New Crop Protection Strategies

This is the time of year when I create strategies for farms based on their new crop marketing strategy.

I have a list of 10 questions I ask clients to start my process and here are a few of them...

1. How much old crop do you have left? If any, do you have enough bin space for new crop?

2. Have you sold any new crop?

3. Is there a typical way you market your grain? Ex sell all your old crop, sell 20% new crop, don't sell any new crop etc.

4. What is your viewpoint on where grain markets are heading?  

The answers to these questions help me determine what type of strategy to recommend. 

Nobody knows where grains are headed, but I present to clients all the factors I watch to make educated strategies. 
In each section below, I give a strategy for what you can consider.

Canola

To say canola has been volatile would be an understatement.

Canola closed limit up ($30/t) on the day from a bullish USDA report.

Just yesterday it seemed like canola might continue the decline seen over the last month.

July canola futures have declined $43/t approximately this month since reaching an intraday high on March 8th of $761.1/t.

One thing I've said to clients as canola has been declining is the fundamental picture (short supply) has not changed.

However, markets don't have to follow what is "logical" because canola was overbought for quite some time.

If you have been thinking recently, "dang, I missed out on the rally" now might be a good time to be watching prices closely as they continue to increase again to not miss another pricing opportunity.

For suitable clients, I've had in place a Bear Put spread option strategy.

This is where you Buy a Put (out, at or in-the money) for protection and Sell a Put (out, at or in-the money depending where you bought the put) to help over some of the cost.

It is a way for you to have protection in a range at a limited lost.

There are pros and cons to this strategy, but again with the historical prices we are at you may be wanting to sell canola and not have the production risk.

Canola July Futures - 1 Year 
 

Chart sourced from Market Q

Wheat

The USDA report was bearish for wheat today.

Wheat followed higher to some extent with corn and soybeans limit up.

Winter wheat acres were raised significantly with an increase of 1.1 million acres over the January seedings report.

Spring wheat acres were down 500,000 – a shade less than expected.

All wheat acres are 2.0 million ABOVE last year. 

Wheat stocks came in 40 million bushels HIGHER than expected. 

U.S. wheat planting intentions were bigger than expected and would be up 4.5% on 2020.

That was driven by huge relative gains in HRW states like Kansas & Texas, and SRW states like Illinois, Missouri & Tennessee.

Traders may push the wheat market up if the other grains continue to increase.

Although, I question just how far wheat can run up on these bearish numbers.

This is a time where fundamentals might give a bearish picture, but technicals might be signaling more on the bullish side.

I'm going to be looking to protect new crop wheat on this rally using a three way spread.

Ie for suitable clients. Selling a Calling at a higher strike, Buying a Put at-the-money, Selling a Put at a lower strike. 

I like to use this strategy when there could be a top in place because there is risk with Selling an Uncovered Option. 

It is usually a zero or small cost protection strategy.

Unless the fundamentals change, I don't think the 'stars will align' for a significant rally in wheat like corn and soybeans have experienced. 
 

Minneapolis Wheat July Futures - 1 Year
 

Chart sourced from Market Q

Chicago Wheat July Futures - 1 Year
 

Chart sourced from Market Q

Kansas City Wheat July Futures - 1 Year
 

Chart sourced from Market Q

Soybeans

Soybean futures for the last couple months have been trading in a sideways/consolidating type of trend waiting for news.

Today's USDA report seems like the spark funds were looking for. 

The 70 cent/bu limit increase for soybeans may be the start of another leg higher on the chart.

Soybean plantings came in well below expectations at 87.6 million acres vs 89.996 million acres.

U.S. quarterly stocks came in slightly above at 1.564 billion bushels vs 1.534 billion bushels. 

Analysts had their biggest over-guess of soybean acres in at least 16 years today.

I have told clients before there is a time to hedge and there is a time not to.

Right for soybeans I believe now is the time not to hedge because of the bullish fundamental and technical situation.

That's not to say in a week it isn't worth adding in protection, but for now I am sitting on my hands.

Using a Bear Put spread as discussed above for canola will be the strategy I consider because there is no risk to the upside. 
 

Soybean July Futures - 1 Year 
 

Chart sourced from Market Q

Corn 

Corn closed limit up 20 cents/bu.

The USDA's March planting intentions shocked the market as the farmers in top states reported they will plant less corn than last year at 91.1 million acres. 

Expectations were corn planting to come in at 93.208 million acres.

Stocks came in slightly below expectations at 7.701 billion bushels vs 7.767 billion bushels.

Larger acres are felt to be needed with stocks at multiple year lows and a margin of error tight going into spring. 

I'm taking the same stance on protection strategies on corn as soybeans.

All signals are pointing higher and for those wanting protection I'll look at a Bear Put spread.  

Corn July Futures - 1 Year 
 

Chart sourced from Market Q

Canadian Dollar 

The Canadian Dollar weakened this month backing off to under 80 cents.

Oil has been declining recently and higher bond yields have increased the U.S. Dollar putting pressure on the loonie.

Focus will be on the upcoming OPEC meeting this week that is expected to agree on extending to supply cuts.

Canadian payroll employment fell by 134,500 in January following an increase of 48,000 in December as tighter public health measures weighed on hiring.

GDP data released today was positive which could guide the Bank of Canada outlook.

Overall, if oil prices can continue higher and the U.S. Dollar reverses lower this could be the factor to keep the Canadian Dollar above 80 cents.

If you are thinking about major U.S. Dollar purchases, around 80 cents may not be a bad area to start converting.  

Canadian Dollar June Futures - 1 Year 
 

Chart sourced from Market Q

Cattle 

Cattle futures seem to have move potential upward movement because of the the right cash fundamentals.

There is a very strong demand outlook as the beef pipeline expands and consumer spendable income hits a shirt-term peak.

Traders see short-term consumer demand indicators as being as good as they get.

Seasonal increase in demand are expected in the weeks ahead and demand is enhanced this year by COVID relief funds.

Feeder and live cattle are hitting new recent highs.

Continue watching if the breakout holds to enter long.    

Feeder Cattle April Futures - 1 Year 
 

Chart sourced from Market Q

Live Cattle June Futures - 1 Year 

Chart sourced from Market Q