and the crop isn't looking quite as good now through the Central part of the state around Highway 30 on north up to the maybe past almost to Highway 18, some of that area doesn't look too bad. They caught rains nicely and timely even through the heat. They might be okay and have a decent crop but that is not going to make for the state to really come along and help us out.

Pearson: Okay, so you're not saying the high is in. Based on that count we're close. But you need to be pretty nimble here.

Martin: $2.72 was a number that we could have stopped at that was one of our targets as well even though we knew $2.78 was our second count. $2.72 was a number you see a lot of times in years similar to this one. Now, having said that, if you go back and granted history is not always a guarantee for the future but if you go back and look at the last 35 years there were seven years when you had from July 10th to July 31st new contract highs made in December corn and six of those seven years went on to see higher highs again. It could take all the way into December to do it but they did it.

Pearson: Alright, keep that in mind folks. Sue, thanks so much. As usual some great ideas, some great thoughts. Sue Martin joining us this week on Market to Market, glad you've joined us. For all of us here on Market to Market, I'm Mark Pearson. Have a great week.


Tags: agriculture commodity prices corn markets news soybeans