From the bullpen.
With attitudes in the soy complex bullish and traders concerned about supplies as the market moves through the 2007-08 marketing year, there's major upside price risk once futures start charging higher again. The sharp drop in price into the morning of Oct. 3 represented a "value" buy even though prices are relatively high in historical terms. If soybean futures charge back above the $10.00 mark, soybean meal prices will push above $300.00 per ton and have additional upside risk beyond that point.
As a result, feed buyers should be prepared to add to 4th- and 1st-qtr. meal coverage and also extend coverage further out into 2008 on confirmation of a short-term low in meal futures.
For corn, the long corn-for-feed coverage represents more of a defensive hedge. On its own, corn doesn't have strong near-term upside price risk. In fact, corn futures should face seasonal pressure as harvest increases and storage fills up--and basis should also soften. But neither has happened yet. And there's risk corn will be pulled higher if the rest of the grain and soy complex charges higher.
If corn futures drop below the July low, the hedge coverage will be lifted and reestablished once a seasonal low is in place. If corn futures recover to push above the September highs, however, it would open sharp upside price risk and be the signal to add to and extend long corn-for-feed coverage.
Sr. Market Analyst, Brian Grete