I have written "The Market Forecaster" for you for many years now. I have received many favorable comments and enjoyed the feedback I have received. I would like you to be aware that I will discontinue writing "The Market Forecaster," because I have been retained by Futures magazine to write their "Trend in Futures" newsletter. Since this agreement includes an exclusivity clause, I will be discontinuing this column. I still will be available for readers who may wish to call or e-mail. I want to thank you for your support over the years and wish you a great holiday season and a very prosperous new millennium.--George Kleinman.
Outlook: The market fell to new 23-year lows on bearish news regarding the possible halt to Russian wheat aid ($1 billion this year, with possibly another $2 billion behind it, which is in jeopardy). I cannot even fathom what additional bearish news could be foisted on this market. With wheat prices this low, and the winter wheat crop starting out under less than ideal conditions (despite recent rains, it is a La Nina year), the upside appears better than the alternative. Even the "Voice of the Tomb," which said to buy wheat almost 20 cents higher, was off on this one, the first time this year. Prices are cheap. All I can say is I caution against getting too bearish now.
Strategy: Farmers should continue a program involving the sale of all cash wheat and the simultaneous purchase of at-the-money call options for March. In this way, you can maintain ownership of cheap wheat, but free up cash to pay bills. Your downside risk is limited, yet you maintain full upside potential. This has been a much better strategy this year than holding cash wheat and buying futures. If you have not worked this strategy yet, now is a great time. Use the current at-the-money calls to establish positions.
Outlook: Nothing much is new here in an unexciting large supply, but well discounted low priced environment. The huge ending stocks estimate, a bearish 2 billion bushels, continues to hang over this market blunting any rally attempts. Yet, low prices do nothing to curb demand. You have heard me talk about the old adage, "Low prices cure low prices," and this does work over time, because low prices stimulate demand. This is a longer-term process, because demand markets take time to evolve. Supply shock markets (weather problems) move much more quickly. Right now, there is overhead farmer selling on any and all rallies, but a good demand base is built, which will not go away any time soon. This market will remain in a fairly dull trading range over the coming months.
Strategy: Corn users should continue to be buyers on a scale down, at current levels.
Outlook: Prices remain low and cheap for soybeans, due to recent rainy weather in South America. However, the crop is just planted, and this is a La Nina year--with the odds higher than normal for dry, hot weather in the coming months. Think long term! The cheap prices potentially set the market up for a big rally in the year 2000. It has been my experience that large crops and low prices with extreme pessimism sets the market up for the opposite, high prices with optimism. This is because low prices build a large and sustained demand base, which will not go away easily. Domestic demand for soy oil and meal are at record high levels and the weekly export figures are running at five-year highs. Last week, weekly export sales out of the U.S. were 30 million bushels! This is more than double the average rate. I believe all the bearish supply news is 90% discounted in prices, which are scraping 20-year lows. This market is ill prepared for any supply shock, such as weather problems from South America this winter or North America next spring. This market is very reminiscent of 1987 and 1994. Both years were record large crops, with low prices, and talk of burdensome carryovers. Both years were followed by two of the most dramatic bull market soybean runs in history. I would like to repeat my longer-term recommendations: Consider a purchase of November, 2000, soybean futures at current levels ($4.78 on Dec. 17). I would consider any purchases under $5. You must be willing and prepared to risk to the season lows, the mid-$4.50 level, and prepare to hold for a big move.
Strategy: No futures hedges are suggested, as the government program is your best hedging alternative at this time.