Raelynn's Comments 03/25/21 3:36:45 PM
We’ve had some exciting changes in our office since the last time I posted! Brittany Redlinger started in February and has quickly become a great addition to the Kat’s Grain team. She’ll be helping out with ticket processing and buying grain so if you catch her on the phone, give her a warm welcome to the team.
I saw this chart on Monday and thought it was worth sharing. This shows the combined position on the CBOT of multiple commodities which include corn, soy products, and wheat. 2021 is represented by the thick black line at the top left of the chart, which is currently sitting around 750,000 contracts long. The majority of these contracts are in corn at 370,900 and soybeans at 156,040. We have been hovering at a record high long position since the beginning of the year. Makes sense given the recent buying spree from China and the lack of a record crop in 2020 to meet those demands. But as you can see, historical trends show there is a good chance those longs will start liquidating as we move into new crop. High levels of long positions equate to high board prices (we’re currently around $5.40 corn and $14.15 soybeans). Those prices bring on more acres and subsequently a higher probability of a record crop to correct the supply shortage. If demand doesn’t grow or stay steady with the increase in supply, ending stock figures can quickly revert back to levels previously seen. Tack on a relatively normal planting and growing season and we have the perfect recipe for lower board prices. We know we have a shortage for the 2020 crop, but that is not a guarantee yet for the 2021 crop, and new crop is what will command the attention of the markets soon. Of course, there is always a chance for a weather scare during the planting and growing season to continue supporting the market, but that is not a guarantee. And while we are primed for a rally if we have any inclination of a weather scare, that is the bet you’re willing to take by giving up $5.50 cash corn and $14.00 cash beans. And remember, you always have new crop to sell with rallies.
I think this chart is a great visual reminder of where we have come since August, but also where this could go over the next couple of months. Protect these profits. Use your cash to re-own bushels with your trade account if you want to stay in the game, but give yourself the protection of setting a floor. Ignoring the bushels in your bin could be costly, not only from price decline, but also quality decline. Bushels on paper don’t get moldy. If you are interested in re-owning some bushels on the board, take a look at John’s comments. He posted an example on Mar 24th that would be a great option using calls. And as always, you can give us a call and John or I can discuss different trade strategies that fit your wants/needs.
Thanks for reading, and have a great planting season!
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