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Corn+Soybean Digest

Rust Scares Create Volatility

With each report of rust in a new state, farmer anxiety grows and soybean option volatility increases.

I'd suggest four preliminary steps to make the right business decisions about soybean rust and how you market your soybeans this summer.

  • Stay informed. The USDA Web site is a comprehensive site that provides the latest information about the disease, as well as several resources.

  • Insurance is a key way to reduce financial and production risk. Work with a knowledgeable insurance agent and select the right crop revenue insurance product for your farm. This reduces your worries about rust and its financial impact and allows you to sell into the rust scare rallies, knowing you have the revenue insurance to back you up.

  • Make smaller incremental sales. Customers I work with will often make four to five new-crop sales of 8-10 bu./acre. This year we're likely to make five to 10 sales of 3-4 bu./acre. Odds are good you'll have plenty of spikes to sell into so you won't get too much sold too early.

  • Use all of the available marketing alternatives. Plan to use hedges on part of your new-crop sales, minimum price contracts and puts. If you get good November hedges when prices rally, consider buying some out-of-the-money calls when prices set back. I've never been a fan of spending lots of money on calls and puts, but this year is one when options are an invaluable marketing tool.

What to do with old- and new-crop soybeans? For old-crop soybeans it's easy — get them sold. The huge cash market inverse is telling you to get cash soybeans turned into cash. And if you want to maintain some ownership, buy August call options.

It's an incredible challenge to suggest a new-crop soybean marketing strategy for the June issue in early May, but here goes:

Review the November CBOT 2005 soybean chart shown below. At this writing I have suggested that farmers have a minimum of 20% of the new-crop soybeans sold ahead. The $6.50 benchmark on the November contract has been tough resistance.

Watch for a fast rally up to $7- 7.20 in the November soybean futures contract if the double top at $6.50 is taken out. If that opportunity develops, I'll take new-crop price protection up to 40-80% using a combination of hedges and puts.

Write out your plan, call in your offers and stay disciplined.

Two Schools Of Thought

The forecasts for soybean rust seem to run in two completely different schools of thought:

  • The “do not worry” school that suggests limited problems for producers outside of Florida and Georgia. The theory: if it hits, the fungicide will take care of it. “Don't worry, plant soybeans.”

  • The second school creates dire forecasts of major disease problems throughout the Delta, Midsouth and Corn Belt with not enough fungicide to go around. “Buy November soybeans and stay long.”

Odds are good that what develops will be something in between those two scenarios.

After my trip to Brazil last winter I'm more concerned about the potential for major damage to the soybean crop from rust. Rust is a virulent disease, and one that has taken South American soybean growers three years to get mostly under control. I doubt if they will ever get it totally under control until biotech rust-resistant soybeans are developed.

Alan Kluis is executive vice president of Northstar Commodity Investment Co. If you have marketing questions or want information, write: Northstar, 1000 Piper Jaffray Plaza, 444 Cedar St., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].

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