John Roach's DAILY GRAIN MARKETING PLAN

 

Chicago wheat will be in its 2^nd day of a Sell Signal today.

 

Winter wheat producers should be selling the percentage of 2010 crop that cannot be stored on the farm or in reasonably priced commercial storage. In areas where basis is very weak, consider the cost of commercial storage against the potential of basis improvement.

 

The world wheat numbers continue to shrink with traders expecting as much as a 10 million ton cut in world production numbers on Friday. This would be in addition to the

 3.7 million ton cut made for EU-27, Syria, Turkey, and Russia last month. Although we expect seasonal strength into February, U.S. surpluses will likely still be big enough to keep prices from a sharp run up if there are no further losses.

 

Corn will be in its 2^nd day of a Sell Signal today.

 

We recommend selling the last increment of corn in the bin and the balance of new crop corn you want to have priced before harvest. Be sure to sell enough new crop corn to cover cash flow needs until March. You don’t want to have to sell at a cheap price to pay a bill you know will be due on January 1. 

 

Use this rally to buy put options on all 2010 corn you are leaving unsold. Call your Roach Ag consultant to get put options purchased.

 

Don’t let anybody (most likely yourself but possibly some broker who thinks he or she knows what prices will be) talk you out of making some small sales on December 2011 and 2012 corn. Sell futures yourself if your buyer won’t offer a contract.

 

 

If you missed my letter on Friday, please go back and look at it.

 

Mark from Ohio wondered if my Friday economic concern letter was geographically stimulated when he asked, ”We have received your news letter for a while and value your opinion.  You mentioned recently that not driving past crops was an advantage in marketing for you.  I wonder if living in Florida had any impact on your Friday outlook?”

 

Good question!  I don’t think so but you sure gave me cause for thought. By the Grace of God, Roach Ag is having a good year and we are not influenced by owning property bought during the housing bubble. So we are not speaking from a position of personal financial distress or worry.

 

The concerns about the world economic situation are not from me. It was widely broadcast by media all last week. The part from me was how that might impact your corn prices for 2011 and 2012.

 

Selling at high prices is what we try to do and selling years ahead is frequently the best way to get the best price, with only rare exceptions. We believe that grain prices moved into a new plateau beginning in 2006 but that plateau has a bottom as well as a top. If you look at the corn market lows in 2008 and 2009 they were very close to $3.00 and $3.20 respectively.

 

Selling at $4.00 is a good idea since prices in a normal year will likely go down to something closer to $3.00 at harvest.  We have recommended sales on those distant crop years many times, so our recommendation is consistent with our history and purpose. +

 

The increasing potential of a deflationary environment just adds another reason to make a good sale. We hope those sales will bring down your average price for 2011 and 2012, but if like most years, it will pull your average up.

 

If you want to get really concerned, think about the amount of money that has flowed during the past 5 years into index funds that is used exclusively to buy commodities. With the exception of gold, it has been very hard for such an investment to make any money for over 2 years. Most have substantial losses. What if the flow of money into index funds stops or heaven forbid (unless you are a livestock producer) begins to flow out of those funds.

 

Farmers are always inflation minded and have a hard time thinking about what a deflationary environment might do to their business. Although some analysts are very worried I am not in that camp. I just want to get the sales on the books that make sense in today’s environment. Sales of $4.00 corn make sense to me.+

 

Grain markets operate differently in different economic environments. We have been alerting readers for months that the environment has moved away from the fear of inflation. Last week the fear of deflation moved to the front burner and grain producers need to pay attention.