On my last post back on November 8, I said I would wrap up this marketing year at options expiration which happened on Friday. Before looking ahead into next year, I wanted to review my track record for this year, point out the things I saw coming, and the things I did not see coming.
2016 Soybeans - $10.61
The biggest news of 2016 had to be the rally of commodities out of their 3 year cycle low while at the same time, oil, gold, grains, and even stocks were at extremely over sold levels. Market sentiment was extremely pessimistic early in the year. That is the fuel for large rallies, even if fundamentals are poor. Just the short covering which occurs at those moments can fuel large rallies. Seeing this allowed me to forecast much higher commodity prices.
Soybeans responded in a way that were predictable. My biggest mistake with soybeans was being so conservative in trying to get sales made while my own analysis showed traders had not yet become optimistic. I made a couple recommendations to sell too early after prices had rallied a dollar off their contract lows. My final call was AT the top of the market when optimism had become excessively bullish. The average price for 2016 soybeans, had every recommendation been followed was $10.61, well above average which was around $9.88.
2016 Corn - $4.32
Corn proved to be much trickier, not from a price standpoint so much as a timing standpoint. The corn market rally began on May 9 and topped on June 17. I had recommended the sale of 25% at $4.45 as the market optimism had reached excessively optimistic levels. This was at the high. My bias was that the market could still rally higher because it was rallying out of its 3 year cycle low, but fundamentals of a huge corn crop entered the picture, and we had no more real opportunities to make sales. This was mistake #1.
Mistake #2 happened on June 23 when I recommended lifting the hedge when corn dropped to $4.05. The hedge did net .10 per bushel on all bushels, but could have yielded so much more. My timing was centered primarily around the 200 day moving average which often serves as support and resistance.
I prefer direct contracts with grain elevators as a primary marketing tool. Most years however, there will be "mistakes" where a brokerage account becomes necessary. Upon accepting the reality that the market had come and gone, but still modestly bullish, my next recommendation on June 24 was to add some revenue to the marketing year by selling puts on the remaining 75% of the corn you expected to grow. 80% of all options expire worthless, which is why I generally recommend not buying them. Selling puts is a bullish strategy you use if you believe prices will remain level or move higher. This strategy is not that risky most of the time, but this strategy turned out to be costly this time. Had you sold the puts when I recommended at .40 cents, you would have bought them back at expiration at .51. Instead of adding to the marketing results, it took 11 cents from the end results. This was mistake #3.
On August 30, I called the bottom in corn and recommended re-ownership on paper. This would turn out to be a day early, but within a penny of the bottom. Yes, I suppose this would be considered a Texas hedge. Although corn was at a bottom, the reality was there was going to be a very large corn crop, so the fundamentals were not there for corn to rally quickly. Because of this, I recommended a synthetic re-ownership of corn using oil. I recommended this synthetic re-ownership because to a greater or lesser extent, oil and corn tend to trend together. I recommended taking a long position in oil to mimic what would need to be done to gain .84 in corn..... enough to get the cash price back to $4.00. This would mean that oil would need to reach $50.50 which happened on October 10.
The average price for 216 corn, had every recommendation been followed was $4.32, again well above the average price which was around $3.67.
Folks, like any other marketing company, I prefer to recommend contracts with the elevator and be done with it, case in point, the soybeans. The corn market threw out about every curve ball imaginable. Having to use synthetic Texas style hedges is about the limit of my imagination, but this was an extreme year. With a range of $4.49 to $3.14 over 2.5 months, you would probably be severely left behind without a brokerage account, unless you sold all your crop prior to pollination.
For those folks who have followed along this year, you know that my calls were made in real time. There have been no behind the back alterations or modifications made here. I prefer to be as transparent as I can be, pointing out my mistakes as I went. Its why I include links to posts I made at those times.
Those who know me know that I do not subscribe to other marketing agencies. My work is completely unique. I do not follow the herd on any recommendations, so I will not blame my failures and mistakes on consensus. (Well, everybody got that wrong.....Nobody saw that coming)
I have already sold 10% of the 2017 soybean crop with a 10% sale at $10.05 on June 8. Just Friday, the 2017 Nov soybean contract broke out above this level and is making new highs. Don't be left behind!