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The Rural Voice, 1982-09, Page 16Ae Successful hedgers are weather -watchers by John DePutter Author's note: Since market news is outdated as soon as it is written, there is a chance that weather or a political de- velopment could throw Leslie's comments into irrelevancy. For readers' informa- tion, this article was written on August 10, 1982.) "Those who hedge successfully are weather watchers." advised Conrad Leslie, a successful Chicago grain trader in a recent interview. Better known for his regular crop production reports. Leslie has also built a reputation for disciplined trading strategies. Conrad Leslie began his career as a stock broker, then decided to specialize in commodity accounts. He later set up business as a market advisor and conti- nues that role today. Leslie also profits as a speculator in future markets. The Ventilation System For. Hogs — Poultry — Dairy Bams and other animal buildings. OFFERS: • Draft Free Ventilation • Circulation of Inside Air • Automatic Control • Uniform Temperature • Heat Distribution ivaa Zane/ Paiute Svdtest4 Zed. R.R. 1 Kincardine, Ont. NOG 2G0 Telephone (519) 395-5286 PG. 16 THE RURAL VOICE/SEPTEMBER Leslie's most recent U.S. production estimate was released on August 6th. It projected huge U.S. corn and soyabean supplies when markets were already reeling under the impact of timely rains which were increasing potential produc- tion daily. The Leslie report pegged 1982 U.S. corn production at 7.967 billion bushels. (That was higher than Leslie's previous guess and only 300 million bushels under the 1981 record of 8.201.) The soyabean crop was pegged at 2.236 billion bushels (about 10% more than last year's 2.030). Needless to say, futures markets paid respect to Leslie's historical accuracy by plummeting the day after his report came out. Leslie said that most farmers react to the impact of weather when it's too late. He said that this year, most of the weather news is already in the market. Big production figures are now reflected in low prices. Meanwhile, some farmers were aware of the good weather and cleared out remaining 1981 crop, plus hedged or forward contracted a portion of 1982 production during late June to mid-July. They may have sold at less than production cost, but at least they got partly protected against possible price drops in July, August and September. A rally in corn prices is enjoyed in July about 8 years out of 10, according to some marketwatchers. This year it be- came obvious as early as mid-July that crops were too good to suffer much from drought or heat, so farmers had the chance then to make any sales that they had to make before the expected harvest slump. For those who missed that opportunity, Leslie gave some tips. He explained how to get on the right side of the weather during the critical summer growing period. "When you see an improvement in weather across the Corn Belt, go ahead and sell some of the crop (by hedging or forward contracting). Perhaps the first of July is a good date to start. Then, if weather continues good, sell more on about the first of August, and the first of September," he said. (He added that very 1982 often the best time to lift the hedges is mid-October to mid-November.) His golden rule for weather watchers: "If the crop is getting bigger (with each successive rain and each successive crop report) then don't be "long". ("Long" would mean holding paper futures or crop in the bin or one's total crop unsold in the field.) "If the crop is getting smaller because of weather problems, don't be "short". ("Short" would mean hedged or heavily forward contracted.) "In a growing crop, prices work lower," he said, "and in a problem crop, prices work higher." It's an obvious conclusion, but one that many farmers forget. Looking ahead, there may be some fundamental factors to watch which will make the best of a bad situation, according to Leslie. One factor to watch for is frost. "Things are bearish unless we get a frost scare," said Leslie. He believes that an early frost could boost prices because late planted corn and soyabeans west of the Mississippi River are vulnerable. So is western Canada, where crops look excel- lent but are a little behind schedule. Leslie believes that a frost could reduce produc- tion if it hit the U.S. during the first week of September. A second factor is Soviet buying. "Russia's appetite should not be under- estimated," he said. "At the moment, their crop looks like less than 170 million metric tons. This is against their need of 220 million mt., or more, just to keep their livestock herds; and to keep people happy on half the meat that people in most other countries eat." The timing of their purchase is important, though, he added. We don't know how much or when they will purchase enough to boost prices. Leslie cautioned that farmers should be aware of the possibility of further price drops if neither frost nor Soviet buying materialize soon. "If we stick to the latest crop estimates and get the crops out of the field successfully, then December corn futures could fall to the $3.32 area, and November soybean futures to $5.25," he said.