Clearing the Clutter:

Transcription

1 Clearing the Clutter: Getting rid of market noise and focusing on your bottom-line ANGIE SETZER VICE PRESIDENT OF GRAIN CITIZENS LLC CHARLOTTE, MI

2 My market watching face.

3 .unless soybeans are having a good day

4 Current Market Theme: Lots of knowns mixed with just enough uncertainty to keep things interesting

5 What Do I Watch In a Market? Trend or direction of ending stocks estimate (our leftovers). Are they growing or shrinking? What is the trade expecting to take place from a stocks standpoint in coming months both globally and domestically. Which direction is the dollar trending? In times of competitive global market structure a strong dollar can limit foreign buying interest, weak dollar can encourage that demand. What is going on geopolitically? Wars, changes in politics, economics etc. Trade psychology. What is the feel of the market? What does money flow look like?

6 What s Going On? USDA believes a record large harvest took place. Demand is also expected to be record large, but ending stocks are anticipated to grow. South American production is off to a good start. Production estimates at this point would more than make up for production losses seen last year. But there s a long way to go in the growing season and trade has a short memory. Uncertainty over economic policies, will the Fed raise rates? What s happening in China? How about the Middle East, Russia, European Union? What will President Elect Trump do when it comes to trade policies? No real bullish story so far has money sitting on the sidelines for now although an overspill of exuberance from outside markets could make things interesting.

7 The China Effect: We hear about the burdensome stocks seen worldwide, but nothing about skewed supplies: Of the global increases mentioned China is holding: mmt (3.6 billion bushels) or 44% of the world s wheat mmt (4.4 billion bushel) or 48% of the world s corn Major quality issues reported. Some believe up to half of the country s corn could be spoiled, perhaps even beyond use Issues with purchase reporting. Reports indicate that government purchases could have been reported multiple to skew overall ownership Potential major production/stocks adjustment from the USDA looms in every supply and demand report.

8 The China Effect: Their demand for soybeans has exploded over the last decade, making them our number one export destination. China buys near a billion bushels of our soybeans annually. That s half of our export expectations and nearly a quarter of our overall production. President Elect Trump has indicated he will name China as a currency manipulator in his first 100 days in office. Do they manipulate their currency? Yes. Should we say something? Depends on South American crop potential. If South America runs into production problems again we re in the driver s seat, if they don t and a trade war develops

9 Corn: We have found demand, but are struggling with just how much supply we will have. USDA surprised us by raising yields in November after cutting their estimate in September and October. Quarterly stocks in January will give an indication as to what final yield numbers are. Big production in fringe states has rocked basis levels there in the meantime. Isolated quality issues and grain flow could have an impact on local supply and demand, but will do little to impact the overall domestic supply and demand picture. Record high prices in Brazil due to production shortages there will likely prompt acreage increases both there and in Argentina. Currency fluctuations could have the final say though as cheap currency can help exports but hinder imports.

10 Soybeans: Record production due to amazing August weather has been all but confirmed. Record demand and uncertainty surrounding South American production potential has kept prices firm. Population growth and a hunger for protein limits the world s ability to handle any type of production cut. Demand and positive trade results the last several years has made soybeans the darling when it comes to hedge fund buying. Questions surrounding new crop production potential for South America remain. Will La Nina form? If it does how strong will it be? What will farmers decide to plant? So far so good, but there are some dryness concerns being discussed in Central and Southern areas of Brazil, and parts of Argentina.

11 So, what does it all mean and what do you do about it?

12 Key Components of Your Marketing Plan: Know your target margin and be prepared to make sales when the opportunity presents itself Take rough estimate of costs, use APH/historical yields figure out your cost per bushel, then figure what you want to try to realistically achieve. Use realistic target orders Know what we re up against in the futures market as well as what your local market structure looks like. Keep in mind a 10% rally in a bear market is phenomenal performance cents in corn, cents in beans and cents in wheat are values you should be selling into. Having solid target orders in place will remove the emotion from your marketing. Do not fall into the cancel when close trap unless something significant has changed fundamentally Scale sell into rallies, using different contract types that fit your operation Keeping the 10% rally in mind, figure on what levels you would like to start selling. I generally look to start with cent rallies in corn, cent rallies in beans and make incremental sales at those same levels from there Have a plan, hope is not a marketing strategy Know your cash flow needs and have sales in place accordingly. When looking at new crop know what you re capable of holding on the farm or what you will have to move off the combine and make those sales first Relax, do not force something that isn t there. When making decisions understand the cost of peace of mind. Once a sale is made, log it, learn from it and move on. You can t go broke making money.

13 Taking Your Marketing Plan a Step Further: Know your space needs. Bushels you have to move at harvest should be the first sold. As with figuring your breakeven, use APH to estimate space needs, make adjustments as the year progresses. What are your cash flow needs? If you have bills due January 15 th do not wait until January 1 to sell. Selling when you absolutely have to generally results in selling at a value far below target values. Space and cash flow bushels are the first that need to be sold. If storing grain at home do not disregard cost of carry as well as what is shaping up in the spreads market. Learn to market your stored grain like an elevator. Do not forget to sell new crop when you are selling old crop.

14 Knowing Your Local Market: What is Basis? Basis is the difference between the cash price you are paid and the futures price trading on the board. Basis is a function of local supply and demand, too much supply vs demand locally weakens basis and vice versa. Reading basis: Strong or strengthening basis indicators: extended hours, offers of free dp, little to no truck lines at end user Weak or weakening basis indicators: limited hours, closures, long truck lines Do not get bogged down by basis. If cash price is good who cares what it takes to get there?

15 How to choose the right contract for Keep. It. Simple. your needs: If you don t know, ask. There is no such thing as a stupid question. Follow your gut. If it doesn t feel right, do not dive in head first. Spread your risk: Use multiple contract types, end users, information sources etc. Know your local market and its structure, be aware of what you re up against when it comes to local movement

16 In the End: This is the greatest industry on earth Thank you!!