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John Roach's DAILY GRAIN MARKETING PLAN

Overnight Trade

May Corn up 2 1/4

May Beans dn 1/2

May Wheat up 11

Sell Signals

Today beans will be in their 4th day of a Roach Ag Sell Signal. We want to continue with our daily sales over the next 2 days. We are recommending making sales of an increment of beans in the bin and an increment of new crop that you cannot store on the farm. We expect at least one more bean Sell Signal during our Selling Season, so calculate your sales increment accordingly.

We also want to buy November bean puts on this Sell Signal. You will find that November bean puts are very high priced as they were on the last Sell Signal. Yet the $9.00 to $12.00 strike priced bean puts purchased on the last Sell Signal increased in value from 300% to 500% when bean prices dropped.

The extended corn Sell Signal ended 2 days ago. We expect at lease one more Sell Signal in corn and will wait until the next market peak to make additional sales.

We continue to buy corn puts to bring coverage up to ¾ of the new crop corn you plan on storing unsold.

Wheat markets are struggling in their effort to go higher, but we will wait for the next Sell Signal to make additional sales.

Markets

Asia-Pacific stocks are trading mostly higher with Japan +1.20%, Taiwan +1.58%, Australia +1.29%, Singapore +1.01%, South Korea +0.83%, Bombay +0.56%. China was down -2.49% today and Hong Kong is down -0.10% after the Chinese central bank today raised banks’ reserve requirements another notch to try to curb credit availability. The European DJ Stoxx 50 index is up +0.61% this morning.

Mike from Iowa said, “I bought some Dec. ‘08 corn puts on 1/11/08 & 2/27/08. (4.60 for $.23 & .24) corn then was about $5.20 & $5..50. Today those puts are $.11 & corn is $6.27. What I’m wondering is should I cash in my puts & sell cash. When I bought the puts I thought it was a good price, but now corn has gained a $1. When I bought the puts I was trying to protect the unsold corn in my bin. The only draw back I can see is if I don’t raise enough bushels.”

I write The Daily Grain Plan assuming that all the grain you raise is for sale, but I know that some of your grain is not really for sale until some date in the future. Most farmers like to sell some grain ahead, even before planting it, but few want to sell all their production until they have a really good idea how big their crops are going to be. Yet, the price peak in corn historically comes in April and beans normally peak in early May. Last year if you turned down $4.00 corn in February, it took a dollar break then you had to wait and worry until June before you had the chance again.

We use puts as an insurance policy or investment vehicle during that period of time (1st half of the calendar year) you are waiting to make the “real cash sale” on those bushels you don’t want to sell. If prices drop (and they do most years) the puts increase in value. If prices go up the puts lose, but as you have found, they usually lose lots less than the cash market gains.

Mike, your puts are down 12 to 13 cents but your grain is up nearly $1.00. When corn was at $5.50, you were willing to sell a certain amount. Now that it is at $6.27 you seem willing to sell a bit more which is exactly as it should be. Those sales are ok, but I wouldn’t take off the puts yet because on the next market sell off (and you have lots of time for that to happen) you will be surprised how much of their value will be regained.

Jim from Iowa asked, “I am a little confused at times as to just how many puts to buy. We are buying puts that will theoretically be profitable only if corn drops by about a dollar (5.20 puts vs. 6.10 futures). My question is should we be buying more puts than bushels which we are vulnerable. Thanks for your help.”

Buying puts is a little like buying any other kind of insurance. If you cover the loss completely (no deductible) the cost of the premium is really high. Most of us have some kind of ‘normal’ we use on an insurance deductible. You are asking if you should have a no-deductible policy. Do you have that kind of deductible with your other insurances? Did you buy the maximum coverage on your crop insurance, car insurance, or health insurance?

The research we have conducted shows that the percentage return is about the same for several strike prices bought at the same time on our Sell Signal. If you pay 25 cents to 70 cents for a corn put and the market drops sharply, each premium value will increase by about the same percentage.

Keith from Iowa asked, “Is this one of the first signs of waning demand? I was visiting with the buyer for our local ethanol plant and commented on how their basis is getting wider on all months. I asked how they were positioned for their summer corn needs. They have almost all their needs covered for May through July as well as a large portion of their harvest time supply. They have 3 million bushel s of storage that was full as of last week. If most other commercial needs are getting covered under contracts, are we very near a peak on demand? We also have a 9% increase in sow slaughter over the past 6 months. Does that mean we better get our sales in place soon? I really don’t want to price any more grain for 2008 and the 2009 basis is getting much wider; if you can get a bid at all.”

First, as I said last week, the two mistaken reasons farmers use to keep from making sales at the peak of the year are “I can’t take any more income in this year and the basis was too wide.”

I talked to a director of a low cost ethanol plant asking if they were in the red or black on their March production. He said they were in the ‘pink.’ Some days they were profitable some days not. He said their average corn cost for the month was about $4.50. Unless ethanol goes up, corn at $5.50 will put them solidly in the red. I think that is the mistake that farmers might be making. New crop corn at today’s price is not profitable for very many ethanol plants or livestock producers yet nobody is yet cutting the corn demand estimates for the new year.

Ask your ethanol contacts about how profitable their business will be if December corn stays where it is. Ask them how high ethanol has to be if corn prices stay where they are. What will they do if the relationship does not get profitable? What contingency plans are they making? I believe that rationing is occurring, it just isn’t being reported yet. By the time you hear about it, the price will be lower because it will already have happened.

Sally from Illinois asked, “I have a question about the bean sell signal. We do not have any storage for beans so when you say we should have ¾ of our beans sold that can’t be stored—then do you think we should have ¾ of our total est. production sold?”

If your plans are to deliver all your beans at harvest, I would sell as many of them as I could and still be able to sleep at night this summer. Split up those sales on this and the next Sell Signal. Use puts on those that would keep you awake if you sold them.

These data and comments are provided for information purposes only and are not intended to be used for specific trading strategies. This commentary is written as a daily marketing tool to help farmers sell the grain they raise. Although all information is believed to be reliable, we cannot guarantee its accuracy or completeness. Commodity trading involves the risk of loss, and you should fully understand those risks before trading.