Pearson: This is the Friday, August 19, 2011 version of Market Plus. Hey, thanks for joining us here at our Market to Market web site. With us this week one of our regular market analysts Jamey Kohake.
Pearson: Jamey a couple of things I want to talk about. There is a some anxed out there in the countryside about where we are going. There is concern about what could happen to the biofuels industry if corn prices get too high. We have seen a huge shift away from corn to wheat in a lot of the feed rations out there for all phases of livestock and even ethanol production over in Ohio. So there is concern about that - this rationing concept. Concern about what the government support for ethanol could potentially do to the demand from there using up five billion of our less than thirteen billion bushel production. What about getting some insurance? What about buying some insurance for next year? You start looking out a year beyond a crop that you are producing today and the big question is what are your cost going to be? What do you tell clients and what do you to offset some of that?
Kohake: Right the first thing I do is I advise them to get their inputs locked in so we can do some break evens. And like we said on the show it would be good to bid down than bid high seventies. I would start advising customers to do some forward pricing then and then I can do some break evens then on the board. Obviously six fifty Dec. 12 corn works but inputs are locked in.
Kohake: The problem with hedging out into twelve or thirteen with the corn and/or beans is there is not a whole lot of options. There is some risk involved. You got to sell the futures or find somebody to do a hedge to arrive. A lot of traders don't run that risk anymore. They don't want to meet the margin in calls. So it is up to you. But if you can stomach the risk and say hey six fifty corn works for me. I'll sell more at seven or eight or nine and start doing percentage wide sales. I like doing it. I like starting at six sixty or six eighty and then going up to seven bucks. But options are too expensive. There is too much time value. So you’re only ahead to sell futures or do an HTA to make it work best.
Pearson: That's right and like you say sometimes that's not always a winnable situation. As you look at these markets, we talk about the China corn demand which we understand could be huge as well, and certainly buyers have been stepping up even at these high prices securing their corn supplies. So it looks like bullish city out there right now if you are in corn really and soybeans not quite so much because the South American production. But I am also looking at these production maps. We saw a lot of corn getting produced down in South America this last year. We're bringing other parts of the world and we're not the sole supplier to corn too.
Kohake: Right. South America is starting to produce a lot of corn. China's hog herd is expanding at a rapid pace. It is crazy how fast they are expanding their hog herd size and that's where a lot of this corn is going to. Short term in here I think the market does move higher but what I was saying on the show too the market looks tired to me a little bit. We had a lot of bullish news this week and could barely hold new contract highs. So short term I am selling a little bit of these rallies for guys that can't store their crop and sell off the combine. We're taking advantage to that this week. But longer term I think you're right tight carry out, fighting for acres, again same old story, but I think we need a sharper set back to be able to make it run for seven sixty or seven eighty.
Pearson: I think you are right. I think we are going to need to get a lot of people back from vacation.
Kohake: Exactly volume was slow this week.
Pearson: Very light and post Labor Day everyone is going to come back in and take a look. We will get a crop report and the whole dynamics of this market place could change. But you'll never go broke taking a profit as grandpa used to say and if you can lock in some floors here you'd recommend people take advantage of it?
Kohake: I would hedge wise. We're just beating the market up with the same old news everyday. Like you were saying everybody is assuming one fifty-one, one fifty-three trend line yields.
Pearson: Elwin Taylor came in at one forty-nine.
Kohake: Every day it is somebody different saying the crop is not there, - disease from Story City, Fort Dodge, all the way out to Chicago, and all that every day. We know this. We beat it up every day. So I think we need something else. Some other incentive to get us up to seven forty/seven sixty, and I think that biggest factor would be exports. China come in and buy a bunch or Japan or somebody.
Pearson: Could be the catalyst for this thing to get a blow off top. Jamey as usual some great information. Appreciate you joining us.
Pearson: Jamey Kohake joining us this week on Market Plus. I want to thank all of you for joining us as well and from all of us at Market to Market, I'm Mark ¸