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November 2010 Archive for Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

Are Corn Prices Being Manipulated???

Nov 27, 2010

I wanted to share a recent e-mail I received a couple of weeks back regarding my thoughts about the current Corn Prices and their relationship with the crop insurance claims.  In a nutshell the reader wanted to know if I thought the Government was trying to somehow drive corn prices lower this month to save a bunch of money on crop insurance claims.  As many of you are aware, several of the corn belts top producing areas had very poor yields, and many have made claims for federal crop insurance in which the RA option price for corn is set by the average December futures price during the month of November. It doesn't take a rocket scientist to figure out that a lower monthly price during November equates to huge federal savings on insurance claims. I don't consider myself a conspiracy theorist, but rather a realist. This may be a bit of a reach, but something that certainly makes you scratch your head and wonder about. It does seem very coincidental. Keep the good comments, thoughts  and information coming my direction, they are all very much appreciated and helps to keep us all more informed.

Weekend Updates
South Korea's military actions this weekend has the outside markets nervous once again. The Euro is still causing additional concern and is adding strength to the US Dollar.  China's announcement to auction off beans from their reserves in the face of collapsing crush margins has the bean market on it's heel's. The bulls will try and offset lower price action next week by arguing about the current dryness in Argentina, Russia's continued problems, and the ever looming acreage battle.   
 
Additional Thoughts To Consider
  • The Euro is still under major duress, and traders continue to fear more significant problems will be coming down the pipe from Ireland, Portugal, Spain, Italy or even Greece again during the coming weeks. I truly believe the Euro has reached a critical fork in the road, I think we could be in for a rocky ride until they can get things figured out. 
  • We need to continue to watch the North Korea - South Korea problem.  I am certain that as we move war ships into the Yellow Sea, China is going to become very concerned.  Rightfully so, as I am certain we would not be very comfortable with Chinese war ships off either of our coasts. This could get more serious than you might think.  I doubt many will want to be weaving cargo shipments of soybeans and corn through battleships and aircraft carries.  Yes, people have to eat, but this may certainly limit some of the buying. 
  • The big news in the grain market on Friday was the fact that China, the world's top soybean buyer, announced that they would auction off 300,000 metric tons of soybeans from their reserves next week (Dec 3rd). The knee-jerk reaction is that China won't buy US soybeans if it's selling its own. You know how I feel about this, longer-term it has to be bullish as they will eventually need to replace the reserves being sold.  Expect lower price action on the news today. 
  • Weekly export sales data from the USDA showed wheat in line with expectations and net sales of 745,200 tons.  Corn was above expectations and better than most estimated at 823,000 tons.  Soybeans on the other hand were a little below expectations coming in with combined sales of 948,900 tons. I have to believe the recent sale of 780,000 tons of soybeans to China that were recently announced by the USDA did not make the report. That would have really been nice to see.  Hopefully next week's numbers will be big, reflecting the sale.
  • The Shanghai Futures Exchange, where the world’s top three metals contracts are traded, announced they will increase margins and daily price limits.  Another move by China to curb speculation and cool inflation.
  • Informa now says Corn futures have lost ground on soybean futures in such a manner that they are going to reduce their corn acreage estimates back down to around 89.5-million-acre.  Imagine that, I told you when they were released they just seemed way to high. 
  • Rabobank released a report that said farmers across the world will need to produce a record grain crop in 2011-12 in order to stop the depletion of already low global inventories. They also noted that after supply shocks across the grain complex this summer, the world stock-to-use ratio for barley, corn and wheat is expected to end the season at around 17%, the lowest since 2007-08 when grain prices soared to record highs. 
  • The Jilin area in China is reporting empty corn storage bins, as farmers become scared of major grain shortages and more hoarding looks to be taking place.  
  • If ethanol production was somehow able to maintain its current pace, we will have used 250 million more bushels of corn than the USDA has projected. I am not sure we can keep that pace, but it is certainly possible.
  • For those of you trading wheat, remember that our last weekly condition report will be coming out, after that the USDA will shut it down during the winter dormancy period, and fire back up the ratings again in April.
  • Thursday, the International Grains Council lowered its estimate for world grains production in 2010-11 to 1.725 billion metric tons, down 5 million tons from its October estimate, and cut its forecast for world carryover stocks to 340 million tons.

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Will Grain Prices Be Higher or Lower Next Week???

Nov 24, 2010

I want to start by admitting I blew the Sunday night call.  We opened up lower, but it fizzled out quickly and the market headed higher.  Basically China came out Sunday before the markets opened and made a few announcements regarding how they were going to fight inflation. What they announced was not near as harsh as many traders had anticipated. From what I am told, the Chinese Government said they were going to work very hard during the next several years in an attempt to boost crop production and would provide additional subsidies to farmers that would consider expanding their operations.  No monetary values were mentioned, but they did say they wanted banks to extend lending limits to the farmers. The also announced they would be limiting fertilizer exports, to ensure enough supplies for the farmers in China.  As I mentioned a couple of months back, make sure you have your fertilizer costs locked in.  When China pulls their fertilizer off the market it will certainly raise the cost for farmers here in the US.

  • I think during the next couple of weeks we will start to see some of the big players add a weather premium back into the prices of both corn and beans as traders become more concerned about the dryness and possibility of drought like conditions spreading through parts of Argentina and areas of Brazil.  
  • Goldman Sachs fired out a statement to their investors late last week that they are raising their Soybean price estimate for the next six months to $14 on thoughts that beans will eventually loose out in the acreage battle this coming Spring...We need all the help we can get to make new high's.  Daddy Goldman's blessing are always welcome. Lets just hope they are right.
  • From everything I can see, it looks to me that most Farmers are content with the sales they have made up to this point. As farmers kick back and wait to make sales the basis should drastically improve during the next several weeks. Be sure to pay close attention to the basis in your area, it might provide you with the opportunity to enter a basis contract of some type. 
  • Irelands debt issues along North Korea trying to flex their muscles against South Korea had the outside markets very concerned this past week.  If more issues arise look for the US dollar to strengthen and hold back the grains.

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I wanted to throw out a few additional thoughts to my Corn followers... 

As you know, I could talk for hours about the Corn market...and in particular about how the numbers simply don't add up.  I have been telling my followers this for months...nothing has changed. You have to look no further than the USDA's most recent estimates for China. It started back when the USDA came out and reported that they estimated China's feed usage would actually drop this year (corn used for animal feed). Are they serious?  China is exploding and the USDA is throwing out estimates that their feed demand this year will shrink...Come on, who is kidding who here? If the USDA is listening to China, and taking their word on this stuff then we must all be nuts. The USDA had corn used for feed estimated 1 million tons less than last year.  I have to believe they are going to end up using 3-4 million tons MORE than last year at least, simply due to their massive demand for pork and poultry. Realizing their mistake the USDA came back in November and upped the feed usage number by 2 million tons. Somehow they just all of a sudden realized they might be off by 2 million tons.  Here is where it gets even better, to make up for the 2 million tons they added to the demand side in feed, they simply raised the production numbers by...you guessed it 2 million tons. All of the domestic Ag Advisory services in China are telling us that their production is going to be down, but somehow the  USDA raises it's estimates. None of this makes any sense to me. Either we are trying to help China keep their food cost down in return for them continuing to buy US debt and paper, or we simply continue to let China feed us a bunch of bogus numbers so they can manipulate price.  Regardless the number just don't make sense.  I realize the reporting agencies have a tough job, and can only be as accurate as the numbers and data they are given, but something has to be done with China and the data we continue to be sold. 
 
Here is something else I can't seem to figure out. Both China and the USDA continue to tell us that everything in China is "A-OK" there are no shortages and no problems of any sort. Yet the Chinese government is forced to auction off record amounts of their corn surplus right during the heat of harvest to help slow down prices that are skyrocketing.  Don't you think prices are skyrocketing because people are willing to pay more for the corn. Wouldn't you also assume prices might be skyrocketing because there isn't enough to fill demand. I might not be the sharpest tool in the shed, but I know something is not right about this picture in China. Your in the middle of what you claim is a record harvest, you are dumping several million tons of corn on the market as well as from your reserves and prices continue to go higher.  You tell us everything is great, there are no problems, and we say "OK". On top of that it looks like you are out trying to strike new deals with Argentina and any one else you can as you prepare to import a record amount of corn.  But still we believe you when you tell us your numbers and say everything is "OK".  Well, I call B.S. on the whole deal.  This same thing happened in Cotton just a while back and look what happened to prices.  I certainly can not "guarantee" prices are going higher and that we will see new highs in 2011 corn, but I have done this long enough to realize that when 2+2 does not equal 4, something crazy is getting ready to come down the pipe.  As with any market, timing is everything.  It may not happen today, tomorrow or next week, but eventually these manipulations of the numbers will catch up, and when they do watch out, this ball game will drastically change.
 
Floor Traders Report 15,000 Dec $5.50 Corn Puts Bought Back
Word from the floor is that there was heavy December Corn Option Liquidation yesterday.  Remember me telling you about all of the Dec $5.50 puts that had been sold several weeks back.  The sales were made at that time collecting a $0.30 premium. Essential this ultimately put the seller (who many believe was China) long December corn from $5.20.  Guess what,  all of the puts were bought back today... No wonder we couldn't rally, this is like hitting the market with a sell order of 15,000 contracts.  This should help us longer term, because if they would have let the options expire in the money.  They would have had to eventually be "sellers" in the futures market to offset the losses.  I am a little worried though as they may feel the market is going to break even further and simply wanted out of the trade prior to any additional break.
Cattle Hedges To Think About
From what I hear cattle ranchers in Kansas/ Missouri are selling to packers in the $101-$102 range, while many in Oklahoma & Texas are turning down the bids looking for higher offers in the $103 range. I heard early in the day that more than 18,000 head had changed hands in Kansas alone, so cattle movement is strong despite holiday trading. Many of the guys on the floor are telling me that they have seen several larger players step in and repurchase a number of hedges in the Globex market in both the December and February contracts. The front months in my opinion certainly look more attractive than the deferred contracts right now.  I will even go as far as to say producers should consider buying at the money puts to establish a floor in this market and selling out of the money calls to finance the deal. I am not going to argue the fact that feeder cattle supplies are shrinking, but I am thinking the supply of feeder cattle outside of the feedlots is actually down while placements are up some.  We both know this  can’t go on forever. I am also worried that with the good weather and descent premiums the feedlots may choose to hold onto the cattle, this could push a substantial amount of heavier cattle onto the market during the early Spring months. I believe demand will be steady and maybe even increase from here, unfortunately I think that is all ready priced into the market.  I continue to recommend that producers should consider selling the April $112 calls and buying the April $104 puts, at even money or better (should be able to collect a little at this level).  This gives you a good free floor at $104, and provides you with a sale at $112. I would not do this on all your cattle, but rather 25% or so.  For those of you wanting to make a play in the Feeders consider selling the August $124 call and buying the $114 put.  You should be able to get it done at close to even money.  This would give you a floor at $114 and a sale at $124 if prices should rally higher.
 
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Why Corn & Bean Prices Continue To Break

Nov 19, 2010

 

Below are a few brief experts from my daily e-mail. I send the information out FREE every morning.  If you haven't gotten signed up yet just follow the link and you should start to seeing the reports in your e-mail early next week.  There are no commitments and no catches.  I will send you all of my hedging strategies, cash sale recommendations, and daily commentary at no cost for several weeks.  If you like the info and think it is something you can use then you can subscribe and receive it all including my daily toll free hotline information and real time trade alerts for just $40 per month. My programs are geared specifically for Corn, Soybean and Wheat producers, but I also have many large cattle and hog operators that have been with me for years. I hope you enjoy my information and the services I make available.

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Funds Continue To Liquidate 
Just as I had mentioned in earlier reports, I am now hearing confirmation that fund managers in both the US and Europe have been liquidating length in the Ag Markets in order to salvage what is left of their massive profits and pre-holiday bonuses.  Remember many of their bonuses are predicated on "closed-positions" not "open-trade-equity". I am hearing rumors that they are closing the books in several sectors and many will be celebrating a magnificent year of profits.  I doubt you will see very much between now and the new year that will encourage them to risk their bonuses and banked profits to get back in.  I anticipate after they have completed their mass exodus of the commodity markets, volume will drop significantly and volatility will escalate in a chopping like manner. Hopefully trending back to higher ground.  
Funds were estimated to have lifted over 40,000 long positions in the corn market yesterday and 15,000 soybean positions. Funds are now long just over 350,000 contracts in corn, and over 175,000 in beans.  I am going to guess that they are long about 75,000 contracts of KC Wheat and now actually short 10,000 or more Chicago Wheat contracts.
 
 
Brazil Reports Its First Possible Case of Mad Cow Disease 
Here we go.  Brazil the world’s largest beef exporter has come out and reported its first suspected case of Mad Cow disease.  From what I am hearing the city of Campinas, in Sao Paulo state, was notified of the possible case on November 12th, and have kept the news under wraps.  This could be huge considering Brazil’s beef exports totaled more than $4 billion last year.  It will be interesting to see how this plays out. I know how rumors can circulate, so look for more confirmation before moving aggressively on the news.  I picked up some cheap $103 calls for less than $150 each in the overnight.  They only have 18 days until expiration but if the story gains momentum Exporters may look to the US for immediate supplies.  I doubt this will be good for the corn market if it ends up being true.  Killing any % of the herd will obviously reduce overall corn demand. 
 
Wheat Trading Strategy 
The wheat market looked great out of the gates yesterday, but seemed to fail in the final leg on further liquidation and profit taking. As most of you know I continue to feel wheat has some significant upside potential, despite the current break in price.  I read an interesting fact yesterday that pointed out that Egypt has now purchased close to 700,000 metric tons of wheat from the US.  Do you realize last year at this time they had imported zero US wheat. To top it off, I just heard reports that Egypt is back in the market this morning looking for both hard and soft wheat. They are looking to buy up to 60,000 tonnes of hard wheat and additional cargoes of soft wheat for shipment in late January. If you looking to make a play in this market consider a "Bull Call" Spread.  We like buying the March $7.00 call and selling the March $8.00 call.  We are going to leg into this trade buying the $7.00 call outright and waiting for a continued rally to sell the $8.00 call.  Less aggressive traders can put the trade on as a spread at a cost of $0.25 to the buy side.  This gives you a way to play the wheat with a limited risk of $1,250 per unit. 
 
China Taking A Break From US Beans
I am hearing China has chilled out a little on the nearby US Bean market, and was actually able to grab a few cargoes from South America cheaper the past few days.  I doubt this is anything significant, but I will be watching to see where their next few purchases come from. 
 
More On The Argentina/Chinese Corn Negotiations 
I wanted to let you know that Argentina has reportedly granted export licenses for 5 million tons of corn. Be careful just assuming this is100% bullish news. Sure, right now it is being rumored that this could all be part of the Chinese buying agreement, but be cautious assuming this as fact just yet.  In the years past Argentina typically does not grant licenses until they have a really good grip on their corn production.  Most in the marketplace were anticipating Argentina to issue licenses for 3 million tons of corn, not 5 million.  Some will argue this is bullish in anticipation that it will all go towards the China deal, others are saying it could be bearish because it indicates Argentina is preparing for a big crop.  I think somewhere in the middle lies the truth.  The crop certainly went in early, and there were more acres planted, which could certainly mean the odds of a bigger crop are in play.  Right now though the weather has turned dry and for the first part of November, Argentina has seen about 50% below their normal rainfall for the month. I personally think the Argentine government is preparing for a slightly larger crop than we are anticipating, and I also think they have a side deal cut with China to export an undetermined amount of corn during the next 4-6 months. 

Ethanol Demand Continues To Rise
Ethanol demand continues to surge despite the markets action. Across the news wires has come a report that  Pacific Ethanol will once again start up production of ethanol after closing their California plant in 2009. I heard the plant can produce 60 million gallons of ethanol a year. The plant was supposedly closed in 09 because of "unfavorable market conditions".  Obviously their view has changed, or maybe they know something we don't about the future of ethanol demand.  This is no small company, they have several other large plants across the US. 

What Is All The Talk About Inflation
Right now all the fund traders and big boys want to focus their attention on "inflation". I have had lots of calls as of late, and the best way I know how to explain Inflation, in today's terms is when too many dollars start chasing too few of goods. Now obviously in most countries like the US and Europe the the economy hasn't been so hot, so there really hasn't been a shortage of any goods so to speak. There has however been a massive increase in the number of dollars made available to purchase the goods. As more money is poured into the market place there should be more available dollars to bid on goods, in turn driving up prices.  In China inflation has become a real problem because the economy has caught fire which has shrank supplies while they still have a large amount of money in the marketplace to bid up prices even higher.  This is why China is trying to reign in money supplies by raising interest rates and slowing their economic growth. Hope this helps. 
 
One Of The Nations Largest Livestock Operations Under Federal Investigation
One of our clients called with news that Eastern Livestock Company (one of the nations largest livestock brokerages in the country) is under federal investigation after allegedly issuing millions of dollars in worthless checks for cattle sold on the market earlier this month. The stories floating around are that they have written in the neighborhood of $80 million in bad checks to cattle producers around the country in just a one week time period from November 3rd to the 9th.  On top of that Fifth Third Bank out of Cincinnati has frozen all of their accounts and filed a legal complaint that is accusing the company of stealing in the ballpark of $13 million from the bank in some type of elaborate "check-kiting scheme." This is not some small potato deal, Eastern buys and sells cattle in all 48 states, and I am sure it will send a shock wave across the board. Farmers who sold cattle during this time period have simply not received any checks in the mail, and the ones that have are saying the checks have bounced.  I doubt we have heard the last of this story...I just wanted to make you aware.  Thanks again Tom for bringing it to my attention.
 
Could Higher Food Inflation Actually Be What The Government Wants
As many of us sit and watch prices at the grocery store head higher, and governments all across the globe tell their citizens they are doing what they can to help out, you have to wonder if this is truly the case.  If you consider China for example, higher food prices and lower industrial activity would actually work very well for them as they try and balance growth between the urban and rural communities. Let me take this one step further and have you consider how higher food prices may be benefiting the US and the other countries who have printed massive amounts of money as part of their economic bailout plan. As governments print more money and create more debt they are increasingly pressured to increase their revenue in order to pay for their spending.  What better way to increase revenue than higher food prices.  Higher prices at the store mean higher taxes collected at the register.  Higher prices for corn, beans and wheat mean farmers will have a larger tax burden.  New equipment purchases will be met with more sales taxes collected.  Higher prices will also help reduce the farmer subsidies and tax incentives that the government has been dolling out. As you can see from my argument, farmers are not necessarily the ones benefiting from higher food prices, but rather the governments seem to be the big winners.  Think of it this way, assume the government gets 30% of every dollar you make in the form of income taxes. On top of that the government receives a portion of every dollar you spend in the form of sales tax. As they print and spend more money the governments are under pressure to increase their revenue, this is done by generating more tax dollars.   Obviously the government would like to see the public sector create more jobs, as this would increase their revenue from income tax.  This isn't happening.  Next they would like to see you spend more money on "goods", this would generate more sales tax revenue.  This isn't happening much either, people are continuing to save.  One sure fire way to generate more tax revenue though is with higher "food prices".  People have to eat.  The larger the % of your income that is spent on food, the larger the % of tax revenues collected from each person. As the worlds governments fall further and further in debt, I would have to imagine the higher food prices are being meet with open arms.  
 
Wheat Trading Strategy 
The wheat market looked great out of the gates yesterday, but seemed to fail in the final leg on further liquidation and profit taking. As most of you know I continue to feel wheat has some significant upside potential, despite the current break in price.  I read an interesting fact yesterday that pointed out that Egypt has now purchased close to 700,000 metric tons of wheat from the US.  Do you realize last year at this time they had imported zero US wheat. To top it off, I just heard reports that Egypt is back in the market this morning looking for both hard and soft wheat. They are looking to buy up to 60,000 tonnes of hard wheat and additional cargoes of soft wheat for shipment in late January. If you looking to make a play in this market consider a "Bull Call" Spread.  We like buying the March $7.00 call and selling the March $8.00 call.  We are going to leg into this trade buying the $7.00 call outright and waiting for a continued rally to sell the $8.00 call.  Less aggressive traders can put the trade on as a spread at a cost of $0.25 to the buy side.  This gives you a way to play the wheat with a limited risk of $1,250 per unit. 
 
Will China Become A Global Exporter of "INFLATION"...? 
Think about this for a minute, Wal-Mart, Gap, J.C. Penney, Target and other US retailers are reporting higher prices in clothing. In fact most are suggesting payments to Chinese suppliers have increased by as much as 30%. I know you have seen cotton prices surging higher as of late (up more than 70% this year alone in China), and stockpiles are now at their lowest levels since 1995.  From here it doesn't look like prices will be falling back for the retailer anytime soon. Therefore American's should prepare for higher prices in the months ahead. As China has gained control of global manufacturing, and inflation continues to run wild it should only be a matter of time before China truly starts exporting massive inflation to other areas of the world. Just look around, everything manufactured in China will soon carry a little additional weight in the form of "inflation".  
 
For Their Second Act China Will Be Forced To Slow Down Inflation
I am telling you now the only real way to slow down inflation is to accelerate supply. This will be the only way for the Chinese to control food prices in the months ahead. You have to believe talks with Argentina are just the tip of the iceberg. It's only a matter of time until they are forced to ramp up importers even further. 
 
Trading The Cattle Market
From the way it looks now we may have seen the lows in the Choice / Select cutout values, at least for the next 45-60 days. I think that may even be a little conservative. The only way we go back to test those lows in the mean time is if international and domestic beef demand simply falls apart. Down the road, yes I think that could happen, but not in the next 45 days. I continue to stay short the $98 and $96 Dec 2010 puts and look to be in great shape on these positions. Looking further out though I am starting to sing a little different tune, and don't seem to be as optimistic as I once was. I am not arguing the fact that export demand should continue to grow, I just think the board has priced in too much opportunity in the deferred contracts. I think we will have a chance to buy this market back a little cheaper once we get past the holidays.  From there domestic and international demand could start to waver and premiums could pull back. 
 
*Producers looking to hedge may want to consider making a sale in the April or June contract. Rather than selling straight futures, I personally would rather see you go out and sell (1) April $112 call and buy (1) $106 at-the-money put for around $600. This gives you downside protection in case the market breaks and gives you upside potential on the cash side to around $110.50.  Keep in mind the "Fats" contract is only 40,000 pounds.  Based on 1,200 pounds per head this would protect you on roughly 33 head of cattle.  Although many advisers would try talking you into this type of strategy on your entire herd (because they get paid more), I personally wouldn't advise initiating this type of position on any more than 30% of your herd at this time, as it ultimately caps your upside potential. It is a great strategy to use but must be done in proper proportions. Just like everything else in life we always want to overdo the "good things", until we figure out moderation is the key to long-term success.  Trust me when I say it sounds great on paper, but I have experienced the pain it can bring in real life.  If cattle goes to the moon and all your buddies are driving around in bright shinny new trucks, but you can't get one because you listened to some knuckle-head adviser tell you to hedge 100% of your herd you are going to be pissed.  I am just shooting you straight. It's a great play, but don't over do it.
 

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The Real Reason Why Corn, Beans & Wheat Prices Have Fallen

Nov 16, 2010

Below is an excerpt from my Free Farm Direction Newsletter that I sent out Sunday night to all of my followers.  I thought it would help you better understand why prices have fallen so drastically as of late.  If you are not getting my information each day make sure you sing up by clicking the link below.  It comes to you via e-mail and their is no cost and no obligation.  As always, hope you find the info helpful. 

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Farm Direction Daily: I know many of your are very concerned about the price action of Corn, Beans and Wheat, especially after Friday's limit down moves.  I wanted to give you a little more behind the scenes look and an update on how things are developing.

If anyone of you doubted the power of the "outside markets" and or the importance of China in the grand scheme of this things, let Friday be proof that right now, they are the markets. China simply throws out a rumor that they are going to raise interest rates to cool inflationary price and the commodity markets fall apart. Yes China has the market running amuck, but there is something else brewing in the background that I want you to be aware of.  Not many are talking about it yet, but it could put more pressure on the markets during the next few weeks. I talked to a few of the big boys this weekend and there is some fear in the air that the Euro could eventually fall apart.  More debt problems for Ireland, Portugal, Spain and Greece could mean bigger problems on the horizon for the Euro.  What does this mean for the grain market? It's not just the grain market, but rather all commodity markets could feel the effect. To put it in simple terms, if the Euro collapses you have to assume fund managers who have been shorting the US Dollar and buying commodities would be in real trouble. Many would be forced to unwind or jump out of the Euro as it collapses. More than likely they were short the US Dollar and Long the Euro to begin with.  As they unwind their spreads they would be big buyers of the US Dollar ultimately driving the value of the Dollar much higher. Global traders who have also made similar plays spreading the Euro against other currencies would find themselves in a similar situation and would more than likely seek refuge in the US dollar as well. This would force those traders who are Short the US Dollar and long commodities to run for the exit door as the trade unwinds.  Essentially they would be buying back their short US dollar positions and Selling their long commodity positions, cashing in their winning chips and saying "game over".  Do I think this will happen?  No, but I need you to be aware of it and understand how this game is being played.  There is a lot more to it than simple supply and demand numbers now a days.  You have to see the entire picture. I don't think it will happen because the US simply can't afford for it to happen, we will throw the entire kitchen sink at this thing before we allow massive "deflation" to take it all down the tubes. This is why the Fed is so worried, this is why the Fed wants to make sure they have the resources in place and available to step in and prevent such an issue.  If I am wrong and the entire "house-of-cards" comes tumbling down the commodity markets will get rocked across the board. If the funds were to exit in mass, rest assured the board will bleed for several days.  Limit down would be the theme to say the least.  Do I think prices would stay there, absolutely not! The Chinese consumer does not eat less based on what the funds do or what the Euro does. Global demand is on the rise and it will soon be a freight train running out of control.  The only way to slow inflation will be for countries to import more food and raw material, there is no other way around it.  We are on the verge of an explosive move higher.  Could we break lower at some point due to outside circumstances? Certainly. I just want you to understand how delicate and volatile this game has become. Take calculated risk, reward the market with small cash sales on moves to higher ground. Don't get greedy, never think of it as sure thing or let anyone tell you that it is, and most of all do net get overextended. Always keep in the back of your mind that we could see several days of limit down action if the funds are ever flushed or spooked out of their current positions. Yes we will more than likely rebound, but you have to be able to hold your positions, your hedges and your cash to survive. 

 

On the bright side, there were no interest rate hikes this weekend in China. I also heard that when they wrapped up the G-20 meeting China committed to gradually take action, nothing drastic was in order. Basically China has accomplished exactly what they wanted...cheaper prices. By releasing the highest inflation numbers of the decade the exchanges scrambled to raise margins and many funds and specs were blown out of their long positions. In the end this only confirms what we thought all along. China simply can not supply enough food and raw material to keep their prices down. In the end they will have to import huge quanities to control prices and inflation.  An interesting point to mention is that the open interest really didn't fall that much on the mass exiting.  This simply confirms my belief that the funds and spec's are simply bailing out and the commercials and end users are buying. We should open higher, and hopefully we can hold onto the gains. It wouldn't surprise me though to see the  usual three day exiting patterns by the funds come into play and ultimate take us back lower for a few more days before we stabilize and turn this thing around for another surge. Lower prices are not going to ration demand, nor are they going to buy acres. Remember bull markets somehow always find a few ways to let you in…

 

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China Makes Plans For A Big Purchase Of Corn...Prices Higher!

Nov 15, 2010

Below is a "Special Update" I sent out early this morning about the trade rumors floating around with China & Argentina I thought you guys mights like to read the info...it is very interesting.  If your not yet signed up for my FREE information make sure you do so by following the link below, that way you get all of the updates. 

 

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SPECIAL UPDATE:   You guys will love this one...I have a few more facts from the rumored news that I reported over the weekend regarding China and Argentine striking a huge corn deal. From what I hear the buy could be more significant than than the 5 million metric tons I had originally reported.  More in the ball park of 6-8 million metric tons, all scheduled for  shipment some time between March and August. If it actually happens this would be China's single largest corn import total in modern history. You would have to go back to the 95-96 crop year when the Chinese imported a total of 4 million metric tons to be anywhere close. If it goes down this could be one of the greatest grain robberies of our time. There is even more to this story.  I am now hearing from sources close to the Argentine Government that a select group of Chinese ag delegates have actually been in Argentina for the past 2 weeks trying to figure out how the deal could come together....Imagine that.

Supposedly Argentina has finally agreed to all of the talks, and China has said they would purchase Argentine bonds to help raise Argentina's IMF and World Bank status.  There were some other specifics included in the deal such as beef, wine and other agricultural goods but nothing even close to the corn purchase. Do you realize if this is true it could essentially amount to about 40% of the entire Argentina corn crop next year. This would force much more buying into the US market and would be extremely bullish long-term.  
 
It gets even better. If you look back in the last update I sent out you will see that I reported an odd occurrence at the close of business on Friday in the March corn contract. If you remember the word from the floor on Friday was that Dreyfus came in at the close and out of no where purchased all contracts being offered at limit down, something rarely ever done heading into the weekend and certainly not with the markets getting hammered across the board.  Guess who is being reported as the lead exporter to the Chinese...You guessed it, Dreyfus. Other South American exporters will also be allotted corn export volumes, but this is all just too crazy. If this is just a rumor the pieces are certainly falling into place in a very fitting way.  Nothing official has been released because they obviously are still trying to get it all priced in both the cash and futures markets. 
 
This purchase would obviously help China slow down prices in their domestic corn market and would allow them to release more of their reserves into the streets providing ample short-term supply. Imagine all of this happening right after corn prices got rocked.  These guys are good...very good is all I can say.  We need to be on our "A" game as we move forward.
 
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Don't let anyone trick you into believing this bull market is over!

Nov 12, 2010

 

The funds certainly headed for the exit door in a big way Friday. There was serious bleeding
across the board.  The US Stock market got hammered, Crude Oil lost more than $3, Gold was down over $40, Cotton traded limit down, Sugar and Coffee got blasted...and the Grains got hit just as hard. Right now fear on the floor is that China is going to tighten their money supply and possibly raise rates again to help slow their economy. I call B.S.! Unfortunately it looks as if we are going to allow China to buffalo us into believing more of their rhetoric so they can swap US dollars for more hard assets like grains, metals, and crude oil. 
 
Don't let your marketing advisers or the so called "technical guru's" talk you into selling this market. This "bull market" is just getting started.  Be patient give it time to develop. My hunch is China is in a real jam and is blazing mad about the valuation of the US dollar.  They are very shrewd business men and understand the game very well.  They understand and know the most assured way to slow inflation is to import more food and more raw materials.  They also know their country is at the mercy of others and can not keep pace with current demand or supply the goods needed to slow inflation, no how...no way. By importing more food and more raw materials they will have more on hand, this prevents prices from surging drastically higher and prevents one user from trying to outbid the other. Trust me they understand how to slow inflation. They also know how to play the markets.  I told you weeks ago they had been selling huge quantities of Dec corn puts at $5.50 and lower.  I told you something smelt very odd about these sales, and that it wouldn't surprise me to see something happen to cause these markets to drastically fall back. They understand and know that the markets will react accordingly to whatever news they feed it.  They have certainly done a number on it this time. This move should save them billions on their next buying spree. 
    
It all started to unwind when our good friends over at INFORMA released their acreage estimates for next year...completely absurd, but we must pay attention as they have drastically affected trade perception.  Next, China came out with the news that they might have to do something drastic to slow down inflation.  They later topped that one by releasing a statement that the government will sell 2.6 million metric tons of soybeans from their reserves in open auction to further slow prices and imports.  I am surprised the USDA didn't get in on the game and announce they miraculously found a couple hundred million bushels of corn in some secret storage bin. Obviously I am being a little facetious, but I find it highly ironic that we continue to fall hook line and sinker for China's game every time. 
 
I am here to tell you the supply and demand picture does not change.  The bullish scenario from the past few weeks only intensifies off this break.  Export sales where great for both corn and wheat Friday as you will see below.  Informa's acreage estimates for beans basically puts the market at a ZERO carry.  We were supposed to be taking prices higher in order to ration corn demand, now all of a sudden we have people coming out of the wood work looking to buy corn.  End users and consumers of grain are swapping place in the market with funds and small specs.  You tell me if that doesn't add a more solid base to this move.  The technicians can talk all they want about "double tops", and "triple lindies".  I worked alongside and studied for years under some of the industries most respected technical analyst, and right now we are simply in unchartered territory as far as global demand and money flow is concerned. The charts can be used to some degree but this is a whole new ball game.  From here out all bets are off on the technical front, you can use it to help select entry and exit points, but to predict overall market direction simply will not work.  People need to eat , and no amount of "oversold", "overbought" or any other technical talk will stop them from buying what they need to survive.  Hang in there, expect a few more down days ahead as those traders on big margin calls will be forced to liquidate if the market doesn't reverse by Wednesday or Thursday.  I have to believe new crop corn below $5.00 is going to be of real value. New crop beans below $10.50 should also be a steal. 
 
I have included some additional info and commentary below that I released in my daily report.  Make certain you get singed up to receive all of my cash marketing strategies, hedging techniques and market commentary.  The information is FREE and is sent directly to your e-mail each and every day. There is NO Cost and NO Obligation.  Hope You enjoy it.  
 

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How To Trade These Types Of Bull Markets
I hate to sound like a broken record, but I can not stress enough that you need to make certain you do not get yourself too overextended while trying to ride this "Bull" market. You have to make certain you maintain managable positions. If you are feeling uncomfortable at scale back. I will be scaling back some and making adjustments myself on the break. If you need to, think about eliminating the futures and buying the calls on the set-back. Now is the time to re-evaluate your positions you have to make certain you can ride this thing out. End users should see the coming break as a complete blessing and should look to extend coverage. The export market will be your signal that prices have stabalized enough to encourage new demand. Along with more demand coming in at lower prices, I still believe qwe will see lower production estimates in January. Remember since1974, there were three times that the US corn yield fell in Sep-Oct-Nov and in each case, the final yield in January was also lower. 
 
***Cattle guys that still need corn coverage should consider buying at the money calls and selling deeper out of the money puts to finance it on the breaks.
 
What INFORMA Acerage Numbers Represent
In a nutshell INFORMA estimated 2011 total corn acres would be around 93.1 million acres. This is an increase of 2.7 million acres from their last report just 60 days ago. And almost 5 million acres higher than their 2010 estimate. As you can imagine this has taken the air out of the trade and the current concern about acreage.  Yes it is just an "estimate", but right now the market is taking it as fact and has nothing else to go by.  Obviously INFORMA needed to see a brake in the deferred contracts. How you come up with a number like this is beyond me, but it looks like they are trying to stay consistent and top last years failed effort.  If you recall last year they where high by about 1 million acres in their initial estimate and the year before that they missed it by almost million to the high side.  Regardless the market is rattled up.  We have fund traders who are massively long this market, and I hate to say it may get cold feet on this type of news. Throw in the fact that the Ethanol tax incentives may not get passed and we have the makings of a major set-back.  Those of you who thought you may have missed the opportunity to get on board may have just been given a second chance, don't let it pass you by this time. If you need help establishing a position or strategy to catch the move higher as we pull back gives us a call (816) 322-9800.  
  • Soybeans are a completely different story, with INFORMA estimating soybean acres will fall by 1.6 million acres to 75.8 million. Once again somewhat nuts in my opinion considering many producers I have spoke with as of late are talking about double cropping beans more than ever before. But if this where the case, beans prices will be skyrocketing and supplies could fall to zero.
  • INFORMA also reduced total wheat acres for 2011 by just under 1 million acres. 
  • INFORMA raised their projections for total Cotton acres by 1.2 million acres putting the total now at 12.2 million. This would be the largest year-to-year change with almost an 11% increase in total acreage. That increase would send cotton plantings to their highest level since 2006. I know cotton prices are high and look very good to many farmers, I am just not sure we will see as many acres move to cotton as these people are projecting. Producer equipment prices and ginning resources may force many to rethink this plan. 
A Couple Of More Reasons I Don't Believe The Highs Have Been Posted
I know we are suffering a set-back, but nothing I didn't tell you could happen several days ago when I mentioned the large unusual sale of $5.50 puts in the Dec 2010 corn contract.  Some will look at this as a definite market top, and bail on the 'bull-run". I urge you think twice and try to recall the last time you saw the corn market make this type of run during harvest.  Also let me know the last time you have seen the basis narrow and strengthen like it has during the past few weeks at the peak of the market.  Generally the basis will start to widen as the market reaches it's final push higher. This final surge in price is not caused by lack of supplies but from a final wave of investors entering the market. This is not the case right now.  Elevators want the corn and basis has been gradually strengthening. 
 
Export Sales Numbers
USDA Exp Sales: Corn 2010-11 Net 573,600 Tons;11-12 55,000  This is slightly higher than anticipated.
USDA Exp Sales: Sbns 2010-11 Net 809,800 Tons; 11-12 120,000.  This is lower than expected.
USDA Exp Sales: Wheat 10-11 Net 832,000 Tons  This is higher than the trade had expected.
 
* Just as I had anticipated...soybean exports are starting to slow and corn and wheat are starting to gain steam.
 
Buying Interest Could Be Heating Up
We maybe seeing some of our first signs of more grain buying from abroad. Here is what I have heard happenign so far this morning:
  • Iraq purchased 100,000 in US wheat
  • South Korea Friday snapped up at least five cargoes of corn and wheat totaling 275,000 metric tons. South Korea is world's second largest corn importer after Japan. 
  • Major Feedmill Group Friday purchased three cargoes totaling 165,000 metric tons corn of U.S. No. 3 or better quality grade.. 
  • One cargo of 55,000 tons each has been purchased from Itochu, Cargill and Archer Daniels Midland at $297/ton, $297.87/ton and $297.50/ton, basis cost and freight, for arrival by March 15, March 10 and end-March respectively. Itochu is likely to supply U.S. origin corn and the other two companies' cargoes may be of optional origin. 
Fund Action
From what I can gather the funds have sold close to 100,000 contracts of corn this week. They are now net long less than 360,000 contracts. Yesterday alone the sold close to 20,000 contracts. The are long now less than 200,000 contracts of beans, and may be flat the Chicago Wheat Market. 
 
*We traded over 760,000 contracts, blowing away the old record of 570,000 from last month.  Try telling me these markets have not changed...
 
USDA Even Thinks The Price Of Corn Will Be Higher
You  might want to sit down for this one.  I have heard rumors that at a meeting in Boston some USDA analysts where heard saying that corn could trade much higher, possibly even reaching $7.00 in the next few months.  You read that right, I said the USDA.  If they think it could eventually go to $7, I might want to raise my estimates to double digits.  Just kidding, but I am somewhat floored they would even consider throwing out such a bold number. That is just not their style. I felt like sending them a fruit basket or something, I am not sure I can remember the last time they were on our side  They still have their average crop year cash estimate at $5.20, the rumors were, before this little set-back, that they might move it up to $5.60...who knows now.
 
Corn Usage For Ethanol Could Be Higher...But
Yes the acreage estimates will play center stage, but we must continue to look a the total picture. I found some interesting data that I think you need to consider regarding corn usage from ethanol production.  If you look at the September and October implied ethanol production data, you can see total corn usage is around 820 million bushels. If we assume a similar type increase in November (in line with the Sept-Oct gains), our total 1st quarter corn for ethanol usage would be just about 1.26 billion bushels. Which is a gain of about 200 million bushel during just the 1st quarter. From what I recall the USDA was only anticipating a gain of 232 million bushels for the entire year.  Something just doesn't jive.  Either demand has to rapidly decrease or these projections need to be revised much higher. The problem though now is that the ethanol tax credits look to be in big trouble.  I heard yesterday the deficit reduction committee recommended sharp cuts in Medicare, Social Security and other entitlement programs. One committee proposal I heard discussed suggests cutting farm subsidies by $3 billion per year. Any direct cuts or eliminations of this magnitude will certainly rock the market on a near term basis.
  •  
Will The Corn Market Test All-Time Highs In 2011?
Do you realize that right now we have just slightly higher than a 6% carry out to usage ratio in corn. I have heard reports that this is the lowest Nov stocks to usage estimate in the last 30 years. The previous low happened in November 1995, and it was more than an entire percentage point higher than current figures indicate.  Soybeans now also have the lowest Nov ratio since 2003.  If China steps in and starts buying up corn and continues to buy beans with levels this tight it could be lights out.  I don't know about you, but if I am China I would certainly feel much more comfortable buying US corn, beans and wheat rather than US treasuries. I am honestly more bullish now than ever.  Setbacks are going to happen. I have been conservatively predicting corn to move higher ($6.50), if all the stars align we could easily test all-time highs and beyond at some point.  
 
Let The Technical Guru's Have Their Day In The Sun
When I first started trading over 20 years ago I worked alongside some of the industries top technical analyst. I swore it was the only way to trade, that was until I missed some of the markets most impressive moves. Then I flipped sides and began trading from a totally fundamental standpoint, that had some significant drawbacks as well.  Today I use a combination of fundamental and technical analysis.  I use fundamental information to help me predict and determine overall market direction, and technical indicators to help me determine more precise entry and exit points.    I have heard several of the big "technical guru's" the past few days talking about a key technical reversal setting up in corn. Technical guru's have been saying Gold was overbought at $600 an ounce, now we are trading over $1,300 an ounce. Technical traders are notorious for trying to predict market tops and bottoms.  The problem is if this is not the top, and we turn back around and head higher they will all tell me that the previous sale was just a "false signal".  I certainly respect technical analyst, I just don't like placing all of my chips on the table based on their analysis. I think there is still too much uncertainty about acreage and how it will all unfold for the markets to get hit too hard to the downside, regardless of what the technicians want to say. In fact I think the scenario has been amplified by the recent USDA report.  If you look back in previous reports I was thinking that corn, wheat and cotton would more than likely try and steal acres from beans, that is not going to be the case anymore.  Based on the most recent USDA numbers and China's relentless demand for beans...they are now going to be trying to steal from the other three. Bottom line look for the acreage battle to continue to add support to the markets.  Certainly we will see some breaks and set-backs, just don't let the "technical guru's" talk you out of your position. 
 
Consider Buying Soybean Meal 
I really like soymeal and think we are building a big case for higher meal prices. Soymeal usage in China has simply exploded.  Do you realize that meal demand in China increased by about 6 million metric tons in 2009, and this year it jumped by slightly more than 7 million metric tons.  That equates to a jump in demand of more than 13 million metric tons in two years. The kicker is I don't think it looks to be slowing down anytime soon. As their livestock industry becomes more modernized and a demand for higher protein meat begins to penetrate the marketplace soymeal demand will explode. I have been trying the past few weeks to build a long soymeal position, but have not had much luck. The problem is I continue to spread off the risk of owning the contract outright and shorting soybean oil against it.  Needless to say the bean oil has advanced higher than my meal contract the last two times I tried it. I am going to give it one more shot, then drop back and re-evaluate.  If you want in on some of the fun you can consider buying the March Soybean meal and selling the March Soybean oil, you need to risk at least $1500 on the trade as it can become extremely volatile. There is a strong seasonal tendency for meal to gain on oil from here through year end, so maybe that will provide us with some help.
 
Winter Wheat In China Could Struggle
I am telling you now all it will take is confirmation of a production glitch in China to send prices skyrocketing.  I don't want to get your hopes up, but reliable sources yesterday reported that China’s winter wheat crop may be heading for problems as conditions are extremely dry. To be specific winter wheat crops in the North and in the East are seeing "emerging signs" of drought after below-average rain fall since planting.
 
Could Fertilizer Price Be Heading Even Higher
From what I am told Urea is up well over 50% in many parts just in the past six months.  This problem doesn't look to be getting any better as China may cut exports of fertilizers including urea and diammonium phosphate this year to boost local supplies and lower internal prices. The word is China may instate some new policies as early as December that would restrict crop-nutrient exports in order to ensure their domestic supplies. You have to believe reduced shipments from China will make supplies tighter and prices in-turn could move much higher. Make sure you are getting your inputs locked in. 
 
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What Will Affect Corn, Bean & Wheat Price The Next 60 Days.

Nov 10, 2010

With the November report behind us and no real significant news until the end of December or mid January the market will be concerned about the following news and information. Certainly there are many more topics for debate, I just wanted to throw out a few thoughts.  

  1. The Crop - What will be the final crop size in the January USDA report? What will the size of China's corn crop end up being? 
  2. Exports - Will China step in and buy corn? Will they continue to buy beans? Could they eventually be buyers of Wheat?  Will Russia step in to buy? If exports strengthen from here the market will respond with higher prices. 
  3. Weather - Will South America's "La Nina" weather scare actually cause problems or fizzle out? Will the US continue to stay dry? Will extreme weather patterns affect Russia, China, Australia, Canada, etc...? Any production scares will cause prices to rally, ending stocks are just too low right now. 
  4. The Funds - Will the fund managers look to lock in "big bonuses".  Bonuses are generally paid on "closed" positions and not "open equity".  This means to realize year end bonuses fund mangers may need to bank and close a few of the "long" positions they have on the board. To close their longs they will need to be sellers at some point.  This pressure could weigh on prices short-term.  Will the Funds look to allocate more money to the US Stock market as investors pressure them as the market trends higher? If they reallocate and move money into the stock markets they will inevitably take some money out of the commodity sectors. Will the funds look to balance their grain positions? If so you could see selling in corn and or buying in wheat to balance the portfolio. 
  5. Politics - Will the ethanol tax credit pass? If not corn prices may suffer some set-backs. Will the biodiesel incentives be reinstated? Will Japan and the other countries continue to allow the US Dollar to weaken? If the dollar strengthens grain prices could stall out. Will China look to slow their economy and continue to raise rates? 
As you can see there are many unanswered questions that lie ahead with everything considered I think we may see a short-term top in corn and wheat, while beans try and hold their ground. I still believe March corn will trade to $6.75 and beans to $13.50 maybe higher, we just may see some set-backs before we get there.  
 

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Recent Developments 

  • The USDA revised Corn US ending stocks to their lowest level since 1995. On a global basis however the USDA expects stronger Chinese production on higher acreage and yields to partly offset the downgrade to US supplies. I think this is where they may really be off base.  I doubt China is telling us the entire story...Keep an eye on this as we move forward.
  • In addition the USDA is expecting higher global soybean production from Brazil and Argentina to offset lower US supplies and higher global demand. In the end this may not be the case. With the thoughts of extreme weather in South America yields could end up much lower than anticipated. The USDA is currently looking at the most optimal scenarios, there are other analyst basing their estimates on the most extreme scenarios.  I think somewhere in between has to be the most realistic scenario.   
  • The USDA essentially confirmed all of my previous reports that we will need at least 5-6 million more acres of corn and 2-3 million more soybean acres next year. I continue to think there is real value in November 2011 soybeans, and December 2011 corn.  The risk to reward seems much more manageable.  You can see that from yesterdays price action.  I continue to believe the deferred contracts will find support much quicker than the front months. 
  • Celeres says farmers have sold almost 30% of Brazilian new crop soybeans forward compared to 18% last year and plantings for the entire country are actually now running ahead of schedule. How quickly things change.  This tells me farmers in Brazil like the prices, and their fears about planting problems may have subsided.
  • Rumors are floating around that Beijing may restrict production of ethanol from corn in China as prices continue to climb.  I cant see this being a good thing for corn, but rationing has to eventually be expected at some point. 
Read Before Making Any New Cash Sales 
If you are going to need to make a cash sale before year end on a portion of your 2010 crop, make certain you are implementing some type or form of re-ownership.  Call into the office and we can help you get one set-up, I just don't want to see you make a sale on set-back during the next 60 days and then watch the market explode higher after the first of the year. Trying to time these types of markets can be almost next to impossible.  The best way for producers to play it is to make the sale then re-own with some type of "limited-risk" strategy. Make sure you use a strategy that gives you unlimited upside potential, where you can participate on any move higher, but with limited and pre-defined downside risk.  Just give us a call if you need some help, everyones situation is different.  

Ways To Play The New Crop
As I continue to recommend the December 2011 corn contract and the November 2011 soybean contract I thought I would throw out a few trade ideas. On hard breaks to the downside I continue to pull profits out of the markets by selling puts and buying calls.  You can then lift these positions into the rallies, or simply stay long if you are comfortable with the exposure.  Example: Sell the Dec 2011 480 puts for $0.35 cents, and use the premium collected to buy a $7.00 call at break even. Another simple play you can consider is buying the futures and selling covered calls.  Example: You can buy July Wheat @ $7.90 and sell the July $9.00 calls @ just over $0.60 cents. This gives you $0.60 cents of protection to the downside on a break lower and over $1.70 of upside potential per unit ($8,500).

Short-Term Trade Strategy
If you are looking to take a shot and don't mind getting long corn consider selling the December 2010 $5.60 corn puts @ $0.10.  These puts only have 12 trading days left on them until expiration.  If the market breaks you are long corn from a net $5.50 price level.  On the flip side if prices on expiration settle above $5.60 you will bank $500 per unit. 

I Have Been Talking For Weeks About the Upcoming Acreage Battle 
Have you ever rally sat down and tried to pencil out this acreage problem? I am starting to wonder if Wheat might be the sleeper in this whole thing. I know corn has to buy some serious acres, but at what expense will these acres come from. Here are a few interesting statistics I heard the other day that I though you would want to see. 
  • 1990 the US planted just over 77 million acres of wheat, a little more than 74 million acres of corn, and about 58 million acres of beans. This gave us a total in 1990 of about 209 million acres.  
  • 2000 we planted a total of 216 million acres (gaining just over 7 million acres). Corn acres rose by about 5.5 million acres, Bean acres rose by more than 16 million acres, but wheat lost 14.5 million acres.  
  • 2010 we gained more than 3 million more acres, and planted close to 220 million acres. Corn gained more than 8 million acres, soybeans gained cloe to 4 million more acres (in fact set a new record at almost 78 million acres planted.  Wheat however lost another 8 million acres and is now down to just slightly more than 54 million acres planted. 
That is almost a 30% loss in total wheat acres since 1990.  Do you see what is happening with wheat acres? I realize global wheat production has improved, but with production set-backs in Russia, and China and India being net importers this market could be setting up for a big run.  Wheat abandonment could be big with beans, cotton, corn and others surging higher, and abnormally dry winter wheat conditions. If we really do have to add more corn acres, I think you can see the trend has been to take it away from wheat. We need to keep our eye on this as we move forward. Producers could be quick to scrap the wheat and try to plant something else. 
 
Cotton Prices Continue to Climb Higher
December Cotton closed above 151, up the 500 point daily limit yesterday.  This market is absolutely unbelievable right now. The limit tomorrow will be expanded to 600 points higher. In case you hadn't heard, the USDA report showed a big drop in US yields. In addition they hiked up the export business by a quarter million bales. All of their fancy math work dropped our ending stocks to right around 2.20 million bales, which happens to be the lowest since 1925. You heard me right...1925. World cotton ending stocks also declined.  This market is extremely volatile, so be very cautious.  You have to believe as long as cotton continues to push higher beans will need to rally in some degree to fight for acreage.  Keep your eye on prices as we head into next year.  It will all be about acreage. 
 

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My Thoughts About The Upcoming USDA Report

Nov 08, 2010

My Current Thoughts About Where Prices Are Headed

As far as short-term, who knows. Every major reporting agency out there simply gives us some poor excuse for a guess, not dare stepping too far away from the "mother ship" (the USDA). I get so tired of these people never taking a stance. As you very well know, the USDA could pull anything out of their deck of cards, but from my perspective, I see almost no possible way corn yields can end up higher than 151 bushels per acre. Will the USDA make the necessary cuts in this report or in the January report...who knows. I think we are going to be significantly lower in Illinois, Iowa, Indiana and several other states. In fact I might even go as far as to say that the only two states with higher yields this year will be Wisconsin and North Dakota. Considering the USDA had used more than 90% of their test-plot data in the October report I have to believe their will be more emphasis on farmer surveys. I continue to believe these farmer surveys will be lower than the USDA had originally anticipated. If it were me, I would make a cut to 151 or 152 this month and then drop it even further, possibly even below 150 in January. Unfortunately they did not ask me for any help this time around. Another thing they didn't ask me for was my opinion about China. I personally think China has the USDA so far off base with their corn estimates it is almost scary. I don't know what kind of deals our politicians have cut with China behind the scenes, or what promises were made for continuing to buy US debt, but something strange is obviously happening here. Maybe in exchange for them buying all of our government debt we agreed to help them try and keep a lid on commodity prices. None of it makes much sense to me. First off they want us to believe that Chinese Corn stocks are at or around 60 million tons. This is a joke, right...We know for a fact that China released some where in the ball park of 20 million tons of corn this past year from their reserves in order to help reduce demand, and to keep prices from rallying higher. That didn't even phase this market, we are now at over $8.60 per bushel in China and heading higher. If they actually had tons of corn don't you think more would have been released and prices would justify. I think they are getting in big trouble, and maybe I am just one of the only guys willing stand up and say it. In fact from very reliable sources I am hearing they could be down to 15 million tons or less in their current reserves. The numbers just don't jive. You have reports of soymeal demand in China growing by about 8 million tons a year, this has to mean corn for feed is growing by about 12 million tons a year. You also have reports showing us that industrial usage and human consumption is growing by 3-5 million tons per year. If these numbers are even close to correct, we are looking at China increasing their corn usage by more than 15 million tons a year. The USDA has them penciled in for an increase of 4 million tons. Come on...Does the USDA think that China is going to provide them with accurate data or numbers that indicate they are in a serious jam. No, China is much smarter than that. They obviously know if they tip their hand and the USDA or the other sources release the information corn prices will go through the roof. On the flip side, I am also a little nervous that the USDA could be in cahoots with China in the whole game. Why I say this is because I have heard rumors from the floor that there has been huge put selling in corn very similar to strategies the Chinese use in beans down below this market. If you read a little further into this, it tells me that China needs to buy corn in a big bad way. Will the USDA give them the break they need to get it bought...once again who knows, nothing would surprise me. So for now we will continue to play this game. Unfortunately I can not tell you when the cat will finally be let out of the bag, but I am willing to bet by late spring or early summer prices are much higher. Continue to get long, stay long, buy breaks, and do not get overextended.

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Be Patient Corn & Wheat Sales Will Be Coming Soon

I know many of you have been concerned about how our total exports for corn and wheat have struggled, like I have mentioned in past reports I truly believe it is only a matter of time before they begin to take off. I had heard from good sources in China that they were very concerned about our ability to logistically fulfill all of their purchase needs therefore they would start the process rolling with bean purchases since it is their most pressing need. They have supplies of corn and wheat that can carry them for some time. Why would they tip their hand to the market that they will need large quantities of corn and wheat before the US is actually in a position to make it happen. Do you realize our ports here in the US have been absolutely slammed trying to accommodate all of the soybean sales. China obviously knew this would be the case, along with other countries therefor corn and wheat purchases have been put on the back burner. If you read into some of the recent reports you will see we are setting new records for shipments. Last week alone I heard we shipped close to 25 million in Corn, 75 million in Soybeans and 23 million in Wheat. This is huge for the US, and very close to the max we can handle. I am told it is the most we have ever shipped. With this in mind you have to believe China is patiently waiting to flush out the soybeans before they move onto buying corn and or wheat. We may have not actually shipped that much corn, but as of late last week we had made commitments to export close to 800 million bushels of corn, one of the largest amounts we have ever committed to at this time of the year. You can't tell me China is flush with Corn as it continues to set new highs now trading at over $8.60 a bushel. Sure they want us to believe they have plenty, but if that were the case why would prices keep pushing higher. For more proof that countries are waiting just look at last week when Egypt backed off buying US wheat even though our prices were lower than those they ended up purchasing from. I heard they were just too concerned that the Gulf ports were too backed up with beans to make it happen. I am telling you now the soybeans exports have temporarily hurt the other two markets, look for this to change as China shifts more interest back to South America. 

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My Corn, Bean & Wheat Projections...Where Prices Are Headed.

Nov 05, 2010

I have included below some highlights, commentary, and marketing ideas from this weeks report. If you are not getting my information sent to you daily make sure you get singed up using the link below, there is No Cost and No Obligation.  Hope the information helps prepare you for next weeks USDA report, have a great weekend. 

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The Week In Review updated 11/5/10

  • The Fed announced that it would buy back $600 billion in long-term debt.  The announcement was fairly uneventful, but should certainly prove to be long-term bullish the commodity markets. 
  • With the republicans regaining office many traders think the lame duck session may pass the $1 blenders credit for biofuel on the back of several other bills pending. The biodiesel credit only amounts to $600 million, nothing like the $5 billion dollar ethanol credit. 
  • There has not been a lot of export interest in soybeans as of late. I am hearing that most importers may be fairly well covered and not in any real big hurry to extend coverage. This could all change during the next couple of days as we get closer to the USDA report. 
  • Last night in China May soybeans were up over $0.50, to almost $18.20.  Corn was up over $0.15 cents trading at a new high of just over $8.60. I am not sure we will see this type of follow through momentum here at home today, but it is nice to see demand in their country not wavering on higher prices. 
  • Corn hasn't been able to generate much export business, but the domestic market is really starting to heat up and basis levels are starting to firm.
  • Export sales numbers came in descent with beans at the higher end of expectations at 1.59 million metric tons (way below last weeks 2 million plus figure, but still good). Wheat was about right in line with expectations, if anything slightly higher than some were anticipating being reported at 600,000 metric tons. Corn came in on the low end just above 450,000 metric tons.  
  • There are reports now surfacing that the Russian winter wheat crop plantings are down by almost 10 million acres. In addition their wheat crop could now be 1.7 million metric tons below the last USDA estimate.
  • The funds continue to their huge long positions.  I heard they added almost 15,000 contracts yesterday to their long corn position, and seem to be quickly closing in on 500,000 contracts. On top of that they are now long about 215,000 soybean contracts, 80,000 in KC wheat, and another 15,000 in Chicago wheat.

What Lies Ahead For Corn, Beans & Wheat updated 11/5/10
Now that the US election is behind us and the results of the Fed meeting have been detailed, we need to shift our focus to next weeks events and longer-term market direction. The Fed’s plan to buy an additional $600 billion in long-term US treasuries to help speed up the economic recovery, was mostly uneventful and within expectations.  This was considered to be at the low end, but still within street estimates. As we move forward in the grain markets I anticipate our next point of focus will obviously be Tuesdays USDA report.  From there I am certain all eyes will quickly shift to the planted acreage battles that will ensue.  The stage is being set to be a battle of epic proportions as we move into the Spring. With an estimated 9-10 million more acres of corn and beans needed to balance the books traders will quickly become nervous and look to build premium into the prices in anticipation of shortages. With Cotton & Wheat continuing to steal acres, who knows what the final outcome will be...You can do the math anyway you like, I just don't see it working out.  Either corn or beans will be coming up on the short end of the stick.  For argument sake go ahead and say we some how weasel 1 million acres out of the CRP program, assume 2 million acres less prevented plant, grab another 2.5 million acres from double crop, steal 500,000 acres from pasture land (how I am not sure, considering farmers are trying to expand pasture land in most areas) and another million acres from reduced HRS acres your total gain is still only 7 million acres, still short of the 10 million needed. Remember the additional acres from double crop and prevent plant acres will hinge on favorable weather conditions in the spring. If weather becomes an issue all bets are off, these markets will be off to the races. This is why I continue advising clients to build bullish type positions in the the Dec 2011 Corn  and November 2011 soybean contracts. 

My Projections For The USDA Corn Yield updated 11/5/10
Well, everyone else seems to be throwing their hat in the ring in regards to where the USDA corn yield estimates will end-up, so here goes my two cents. Keep in mind that unlike many of the other advisory services I have no direct ties or affiliations with any government agencies or groups that I am trying to influence.  Therefore I shoot straight from the hip, and call it like I see it. If I am wrong I am willing to admit it and move on...I tend to hate listening to those in this industry that "ride-the-fence".   Yes, I think the USDA is going to lower corn yields next Tuesday. By how much is the magic question.  The USDA was at 155.8 in October, most of the big advisory services are doing their usual and estimating a cut of between 1-2 bushels trying to play it safe putting the numbers between 153.5 to 155. Most are looking for little or no changes in usage levels and a slight drop of maybe 50 million bushels in demand from the lack of recent exports. In any event we could still see corn's ending stocks balance fall below 775 million bushels.  I think I am going to take it even one step further and predict we come in lower than the average guess somewhere above 150 but below 153.5.  I know first hand that the USDA has already included over 90% of their test plot data in the October report and that they have been waiting on farmer surveys to use in this report. I had several clients that received the surveys just a few weeks back. Those harvesting the earliest would have to be the ones most likely to have their surveys completed and sent back in time to make this report. I realize they allocate it accordingly by state, but I believe many of those surveys might be returned on the low end as farmers in many areas are in the middle of federal crop insurance claims, etc... Not to mention that this years moisture level may have thrown another wrinkle in their original yield estimates. A crop this dry can amount to a substantial loss in overall yields. I also think Iowa and Illinois may be worse than many have been estimating. I have been wavering a bit as of late myself, but after assessing the recent market activity and data I am jumping off the fence...Let The Bulls Run! Look for a bullish report next Tuesday.

Winter Weather Could Be Extreme updated 11/5/10
As you know I rarely like to predict or comment about long range weather forecast.  I just really have not had much luck in the past, and I think of it as more of a "crap-shoot" than anything else.  Weather forecasters certainly have a tough job, unfortunately their success rate in long-term forecasting is somewhat questionable at best.  There is one in the industry that you should certainly pay close attention to, and that is Evelyn Browning Garriss from The Browning Newsletter. In their latest report they are predicting this weather could bring along very extreme conditions. Basically they point out that there are three enormous weather patterns now surrounding North America. All three cause cold harsh winter weather and extreme conditions.  I know, not what you wanted to hear.  She explains in detail how the La Nina has taken the Pacific Ocean temperatures down sharply. From what I can gather if temps fall less than 1.8 degrees Fahrenheit below normal levels it is considerate a moderate La Nina. If temps fall more than the 1.8 degrees Fahrenheit it is considered extreme.  Right now the temps in the central Pacific have fallen by more than 2.5 degrees and out off the coast of Peru they have fallen by more than 3.5 degrees. The crazier part is the eastern Pacific, off the coast of South America temperatures are still dropping. This combined with several additionally strong weather patterns that have developed could make this one of the most intense winters in a very long time. If weather truly becomes an issue prices will certainly jump through the roof.  I will keep you updated in the daily report as I hear of more findings.

Will Soybeans Eventually Take A Back Seat To Corn & Wheat updated 11/5/10
As of right now beans are still setting the pace, and with the biodiesel tax credits being put into play they may continue to show additional strength.  I am going to take a stance though and predict that Beans will soon start to fizzell and once again follow the Corn market.  I think exports are eventually going to pick up significantly in both corn and wheat.  Soybeans have and may continue to have for a few more sessions their day in the sun, but eventually I think Corn takes the lead.  I believe China may be slowing down just a bit on their bean purchases.  I am starting to hear that the export basis bids for cash corn are continuing to climb at the Gulf. Bids at the PNW have increased about 20 cents this week. From what I can see no one has stopped crushing or feeding corn at these price levels. I also think the global wheat crop may continue to struggle. To make the play I am going to be Buying (1) March Corn, Buying (1) March Wheat and Selling (1) March Soybean contract.  To find out more specifics please follow our daily report.
 
Producer Trade Alerts updated 11/5 
  • I want to make certain that all of our producers who followed my recommendation to re-own corn on their earlier cash sales by purchasing the Dec $4.50 calls exit a portion of those trades prior to the USDA report next Tuesday .  We have banked huge profits on this trade and need to reward the market. For those who have rolled into July consider selling the $8.00 calls up above to lock in a risk free trade. This should now give you $2 per bushel of additional upside potential with absolutely no risk to the downside.
  • For those who elected to follow our Long July - Short November soybean hedges you should also be exiting this position now in its entirety.  We have done well by picking up almost $0.50 per unit. 
  • Wheat producers should continue to hold their deep in the money July $6.50 calls. We may see some set-backs but I think there is more room to the upside.
  • I have upped my 2010 cash sales to 65% sold in corn, 75% sold in soybeans and 100% sold in wheat with select re-ownership strategies in place. In 2011 I have forward contracted with HTA's 15% of our corn, and 20% of our soybean sales. We are about 45-50% sold in wheat at this time. We have various hedge strategies in place for coverage on about 40% of our corn and bean crop, and 30% of our remaining wheat sales. 

*For specific strategies feel free to call the office and we can help you design something that will work for your operation.

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