mason city 3 18 10 meeting
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© Roach Ag Marketing, Ltd.
Grain Price Outlook and Market Strategies
Presented by: John RoachMarch 18, 2010
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What fundamentals drove 2009 grain prices?
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#1 - World Soybean Crop down 27.4 million tons = 34% of entire U.S. Crop
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#3- On May 17 only 62% of the U.S. corn crop was planted
with Illinois at 20%.
Beans were 25% planted with Illinois at 1%
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What are the Fundamentals Now?
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Aug forecast +31.5 MMT Nov & Dec +39.4 - Jan +42.58 Feb & March +44.16 MMT
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Tight stocks - loosening with S.A. harvest
2010 supplies becoming surplus
Prices likely peaked in January if no U.S. crop problem develops
S. America will still be shipping in Dec. hurting new crop bean price
Bean Situation and Price Outlook
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FSU-12 Exports2007-8 – 27.47 MMT2008-9 – 54.71 MMT
2009-10 – 49.50 MMTU.S. Corn Exports
2007-8 – 69.89 MMT2008-9 – 51.17 MMT
2009-10 – 55.79 MMTU.S. Wheat Exports 2007-8 – 34.36 MMT2008-9 – 27.64 MMT
2009-10 – 22.45 MMT
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Non – U.S. 58.9 Bu/Acre
World 80.3 Bu/Acre
U.S. 162.9 Bu/Acre
USDA 2009 World Corn Yields 12/10/09
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World coarse grain and U.S. ending stocks ample - but likely to grow. Wheat hurting demand
U.S. ending stocks likely to increase due to smaller exports and feed offset by + ethanol
Livestock producers breaking even or better
We still need a big corn crop every year and should have spring strength in 2010
Corn Situation and Price Outlook
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How Should I Market My Crops?
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•Focus the majority of sales in the 1st half of the year
•March through June is usually best
Rule # 1
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Chicago December Corn Futures, 1990-2005 average1-
Jan
1-Fe
b 1-M
ar
1-Apr
1-M
ay
1-Ju
n
1-Ju
l
1-Aug
1-Se
p
1-O
ct
1-N
ov
1-D
ec
230
235
240
245
250
255
260
265
approximate dates
cents
per
bus
hel
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Chicago November Soybean Futures, 1990-2005 average1-
Jan
1-Fe
b
1-M
ar
1-Apr 1-
May
1-Ju
n
1-Ju
l
1-Aug 1-
Sep
1-O
ct
1-N
ov
570
575
580
585
590
595
600
605
610
approximate dates
cent
s pe
r bu
shel
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Why Market Grain Aggressively?In the last 21 years,
Comparing December Corn Futures in March–June vs. Oct-Nov
•Dropped Significantly – 15 years•Drifted Sideways – 3 years•Increased Significantly – 3 years
Marketing Ahead is Correct 85% of the Time!
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What is it worth?
The 5 Year Ave. of Dec corn during Oct – Nov $3.07 0.66
The 5 Year Ave. of Dec corn during Roach Mar – June Sell Signals = $3.73
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What is it worth?
150 bpa X 0.66 = $100 per acre
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•Sell only when markets are giving us a Roach Ag Sell Signal
Rule # 2
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December 2007 Corn
Both Lines Over 75 = Roach Ag Sell Signal
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Roach Ag Sell & Buy SignalsYour Digital Thermometer For Prices
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Roach Ag Sell SignalsWhen Both Lines Are Above 75 = Sell Signal
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Roach Ag 2007 Corn Sell Signals56 Days of Sell Signals ($3.91) and 272 Days Without ($3.71)
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•Figure out the percentage of bushels you are comfortable selling each and every spring and tie that % to the your crop insurance policy coverage level
Rule # 3
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•Make sure you have enough on-farm or other owned storage to hold the balance of a crop using your best ever yields
Rule # 4
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•Make sure you sell enough in the spring prior to harvest to generate necessary cash-flow from harvest through February
Rule # 5
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•Split your old crop bushels and new crop contracts into between 3 and 5 increments and sell one increment of each on each Sell Signal
Rule # 6
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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December 2009 Corn Sales
Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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Put Opportunity - Buy Buy Puts on some of the Crop Puts on some of the Crop You Do Not Want to Sell You Do Not Want to Sell on a Cash Contracton a Cash Contract
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What About the Grain You Don’t Want to Sell Ahead?
• Build Storage to hold increasingly larger yields• Increased infrastructure will reduce harvest bottlenecks• Reduce drying and shrink costs• Capture the futures carry available• Capture the improvement in basis and competition between bids• Space out your workload• Avoid extremely low harvest bids
• Price Risk– “If I sell, Prices might go higher.”
• Marketing Risk– “If I oversell, I won’t have enough money to buy-back my sales.”
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• Buy Puts on spring Sell Signals• Hold them until an August – September Buy Signal• It takes advantage of the normal price decline • Cash in and wait until next year• May also sell Calls if margin calls don’t freak you out – you have to
fund Call option loss as it occurs• Spend about 30 cents on corn and 50 cents on bean• Frequently able to double your money – but will lose premium if
prices don’t go down
Cover Unsold Grain With Put Options
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Put Option Charts
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Basic Market Plan
Farm Name: Joe Farmer
Date : 1/28/2010 APH Yield Corn : 165
County Farmed: Black Dirt APH Yield Soybeans: 49
State: Midwestern
Crop Ins Type ra/crc/gripLevel of Coverage: %Livestock Y/N
Unpriced stored grain # of sell signals
Bushels to sell per sell signal in spring
of '10
Approximate bushels to sell per day for 5
days
2009 Corn 57,000 2 28,500 5,700
2009 Beans 15,000 3 5,000 1,000
Acres Expected Yield 2010 ProductionPlan to
Forward PricedBushels already
soldBushels to Sell
Spring of 10# of Sell Signals
Bushels to Sell per Sell Signal Spring of 10
Approximate Bushels To Sell per Day
2010 Corn 735 190 139,650 65% 5,000 85,773 4 21,443 4,289
2010 Beans 93 52 4,836 50% 900 1,518 3 506 101
Unsold Bushels
Estimated Number of Sell
SignalsPut Contracts to buy
per Sell Signal Total Contracts2010 Corn 48,878 3 3 10
2010 Beans 2,418 4 0 1.0
Old Crop in the Bin
New Crop Production
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© Roach Ag Marketing, Ltd.
The Information Revolution is Driving the Long Term
Demand for Milk, Meat, and Eggs
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© Roach Ag Marketing, Ltd.
Roach Ag Marketing, Ltd.
7601 N. Federal HwySuite 265-B
Boca Raton, FL 33487
800-622-7628
[email protected] http://www.roachag.com