wmeubank@ocp.kcmo.com
(May 5, 1997) CORN: It seems that about everyone we talk to now wants to sell between 280 and 285. As we visit with producers, only about 20% of the new crop has been sold which creates a problem for the market. If everyone wants to sell this year (because the government provides no price protection), then there is so much volume in the pit to sell a rally, that rallies likely fall short of expectations. Furthermore, we think the crop is well over 50% planted. The weather next week looks ideal. The speculator is still long but his bullish glimmer has faded. There is no protection for you this year from the government against lower prices. Even with average weather there is huge price risk as we could be looking at a 1.5 bil. carry out. Food companies will take advantage of this.
They will lower their price. They have a lot of profit margin to
make up for after last year's 5.00 corn. So if you are not 90 to
100% sold, you bear the risk. If you are concerned about having too
much sold before the crop is made, why not: 1. use futures instead
of cash (less of a commitment for delivery); 2. use the insurance
programs to guarantee bushels; 3. get at least those bushels that
are guaranteed by insurance hedged. Or, if you use CRC then what
are you waiting for? Selling futures on top of CRC is just like
selling your crop above the estimated average farm price under the
old ARP-Target price guarantee. We are short. We are hedged 90%. We
recommend CRC and bean calls. The CRC gives you bushel protection
and 4 bean calls versus 50k bu. corn gives you equity protection
(if we sold out of our bean calls today, our corn hedge would be
above 320 per bushel). The bean calls also give your bank
additional collateral in bushels. And we use the bean calls as
initial margin for your corn hedge.
Bill Biedermann
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