Monthly Archives: December 2014

If you don’t have a written plan…make one!

Remember, it’s not about when you should or shouldn’t be making a “sale”. It’s about how you set things up in advance so you can resist the urge of doing something stupid when the human emotions kick-in. We all know and tell ourselves it’s the long-term that matters, but that theory tends to go right out the window when the short-term starts happening. That’s why you have to have a “plan” and must force yourself to stick to the plan. In today’s waters you have to market based on “rules,” not simple hunches or gut feelings. As we head into the new-year, the best advise I can give is to take the time to get with your advisor and devise a longer-term marketing strategy that is right for your operation and your families cash-flow needs. Then actually execute that plan.  

Bitcoin, The Worst Investment of 2014

Bitcoin, the much hyped computer generated currency, is set to rank as the worst investment of 2014. The currency gained widespread attention last year when the anonymous drug trafficking sight Silk Road was busted and the Justice Department confiscated some $4 million worth of the coins. Bitcoin has faced other roadblocks since, with governments warning consumers against using it, some even banning its use, and a few bitcoin exchange sites completely collapsing. All the troubles have left bitcoin values down -52% this year. I hope everyone followed our lead and chose NOT to invest or jump on this overly hyped bandwagon. 

The REAL Reason I Believe Grains Are Moving Higher

As most of you know, I spend a lot of my time talking to fund traders and large money-managers trying to pick their brain. With another year of big gains in equities and only 12-trading days until year-end, most of the big payers seem to be looking for ways lock in profits, hedge against “unknown” price-risk and decoupling. The crazy uncertainty now surrounding crude oil and the energy sector has a lot of guys spooked and is obviously pushing “fund-money” in several unexpected directions. A few clear and obvious beneficiaries as of late have been corn, soybeans and wheat. This might be a tough bridge for some to cross, but for others it appears much more logical, especially when you consider we are rolling into what could be more extreme winter weather, continuing turmoil between Ukraine and Russia, an election in Japan, Fed divergence from the rest of the central banks, a newly controlled Republican Congress, Greece and parts of the EU once again moving towards unstable ground. Not to mention the amount of debt the oil companies had on their books 5-years back was only around $200 billion, while now it’s all of a sudden up around $3 TRILLION. In other words there could be secondary derivative impacts the investment world hasn’t even thought about yet that players are now trying to reposition and protect against. Remember, we have now seen over 80 straight days of declining prices at the pump. Also remember, this is traditionally a “thin” period of time where moves can become extremely over-exaggerated! In other words, when you get major “headline-risk” like we are seeing in the energy markets, coupled with lower than normal trade volume, all bets are off in regard to traditional fundamental rhyme and reason. Like Bill Gross said this past weekend, “The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries. When levered money moves and tries to seek a safe haven, basically you have violent price movements across the board.”

Thoughts On Crude Oil

Q. Kevin, what’s your thoughts on Crude Oil?

A. Crude oil prices have now plunged by almost 40%, the bulk of which has occurred in just the past three months. As most of you know, energy price declines of this size and magnitude are most often associated with large declines in global economic growth. There have however been two specific periods of time in recent history where energy prices saw similar type setbacks and they were not associated with a global recessions. Those setbacks occurred in 1986 and again in 1997. Keep in mind both of those time-frames were followed by stronger than expected nearby global growth. Meaning, despite the fears of the world slowing down, this might actually be the shot in the arm that is needed as the Fed exits Quantitative Easing??? Here at home, I hear most of the existing wells could hang in there and still be profitable if crude oil prices pull all the way back to $40. Its the NEW wells and exploration that are in danger of being stopped or halted. Everybody had leveraged up and the cost to finance a new well has dramatically increased in the past few years. In other words it might be the businesses that have leveraged up along with the oil companies that get hit the hardest on a major drop in crude i.e some of those who rapidly expanded in rail, those in the business of building new tankers, new railcars, drilling equipment, frack sand, drilling pipe, etc… Make sure your connecting all the dots and understanding how the drop in crude could negatively impact some of your other investments. Before you liquidate, just make certain you aren’t throwing the baby out with the bathwater. There are some great energy stocks that are now being offered at some good discounts (talk with your advisor about specifics). On the positive side, I’m hearing some larger traders say they suspect the billions consumers are saving (over $1,000 per household) will go to more money being spent on travel, entertainment and at restaurants. These might also be something to consider if in fact energy prices are going to stay low for an extended period of time. 

USDA’s ​December Supply & Demand

USDA’s ​December Supply & Demand

US 2014/15 Ending Stocks (In millions of bushels)

 
 USDA Dec. 
Avg. Estimate
Range of Estimates
USDA Nov.
Corn
1.998
​2.027
1.905 – 2.156
2.008
Soybeans
.410
​0.427
0.400 – 0.455
0.450
Wheat
.654
​0.654
0.642 – 0.681
0.644

World 2014/15 Ending Stocks (In million metric tons)

 
 USDA Dec.
Avg. Estimate
Range of Estimates
USDA Nov.
Corn
192.20
​191.42
189.60 – 194.00
​191.50
Soybeans
89.87
​89.7
88.50 – 91.60
90.28
Wheat
194.90
191.75
189.50 – 193.20
 
​192.90
 

South American 2014/15 Production Worksheet

USDA Dec.
Avg. Trade Guess
Trade Range
USDA Nov.
Argentina
Corn
22.00
23.07
21.00 – 29.10
23.00
Soybeans
55.00
55.45
55.00 – 58.60
55.00
Brazil
Corn
75.00
74.01
68.70 – 75.50
75.00
Soybeans
94.00
93.39
92.00 – 98.00
94.00
 

What About Locking In Extended Diesel or Natural Gas?

From everything I keep hearing, I think it’s best to remain patient. I think late-Jan to mid-Feb might provide an even better opportunity to lock in extended coverage. The EIA recently released info that showed Natural gas working inventories on November 28 totaled 3.41 trillion cubic feet (Tcf), 0.23 Tcf (6%) below the level at the same time a year ago and 0.37 Tcf (10%) below the previous five-year average (2009-13).  Despite the lower stocks at the start of this winter’s heating season, EIA expects the Henry Hub natural gas spot price to average $3.98/million British thermal units (MMBtu) this winter compared with $4.53/MMBtu last winter, reflecting both lower expected heating demand and higher natural gas production this winter. (Source: US Energy Information Administration Outlook)

McDonald’s Shuts the Door On the New GMO Potato

This is an interesting story that illustrates just how much anti-GMO campaigns have impacted the public’s perception of genetic engineering and the benefits it can actually bring. McDonald’s has announced they are putting their foot down on GMOs saying they are not going to use a hot new GM potato to fulfill their needs. A company called Simplot, an agribusiness conglomerate in the same league as Monsanto, is the main potato supplier for McDonald’s, which in turn is the largest purchaser of potatoes in the country. ​T​hey have just recently come up with a new variety of genetically modified potato, which they have dubbed the “Innate potato​.​” It’s an interesting piece of engineering as most GMO foods are made by splicing genes from other plants in order to make them resistant to pesticides, but that’s not what Simplot is doing here. The Innate potato was created using genes from other types of potatoes, primarily wild varieties, to increase shelf life. It is engineered to bruise less, keep for longer, resist browning when exposed to oxygen, and contain​s​ less of an amino acid called acrylamide which is thought to be carcinogenic in large doses. McDonald’s says they do not source GMO potatoes nor do they have plans to. To be fair to Simplot, it should be understood that they aren’t really looking to market Innate potatoes to the fast food industry. In fact, the amount they are currently cultivating wouldn’t even scratch the surface of french-fry supply needs. What they hope to do is sell the potatoes in whole form or as “fresh-cut”, similar to pre-sliced apples. How well Innate will go over with consumers is tough to tell as public opinion is so divided on the GMO subject. GMO potatoes have tried and failed before, although previous varieties were engineered to resist herbicides. There is some concern among potato producers that Simplot’s new variety could possibly contaminate US exports, which did happen with a GMO Monsanto spud. However, Simplot is working with the University of Idaho to develop practices that would ensure Innate doesn’t end up where it’s not welcome. It will be interesting to see how it plays out. (Source: Modern Farmer)

Year End Planning – The Boring Stuff!

Between all the busy holiday festivities, it’s easy to overlook the boring “practical” stuff, but spending just a few hours on some year end financial planning could save you thousands​ in the long run​. Here are a few that should definitely be on your To Do list:

401(k) contributions – Hopefully, you’ve been contributing to your plan all year long, but there is still time max it out. Workers age 49 and younger can contribute up to $17,500 in 2014. Since taxes aren’t due on this money until it’s withdrawn, this can be a very good year-end move for the highest tax bracket earn​ers. Contributions are due by December ​31, but since this is typically deducted by an employer, you need to give them a little lead time on making the contribution. Bottomline, you can’t make the request onDecember 30th!

IRAs – The deadline for 2014 IRA contributions isApril 15, 2015, but people often rush to make these before the end of the year. It’s easy to forget that there are two types of IRAs – traditional and Roth – and depending on how your 2014 taxes work out, one may be better ​for your bottomline ​than the other. Get with your financial advisor before rushing to cross this one off your list​ to make sure you’re contributing to the one that most works in your favor​!

Cut Your Losses – Now is the time to make sure you’ve maxed out your tax deductions. Consult your accountant about how to structure losses in order to offset gains. For instance, if you own rental property, it might make sense to make deductible repairs or upgrades before year end. If you’re self-employed, there are a number of business expenses that can be deducted or amortized to lower taxable income. Harvest your investments for losses as well. Sometimes it’s better to just take the hit and replace it with something that has better prospects in the year ahead.

Review and Rebalance – While you’re cutting those losses, now’s as good a time as any to assess all your investment allocations. With some of the wild moves ​the ​markets have seen this year, your portfolio might be weighted much differently than you thought​​.

Pay For College – Pay for your kids’ or grandkids’ college by contributing to a 529 plan. The deadline is December 31 for most plans and many states will give you a tax deduction on those contributions.

Charitable Contributions – Charitable contributions can not only help lower your tax bill, they will make you feel good! If you don’t already have your prefer​r​ed charities picked out, it’s worth it to take some time to do ​some research into organizations doing good work in areas ​that really matter to you personally.

Healthcare Accounts – If you have an FSA – a flexible spending account for health care expenses – that still has funds in it, you need to use up all but the last $500 before year end, otherwise it’s gone for good.

Apple or Android On the Farm?

This might seem like a story that doesn’t belong in the Ag section, but with farmers of all ages incorporating smartphones and mobile technology into their operations it’s becoming more important. In terms of the big picture, the global smartphone audience surpassed the 1 billion mark in 2012 and according to a study done by eMarketer, is estimated to total 1.75 billion by the end of this year. Pew Research takes it a bit further and tells us at the local level some 58% of US adults own a smartphone, including 43% in rural areas. Some private estimates are projecting about 50% of all US farm operators are using a smartphone. Of course these phones not only allow farmers to make calls and texts when out in the fields, they also give farmers access to apps that are helping them run their operations from the palm of their hand. It seems like every day there’s a new app built and released specifically for farmers. Farmers making the jump into the smartphone market for the first time have to make a tough decision…to go with the Apple or the Android based operating system. You might be surprised, but Apple only has 42% of the US smartphone market– and merely 12% of the global market — but in my opinion the company is starting to more clearly dominate the mobile tech battle. Data collected form “Black Friday” proves the same, where Apple’s iOS traffic accounted for 34.2 percent of total online traffic, more than double that of Google’s Android. In addition iOS sales accounted for 21.9 percent of total online sales, nearly quadruple that of Android, which drove only 5.8 percent of all online sales. Bottom-line, the Android operating system might have greater market share, but Apple’s iOS operating system is more popular when it comes to usage. Therefore if you’re a company looking to roll out a new app, you absolutely want to make certain it works best on iOS because that’s where the most action is taking place. With this in mind you have to conclude when the biggest agribusinesses like Deere, Case, DuPont, Monsanto, DTN, CME etc., roll out new technology the Apple platform will be of huge importance. Yes, you may have to pay for certain apps on the Apple platform that you don’t have to pay for on Android, but I truly believe with Apple you will have access to the “best” for years to come. Moral of the story, the “Apple vs. Android” battle has been going on for several years, but from my perspective I think Apple is starting to gain an edge. If you’re looking for a NEW phone this holiday season, I would go with the iPhone 6.