It’s a new year, but we seem to have started 2013 the way we ended 2012, on the downside. The main focus is still on generally good weather conditions in South America and demand destruction due to high prices. We have stressed that the high prices of the last year have been due to possibly the worst weather conditions in 50 years in the US last year. That drought drove agricultural prices to record high levels. However, we have continuously and vigorously stressed that these high prices don’t last!! To be sure, we will see volatility in the coming months, but everyone should be prepared to protect good margins.
Our attention should be now focused on 2013. If we have learned anything from the recent sell off, it’s that high prices don’t stay high forever. We will repeat that it took a terrible crop in South America and the US last year to move prices as high as they were. If we don’t have the same issues as last year, you should not expect prices to stay at these high levels. There are some producers that now have an expectation that this year’s pricing will be like last year’s. Therefore, they are reluctant to hedge in anticipation of higher prices next summer and fall. We have been continuing to recommend locking in some forward sales for 2013 (10-20%). Remember for 2013, South American farmers are taking advantage of the high prices by planting more, so it’s important to lock in at least a portion of your 2013 crop to take advantage of what are still high prices. If prices go up then you still have 80-90% of your crop to price! If prices go down then you have a good start to your 2013 plan. We have had customers looking at more nearby options as a way to stay protected through the South American crop. Although there is spread risk associated with doing this, the options are much cheaper as there is less time value in them.
Unlike canola, we had stressed that the wheat market has been providing historically attractive prices in the new crop futures but the basis levels for new crop are very poor. The ideal hedge is to lock in the futures portion for some (10-20%) 2013 crop and let the basis float. Options are again a good alternative. Currently, the profitability of your crop options may be changing with the recent fall in wheat prices. Be flexible if you can and we will gladly discuss alternatives.
The canola market (being an oil dominated seed) has been somewhat stronger than other markets as the soybean oil market has remained relatively strong. Still remain vigilant to your structured hedge plan, as prices are historically solid.
We have had some customers setting up times to talk with us about their 2013 marketing plan now that the holidays are over. We would also be more than happy to import any 2013 cases for you into Know-RiskTM. Please let us know if we can help you with that.
PLEASE CALL US FOR ASSISTANCE IN DEVELOPING A SHORT TERM AND MORE LONG TERM MARKETING PLAN!
Canola contracts finished the year on the defensive with the liquidation of positions by commodity fund accounts mainly due to the uncertain “fiscal cliff” situation that the government was facing going into the New Year.
Pricing of old export business to Japan did help to limit the losses seen in Canola.
Relatively favorable crop conditions for soybeans in South America were also overhanging the oilseeds.
The stronger Canadian dollar was another bearish price influence on canola.
A lack of significant farmer selling and the ongoing concerns over tightening supplies in western Canada were said to have underpinned canola values.
The trade will now focus its attention towards demand, weather in South America, and the January 11th stocks report.
The January Canola contract had a lot of trouble breaking through key resistance levels during the month of December.
The January contract did break through their nearby resistance of 598 this week even though the March contract has not been able to break through similar resistance at the 600 level.
The 10, 40, and 200 day moving average have ranged between 584-598. These levels will serve as the nearby support for the January contract
If the contract can’t hold gains above the nearby support, then we expect a test the 40 day moving average at 584.
MGEX HRSW FUNDAMENTALS:
Wheat contracts finished 2012 on a bit of downturn closing 51 cents lower on the month mainly due to fund liquidation and a lack of bullish fundamentals as well as a moderately bearish December USDA report.
Unfortunately, with no real bullish news out there, wheat lead the sell off in all grains to start the year.
Attention for wheat is focused on the January 11th stocks report where traders will look to find back US wheat stocks after an unusually large first quarter implied feed disappearance.
We will be looking at this report closely as well demand and weather in places like South America and the US.
MGEX HRSW TECHNICALS:
March MinneapolisWheat has fallen to its lowest levels since June with pressure continuing into this month.
The near term trends remain bearish with prices breaking through all nearby resistance.
The market is somewhat oversold but if the March contract continues to trade below the nearby resistance levels, then we could still be vulnerable to another 20-30 cent break if there is not bullish fundamental news.
The 10, 40, and 200 day moving averages have ranged between 869-916. These levels will serve as the nearby resistance for the March contract.
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