For many in the area I serve, and including myself, 2018 was one that many of us will probably chalk up as a learning experience. I know I have. A new crop year is upon us, so it is time to look ahead and see what can be done to make the most we can with what we have.
Probably the best place to start is to look at the carryout spreadsheet. The numbers in the bottom rows reflect what the WASDE report estimates our carryout numbers to be and the soybean numbers are staggering. The USDA estimates we have more than doubled the soybean carryout from 438 Million Bushels to 955 Bushels, and they have also raised the world wide carryout to 115.33 Million Metric Tons. Compare the fields below with the red boxes drawn around them and compare those numbers with last years numbers and you will get a sense of what it is we are up against this year.
So yes, this will be a problem for soybeans when you figure in that we technically still have a tariff situation with China as there is still not a trade agreement. Going forward, rallies will need to be sold, and sold aggressively. I have not seen a strategy that would work any better than what I recommended using back in March of this year. If you recall, I recommended using bear put strategy to set a floor at $10.20 on the beans and at $4.00 on the corn. The strategy cost less than .10 per bushel and gave a much higher floor than the crop insurance provided. It is too early to work this strategy now, but I will be writing about it and meeting with farmers about it between now and March.
I think we will get a chance to set a floor on soybeans around the $9.70 area but it will probably take some sort of summer drought to push beans above that level. If price can get back to $9.70, wouldn't it be nice to set a floor on your expected production and just not worry about it any more?
The corn picture looks more encouraging as the carryout number has been reduced somewhat. Still, if we have a shift to corn acres similar to what we had in bean acres last year, we could find ourselves with an increased carryout number this year. We should be able to lock in a $4.10 number on corn again but the chart looks pretty sloppy right now.
If you received an email from me Monday, you know that I have turned bullish oil. Oil looks to have put in a major cycle low Monday and this would be a great place to place a hedge for your fuel needs for this year.
As I said, this would be a great place to hedge, but it would also be a good speculative trade, either with straight futures or options. I think we could see $60 oil by this summer. 1 oil contract is 1000 barrels, so a rally to $60 from $45 is worth $15,000.