CANOLA HEDGE THOUGHTS
- Now that we have a better idea of potential yields for Canola, the market is focusing more on the demand side. As is normal during harvest, prices are dropping. It is still important to stick to your hedge plan.
- We still urge producers to take advantage of the seasonally high prices, and would suggest you be 60-80% hedged right now and continue to sell physical crop at current price levels. Although we are not a big fan of buying back (financially) your crop, re-owning the crop in the form of an option is possible. However, we would wait to reestablish later in the year.
- For farmers that have on-farm storage, consider selling forward crop for delivery in Jan-March taking advantage of higher futures prices (carry) and a firmer basis. Remember to SELL FORWARD NOW for future delivery. Do not simply store your grain and HOPE that prices go higher. That is not risk management. That is speculation.
- We still want to be conscious of the 2012 crop and make sure we are ready to take advantage of the attractive prices in the further out contracts. It would not be a bad idea to try to lock in a small portion of your 2012 crop. We plan to be able to start using November 2012 options in early October.
- Canola contracts continue to be on the defensive with the declines in the outside macro markets behind the price drop. Market participants are unnerved by the uncertainty in the global economy and have been bailing out of risky commodity positions, including canola.
- Good weather for harvest operations in western Canada added to the bearish price sentiment in canola as did reports of better than anticipated yield potential in Saskatchewan and Alberta.
- Canola has some support with speculation about fresh export business being put on the books. Adding to the strength was the softness of the Canadian dollar, which was attracting fresh end-user demand to canola. Commercials were steady buyers of canola, with some of that interest covering domestic processor needs as well as old export business to Japan.
- The trend for the November 11 canola contract is now bearish following last week’s breakdown beneath the 200 day moving average. The contract rallied back higher this week in a retest of former support which held as resistance at the 559’0 weekly high and keeps the trend bearish.
- The mid-September 545.9 low is the next area of support followed by the 532.2 August low. Longer term support is the 511.0 March low.
- The 10, 40 and 200 day moving averages now become upside resistance levels. The 200 day moving average currently at 563.4 remains key resistance. A close back over this average is needed to turn the market trend back higher.
MGEX HRSW HEDGE THOUGHTS
- Just like Canola, it’s normal for prices to be falling this time of year from harvest pressure. Somewhat better yield reports and struggling macro markets are also to blame for the drop we in wheat prices.
- Now that producers are starting to get a better idea of this year’s crop, farmers should not hesitate to hedge wheat while prices are still attractive. Generically, we would say to be about 50-75% hedged right now.
- Remember, it’s not too early to start thinking about next year’s crops. We expect to be able to start hedging December 2012 Spring Wheat through OTC options by early October. Hedging a small portion of your 2012 crop would be a good protection incase prices take a dive over the next few months.
MGEX HRSW FUNDAMENTALS
- The wheat market, like Canola, spent most of the week down as weakness in the outside markets and lower world wheat values pushed the futures market down to new lows.
- Spring wheat came in at 93% harvested, up ten points on the week, and ahead of 86% last season and the 92% five-year average harvest pace. Trade is still worried about the winter wheat crop. Winter wheat plantings rose 8% this week to 14%, compared to 19% LY and 20% on average.
- Wheat is being driven by the outside markets, the flat price action in corn and the cheap wheat out of the Black Sea in the short term. Longer term outlooks will need to focus on the droughts in the US southern plains, Ukraine and Argentina.
MGEX HRSW TECHNICALS
- The December 11 Minneapolis wheat contract has been in a bearish downtrend since topping at a 950’0 high in early September.
- Selling has dropped the contract beneath the 10, 40 and 200 day moving average support areas which turns the primary market trend down.
- At a current price of 840’4, the December contract is trading on a key support area at the same level which is a trend line drawn under recent lows.
- A drop under 840’0 will turn the 801’4 August low into the next area of support followed by 776’6 which was a mid-July low.
- The moving averages broken as support on the latest sell off now become upside resistance areas. The 200 day moving average currently at 911’6 remains key resistance to watch as the primary market trend will remain sideways to lower as long as the contract trades under this average.
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