Buy call options now if you want to have protection in case of an early frost, recommends Jim Bower of Bower Trading. “You cannot wait to see if a frost actually occurs before you buy a call or – for more aggressive producers – a November 2009 - July 2010 bull spread in soybeans. An actual frost will cause the market to explode instantly and you will have no chance to enter unless you pay dramatically higher premiums.”
Without any frost, Bower cites a supply/demand forecast from MF Global Research of a 3.28-billion-bushel crop, 3.185-billion total use and just 98 -million-bushel carryover in his outlooks. That’s less than half the carryover USDA projected in August.
“An early frost this year in the eastern Corn Belt would damage the soybean crop severely and it would dramatically turn the supply/demand situation into a state of sheer panic instantly.”
Look what happened to corn with a frost in 1974, says Bower. “And we have tighter stocks now. If we have a frost, we might as well close the corn market—there won’t be anything to move.”
How likely is frost?
Bower says “Our top meteorologist feels the crop year closest to this one is 1965. In fact, he has four weather models that all suggest a frost between Sept. 20 and 25.
Larry Acker of 3FForecasts notes that the area from Fargo to Minneapolis could see a frost around the Sept. 4 full moon--as early as Aug. 31-Sept. 7, though it’s hard to say how widespread it might be. “It can be spotty but where it hits, crops will certainly be hurt because they were planted late. There may not be anything to harvest.”
“We could have another frost—perhaps as low as my area [Polo, Ill.] Sept 18-24. That would be three weeks early,” he says. “It would be a disaster for corn—we have 45 days to go to maturity.” Acker notes that frost will not extend below I-80 and southern Illinois probably won’t be hit until around Oct. 4.
“We had a record cold July as far as the records go back—1859. The growing degre e days on my farm are almost a month behind—1947 vs. the 2000 minimum I look for by Aug. 15 and 2100 last year.”
Acker says the cool weather is likely tied to the lack of sunspots: “The sun has been blank 80% of the time this year. It is the least active since 1913. Then, the low activity lasted three years and we are now starting the third year. Will sunspot activity pick up? No one can say. In the 1600s, such an episode lasted 75 years.”
