AG INVESTOR
Prepared by North Star Commodity Investment Company
Fundamental Factors
Strategy Update For Corn, Wheat, And Soybeans
(November 22, 2000) The price target to get to 50% sold in the soybean market was hit this week when January CBOT soybean futures rallied above $4.90.The 50% target for corn sales was hit two weeks ago when December corn rallied above $2.15.Cash wheat sales are at 50% following the October 20 sell recommendation.We have recommended these sales because we had earlier suggested taking 100% of the LDP and wanted to lay off some of the risk. With good yields, large LDP payments, basis improvement and the recent rally in the futures market, the dollars per acre work, even if you are not happy with the current flat price. Looking ahead, we are likely to buy back wheat first.Several timing patterns suggest a low for wheat late this week (Friday) or next Monday or Tuesday. If you made the October 13 and October 20 sales, stay in touch.We may come in and buy some back. For corn and soybeans, we have several key times that we may consider going back in long.The first is at the end of this month, November 30 to December 1, 2000. The other times are right at the end of this year and then at the end of February to early March 2001. If prices pull back, and we can identify a low risk method to reown, we will make that recommendation; if prices keep moving higher, we will concentrate on selling the last 50% and getting some new crop hedges in place.
Get 697 Financing In Place
In late September, early October, and late October, we suggested locking in the LDP or placing the corn and soybean crop under loan and then locking in the buy back price by using the CCC Form 697.A lot of producers will have that 60 day buy back period coming in starting at the end of this month.We have suggested pricing at least 50% of those bushels with many of you selling the corn and soybeans for delivery in January to March 2001. Make sure you meet with your lender now to show him your marketing plan and get a loan commitment to be able to write out the check when your 60-day lock in expires. In many cases, you are ahead $0.40 or more on soybeans and $0.10 to $0.30 on corn. If the lender is concerned about the 50% that is not sold ahead, consider some January puts on soybeans and March puts for corn to protect all of your risks. If you locked in on our earlier recommendations and then made the follow up sales, you are in a good profit position. Just make sure you are in a good financial position prior to the last day!
Energy Prices Continue To Soar
Cold weather, strong demand, and limited inventories rallied crude oil, heating oil, and natural gas up to new contract highs this week. Long term, this is positive for ethanol prices and the corn outlook. This rally will also make spring fertilizer and other input costs increase. We are looking for a place to begin making spring input recommendations. Check your prices but do not lock anything in yet. The alignment of the futures market suggests lower cash prices for fuel by the March to April time period.
Potential Low In Wheat
The weekly Kansas City wheat chart is beginning to form a potential bullish outlook. A weekly close above $33.5 will open the door for a test of $4.00 to $4.20. This week's chart action formed an outside up week, signaling a potential secondary and seasonal low is in.
Analysis And Strategy
CORN: Slow exports and lingering concern about StarLink contamination had corn prices trading sideways to lower this week. In the first three trading days this week, December corn closed at 2.10-1/4. December corn now has short-term support at $2.10, with major support at $2.05. Resistance is at $2.16 and then at $2.20. With the improvement in cash basis bids this week, cash bids are right up to the highest level again since harvest. Odds now favor a sideways choppy trading range market into early December. With the recent sales going to 50%, we are watching for the timing of a short-term low in the corn market to reestablish long futures or call options to reown that corn. One of the key factors we will be watching for is an upturn in wheat prices that is long overdue.
Strategy--Three new crop sales at an average of $2.58 using December CBOT corn was recommended last spring and summer. Producer sales should have been at 30% prior to harvest. With the December corn rallying above $2.15, sales should now be at 50%, with all corn in commercial storage sold. All of the LDP was locked in during the late September to October time period. With the rally in futures and improvement in basis producers are ahead $0.14 to $0.26 per bushel versus the current LDP rate. On a setback into early December, we will look for a place to reown that 50% with either long futures and or call options. Longer-term, the next sales target to make additional sales is in the July 2001 CBOT futures at $2.55 per bushel.
FEED CORN: Cash feed corn should be locked in through June of 2001 on advice made in late September to early October.
SOYBEANS :Continued active buying from China and rumors of production problems in Brazil had soybeans trading mostly higher during the last three days. At the close today, January soybeans were 4.91 versus the close last Friday at 4. 88. The nearby demand for soybeans has been huge and exporters and processors are scrambling for limited farmer sales. This has not only rallied soybean futures higher but has also inverted cash bids. Inverted is when nearby bids are higher than bids out 30 to 60 days. Check your cash bids versus the bids out into January to June 2000, and odds are you will see the benefit of selling now and then buying back with paper. The price target at $4.90 was hit this week so cash sales should be at 50%. Some producers are 100% sold in the cash market and are holding back long futures and/or calls on 50% of the crop. With no carry in the market this has been the right merchandising move.
Strategy-You should have locked in the LDP on earlier recommendations in the range of $0.89 to $0.94 per bushel. With the rally above $4.90 this week, cash sales should have been increased to 50%. On a setback into late November to early December, we will want to reown those earlier sales and get back to holding 75% to 100% of the crop by purchasing long futures and or call options. Decide now how many bushels (contracts) you want to buy back. No new crop sales. The prices are way below loan level.
SOYBEAN MEAL: Active fund buying combined with the announcement that almost all of Europe is going to ban the feeding of meat and bone meal rallied soybean meal prices sharply higher again early this week. In the first three days this week December meal prices gained $3.60 per ton. The earlier recommendations to lock in cash meal or meal futures look good as most producers are now ahead $15 to $30 per ton. The next major resistance for meal is at $200 with good support now at $175.
Strategy--Livestock feeders have meal bought ahead through December 2000 on earlier recommendations. With t he recommendation three weeks ago, livestock feeders should now have your feed needs 100% locked in through June of 2001. If you are long the March $170 call options, stay long.
WHEAT: Improvement in the US wheat crop and slow exports again combined to drop wheat prices lower into the close today. In the first three trading days this week, wheat futures closed $0.01 higher. The long-term fundamentals for wheat are positive and prices are now entering the ideal time for a cyclical low. Be ready to buy back your earlier sales early next week on the first day that wheat futures close higher from where we made the October sale recommendations. Wheat futures are $0.10 to $0.25 per bushel lower.
Strategy--In early August, we suggested locking in all of your LDP for wheat. In t he week of October 13, a 25% sale was recommended. A second 25% sale was recommended the week ending October 20. Time cycles now suggest buying back those earlier sales the first day that wheat futures close higher next week. No additional sales now. We anticipate a rally back in the futures market and better selling opportunities ahead in 2001.
HOGS: The cash market was steady to firm for the week with tops at $37.00 to $38.00. Pork cutout values are showing some signs of improving, which is needed to support higher prices. The monthly cold storage report once again shows pork supplies at record levels for this time of the year. Despite the bearish fundamentals, hog futures closed higher once again. We feel the hog market will key off the cattle market. The major supporting news for cattle this week was the sharp rally in box beef prices which surged to new highs for the year. The higher beef prices go the more, it should support hog prices.
Technically, nearby hog futures closed higher. Our price target for December hogs is $56.00 to $57.00. They closed at $54.55 on Wednesday. The short-term cycle pattern suggests futures prices will peak in January of 2001. However, if futures rally $1.00 to $2.00 before the December report, we plan to forward contract or hedge 25% of the hogs marketed through April of 2001. This will allow us to lock in a profit and create a base for your long-term marketing plan.
Strategy--Place orders to forward contract or hedge 25% of the hogs through April if February futures reach $58.20. Liquidate the $50.00 puts if this order is filled.
CATTLE: The cash market closed higher for the week with tops reaching $73.00. The support comes from firm box beef prices which are now trading at new highs for the year. This is a sign of strong demand. We feel the key to this market is weather. The current forecast calls for more rain and sleet in Texas and Oklahoma the next two to three days, while the extended forecast indicates another cold blast of air the middle to latter part of next week. When cold wet weather is in the forecast, it will support cash and futures price. The cold weather will limit weight gains and increase feed consumption. Technically, nearby futures closed higher for the week shrugging off a bearish cold storage report on Monday. Major resistance is at $74.50 with major support now moved up to $69.50. A close above $75.00 will open the door for a test of $78.00 to $82.00. On previous advice, we should now be 50% hedged or contracted. Place an order to buy a February $76.00 at $0.50. This will allow us to have cattle sold within $2.50 of the high. If February futures close above $76.00 before this order is filled, exit on half of the short positions.
GLOBAL SOYBEAN
PRODUCTION SOARS
In the 1970s, the world super powers created an arms race to see who would have the greatest arsenal of mass destruction. In the 1990s, we are experiencing a race between the U.S. and South America on who can produce the most soybeans. The graph shows total soybean production in South America and the United States since 1990. The glaring observation of these graphs indicates huge increases in soybean production since 1997, when soybean prices started to plunge lower. It appears the lower soybeans go, the more we produce. In order to change this trend, corn and wheat prices must rally.
November 22, 2000 North Star Commodity Investment Company P.O. Box 15086, Minneapolis, Minnesota 800-345-7692