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December 2011 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.

Who Else Is Tired of South American Weather???

Dec 27, 2011

"Weather" seems to be the ongoing theme. From what I am hearing, the Euro Model shows a SEVERE HEAT wave coming for Argentina in the 6-10 day forecast...supposedly with temps reaching the 100 degree mark. Here at home the weather has been unusually warm as well. Last year more than 70% of the Midwest was snow covered according to NOAA, this year less the 1% is snow covered. In fact, it was the mildest Christmas in Chicago in 17 yrs. The 45 degree high was well above the 32 degree normal and not far from the all-time high of 54 degrees. You have to believe traders will be even more inclined to buy into the South American heat story, as we roll through an abnormally warm period ourselves.

 

With problems in Europe looking as if they have temporarily subsided, the funds seem to be feeling a little more optimistic about adding some risk to their portfolio. Especially ahead of the upcoming Jan 12th USDA report, where many are starting to believe the USDA will not only aggressively cut US corn ending stocks, but may also aggressively trim production estimates in both Argentina and Brazil.

I am not sure if you heard it on Friday, but I have been told well respected South American analyst Dr. Michael Cordonnier lowered his Brazilian corn estimate from 63 million metric tons down to 60 million metric tons. I also heard he lowered his Argentine corn estimates from 28 million metric tons down to 27 million metric tons. He also made similar moves in soybeans by reducing his Brazilian crop estimate from 75 million metric tons down to 74 million, and lowering his Argentine forecast from 53.5 million to 53 million. The recent extreme heat seems to be taking its toll on many areas. Yes, some key growing regions are doing well, but as a whole I am starting to hear more fear in regards to a shrinking crop.

The bears will obviously want to continue focusing on thoughts of huge US corn acres coming down the pipe in 2012, while the bulls will stay focused on the more immediate threat of South American weather. Personally, I have to give the advantage to the bulls, at least for the short-term. Even though the bears can pencil in a massive ending stocks number here in the US, if we plant 95 million acres and have optimal growing conditions this next season, but the bulls can pencil an extremely tight global "stocks:usage" ratio even quicker if South American production suffers any additional losses from here. With the bulls argument being more pressing and near-term, I have to give them the nod and move my corn and soybean ratings back to a bullish "+1" reading. I am not sure how long I will stay on the bullish side of the fence, but for the time being it looks like the place to be.

Many of you might be asking why am I not more optimistic about prices, and how come I am not getting more bullish at this time? There are a hundreds of reasons, but in order not to overcomplicate things, let's just start by saying world supplies are extremely cheap. In fact, cash corn in Argentina is almost so cheap that it pencils into the US. Let's also not forget we can loose 6 million metric tons of corn production and 3-4 million metric tons of soybean production in South America and still be at last year's level, which was more than enough supply to pressure US export sales. Don't get me wrong, I am NOT simply discounting the South American weather problems, I just don't see the losses having much of an impact early on in 2012. You have to believe the South American's are going to have plenty of bushels harvested, giving them more than enough supplies to make sales well into the US growing season. If the US struggles, and South America comes up excessively short, we may see some more serious concerns closer to the US harvest, but not until then, that is still nine long months away. My point is, South America is going to have plenty of bushels to sell, and with the thought of a massive US crop being planted in the Spring the trade may feel adequate global supplies currently exist... Just be careful getting yourself overly optimistic on the South American weather forecasts.

As for the "outside" markets it seems as if we will continue racing under the "yellow" flag through the remainder of 2011. There is very little news coming out of Europe, and very little to speak about here at home. Don't forget with most of Washington on break there will be very little political shuffling taking place this week. A couple of reports that we will want to keep our eye on will be the "initial jobless claims" number released on Thursday along with the Chicago Purchasing Managers Index, and Chinese PMI data. Other than these numbers, I personally don't see a lot of market moving news. Due to the holidays I suspect trade volume will be extremely low. Just remember low volume doesn't necessarily equate to low volatility. If you absolutely have to be in the markets trade small and limit your exposure.

I also want you to keep your eye on crude oil, as I am hearing Iran's navy has started a 10-day drill in international waters near the strategic oil route that passes through the "Strait of Hormuz." The worry is that these exercises could bring Iranian ships into extremely close proximity with United States Navy vessels in the area. Remember, the US Navy's Bahrain-based Fifth Fleet is very active in the area, as are warships of several other countries that patrol for pirates there. I doubt it would take much to prompt the US or Israel to take action against Iran. As I have mentioned before, if the "Strait" becomes a war zone, crude oil traders will quickly add premium to the market. I am NOT saying this is going to happen, but the conditions are certainly right for a conflict, so keep your eyes and ears open.

 

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

 

 

 

Top Traders Give a Rare Inside Look...

Dec 19, 2011

I was in Chicago Friday and Saturday attending Christmas festivities with several of the industries top traders. I thought I would take time to pass along several of the more interesting thoughts and comments I heard circulating and what the trade seems to be focused on moving forward. 

• Europe - As if I needed to tell you this one. Many traders are concerned about the influence EU now has on all US markets. Many insinuating Mario Draghi (current President of ECB) is affecting the markets more than Ben Bernanke. I would have to agree. Simply consider last week's comments by Draghi that the ECB was going to be more involved in the EU bailout, within less than five-minutes the US stock market rallied over 1%. Later, Draghi commented that the ECB will NOT be increasing their bond purchases (essentially erasing any thoughts of additional EU quantitative easing), and the US markets fall 3% in less than five-minutes. It used to be the "opening" of the US stock market was the most influential event of the day, now it seems to be the "closing" of the European market is the most influential. Just look at CNBC who has recently added a new closing bell that signifies the "European Markets Are Now Closed."  Be on your toes today as Draghi is scheduled to speak before the European Parliament right around 9:30am CST. Hopefully he won't say anything too extreme. 

• MF Global - The trade seems to be extremely nervous about the overall long-term affects and "black-eye" the MF Global debacle has recently placed on the entire industry. Most seem to believe 100% of customers funds will "eventually" be returned. Biggest fear is how much collateral damage has been done and how long it will take to repair overall faith in the system. 

• European Banks - Many in the industry are highly concerned about continued "risk-off" type action in the coming months from the European banks as they try and increase their overall liquidity.  Most talk circulating around the French Banks, and the huge problems ahead if the EU situation begins to unravel.   

• Chinese Growth - Most seem to be thinking China is in for a little set-back, some seem to believe China is in for a massive set-back. Overall consensus is something has gone strangely awry in China. The current real estate bubble may end up being much larger than many are anticipating. The almost certain EU recession is going to continue to weigh on the Chinese economy, the only question is how deep and how far will this set China back. There was some talk that Chinese soybean imports may pick up in the next couple of months, but with extremely poor crush margins and thoughts of a deeper economic slowdown around the corner the odd's seem to be in question. Since China has been the main driver of overall commodity demand the past few years, most everyone I spoke with seemed extremely concerned about the industries top customer taking a little break. 

• Global Supplies - Most everyone seems to be concerned about the fact extreme Agricultural prices have prompted producers to increase production around the globe. Several pointing out world corn production is projected to set another record. Not only was this years world corn crop a record, but now many are thinking the world will produce another 40-50 million tons on top of that next year. Several also pointing out world wheat supplies have increased in each of the last three years, and this next year should be no exception, with a new record in world wheat supplies. As I have mentioned several times increasing global competition is becoming a major concern. Traditional US buyers are finding alternative sources for grain. Some laughs and chuckles broke out when one trader indicated he heard from reliable sources that Japan had gone as far as recently buying a few shipments of corn from Romanian... The take-away was the crowd is certainly concerned about growing "global supplies." 

• US Grain Production - With higher inputs and increasing cash rents thoughts are farmers will be forced to plant corn from fence row to fence row. Talk of a potential massive US corn crop coming in 2012 has the "bulls" of last year extremely concerned about a repeat performance. After two years in a row of poor yields the trade seems to be having a tough time digesting a third is possible.  With an average yield of 163 to 164 and close to 95 million acres planted, we could be looking at well over 14 billion bushels and a 2 billion plus carry. Yes, weather will be the key, but recent technological advancements seem to be making it tougher and tougher to adversely impact yields. Some worried that an ideal growing season could produce yields well beyond what have been estimated. Meaning we really haven't' seen what type of production can be produced as of late because of the poor growing conditions.   

• Global Weather - Though very unpredictable and short-term in nature there were several conversations and concerns about South American weather. Most inside sources acknowledging abnormally dry conditions, and some thinking dryness may continue for a couple of more weeks. In fact the dry conditions have moved many of the "bears" to the sideline or have some even looking for the market to price in premium until the precipitation increases. Small talk abut Australian rains increasing global feed wheat supplies and hurting higher protein supplies. Some light talk and concern about dry conditions in Ukraine and Russia that may start to appear in the news wire a little more often. Most noting Chinese growing conditions have been adequate and of no current concern. Overall, the weather in South America is certainly a concern, but most are thinking it is still a little too early to get overly optimistic about a major sustained price rally.  

• Global Demand - As "demand" was the hot topic this past summer it has quickly found itself on the back burner. Many of the larger traders seem to be questioning the likely hood that global "demand" will be able to outpace the increases in global "supply" next year. With most all analyst and investment firms now downgrading global growth for most all of the larger nations, the thought of "demand" being as robust as once estimated is quickly waning. Many believe US ethanol usage may stay around current levels, and for the first time in years NOT dramatically increase. Also several talking that world feed usage  numbers currently being used by the USDA may be drastically overstated, especially if the global economies take a turn for the worse on the EU issues. 

The consensus and overall feeling is that the world can NOT afford $8, $7 or possible even $6 corn. "Money-flow" has once again proven its power to manipulate the minds of many, but the often "hypnotic voodoo" it can render is being broken by a strong dose of "reality."  Without major supply side glitches, the world simply can not afford prices at the recent extremes. Yes, demand is growing, but as the world and more importantly investors see the profits that have been made in Agriculture as of late, more and more production is coming online.   

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

 



 

 

 

Markets Flip-Floppin' More than a Politician

Dec 14, 2011

 

The Ag markets are trying their best to unshackle the chains of the "outside" markets, but they are finding it to be extremely difficult. As I sit here this morning, the trade is trying to juggle thoughts of South American weather, Index Fund Rebalancing, Australian rains, Ukraine droughts, Chinese demand, the Jan 12th "End-Of-Year" USDA Report, the EU Debt Crisis, and Middle-Eastern drama. As you can imagine, the juggling act has become quite daunting. Because of this, I feel the trade has become extremely tired, essentially finding itself stuck in that proverbial  "rut." Just as we have been taught to "let a sleeping dog lie," I would suggest doing the same when the markets begin to lull you to sleep. Remember, making the decision NOT to trade is a trading decision...often times a very good trading decision! In my opinion, the markets are not acting like a "bull," nor a "bear," but acting exactly like a "Chameleon"...changing colors as the wind blows. I would suspect it will continue to act in this regard through the holiday season, "TRADE" it accordingly!  

It seems the soybean market is thoroughly confused, and can't decide if it should go higher on dry weather conditions mounting in South America (where it is now believed about 50% of the Argentine crop is experiencing some type of drought type condition), or lower on fears that widening spreads and increasing stock levels are certainly NOT bullish indicators. Both sides obviously have a valid case and easy argument, but I doubt we will see soybean prices fall under any real extreme pressure, until the bears get a better gauge of the weather. Bottom-line, as long there continues to be a lack of moisture in the forecast the soybean market is going to try and hold it's ground. If the rain comes, I would suspect new lows may follow.

Keep in mind, this is a major part of our marketing plan each year, we need to be pricing bushels on South American "weather-premium" when it is being added into the market. Just remember, as with any "weather market," the ride is most often fast and furious, so don't blink or you might just miss it.  My point is you need to have your finger on the trigger, have a game-plan, have a price, know how many bushels you are going to sell at each price target...and when the market moves take your shot! Do NOT hesitate, do NOT reevaluate, and do NOT procrastinate...simply pull the trigger and take some risk off the board! 

I did hear an interesting "bullish" corn thought last night from one of our producers. He told me that due to a lack of funding FEMA was only going to be able to repair a small portion of the busted and or destroyed levees up and down the Missouri River. He learned at a recent meeting that only 11 of the 75 levee repair projects would actually have the funding necessary to be repaired in 2012. This makes it highly unlikely that many producers in these areas will want to risk $600-$700 per acre planting corn on these grounds. I have also heard talk that additional funding will NOT be paid out in these areas should it flood again and the levee was not repaired. I did some digging of my own and found that my producer was 100% correct, and that FEMA and the Corp have broken the levees out into three unique groups: Group #1: those levee repairs that have received all, or a portion of, needed funding and are underway ($68,270,000); Group #2: those approved for repair, but awaiting funding ($133,295,000); and Group #3: those that pose a lower risk to "LIFE" safety and not scheduled to be repaired at this time ($121,314,000). Here is a link to the complete listing of the projects: Missouri River Levee Rehab Projects ... Remember the Missouri River flows through the states of Nebraska, Montana, Iowa, South Dakota, North Dakota, Wyoming, Kansas and Missouri, so this could affect a large number of acres.

With no clear direction, I look for the grain and soy markets to "flip-flop" more than a politician running for office. There are just too many "what-if's" flying around right now to provide any clear direction. The smart money seems to be content with limiting their exposure. I would suggest following suit, take a pit stop while we race under the "yellow" flag, and enjoy the holiday season.  

 

 

*For those of you who didn't catch my comments yesterday afternoon about the recent Egyptian wheat purchases, I included the "FOB Offers" and details below: 

  • Argentine Price @ 226.19 vs $219.70 last week (up $6.49)
  • French Price @ $240.50 vs $244.75 last week (down $4.25)
  • Russian Price @ $243.93 vs $245.90 last week (down $1.97)
  • Ukraine Price @ $249.90 vs $252.50 last week (down $2.60)
  • US (SRW) Price @ $255.64

As you can see Argentine price have actually strengthened, but they still remain the cheapest on the block. French, Russian and Ukraine prices however crept lower...The US still remains out of the race. As you can imagine Egypt booked offers from Argentina, Russia and France.

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

 

 

 

 

 

 

Still Need to Make Some Cash Sales?

Dec 09, 2011

Today we had massive dynamics shaping the trade. Money-flow was obviously being directed in whole by the events whispers, rumors and outcome of the EU Summit.  With weather in South America becoming more of a concern, and the end of year USDA report just around the corner, I could see the market doing just the opposite of what seems rational.  A lot will depend on money-flow and any how much risk will be coming off the table in the wake of the EU meltdown.  In the short-term, IF the EU can stabilize, it wouldn't surprise me to see the markets make one last push higher, giving the bulls one last gasp of air before the overwhelming bearish data takes us hook, line and sinker towards the bottom of the lake. 

On the "fundamental" side of the coin it is all about the USDA/WASDE report. Which is BEARISH across the board.  Corn ending stocks jumped by 5 million bushels, world corn supplies jumped by 5.6 million metric tons.  US Soybean carryout jumped by 35 million bushels, on exports being lowered by 25 million and the domestic crush by 10 million.  Wheat is also bearish as the USDA drastically raised ending stocks by 50 million bushels on weaker US exports. Certainly the USDA report was bearish, NO argument on my part! Every number in almost every way was bearish, but is this anything the "bears" have not been betting on already??? 

 

Below is a summary of the numbers, highlights and any unexpected events:

 

USDA/WASDE Highlights

Corn Ending Stock - 848 vs last month's 843 million bushels. The trade was guessing we would fall somewhere between 712 to 899 million bushels, the average guess was around 835 million bushels. I was thinking it would take a reduction or number south of 830 to provide much of a bullish bounce.

Corn Used For Ethanol - 5.0 vs 5.0 billion estimated last month by the USDA.

US Corn Exports - 1.6 vs 1.6 billion estimated last month. Most were thinking this number would be left unchanged or lowered to 1.5 billion bushels.

US Feed Usage - 4.595 vs 4.6 billion estimated by the USDA last month. Remember, the lowered it the previous month from 4.7 billion and everyone threw up their hands in disbelief. Most were thinking the USDA would wait until they have their final numbers and make one last adjustment on the Jan 12th report.

Chinese Corn Production - 191.8 vs 184.5 the USDA reported last month. Some are thinking China's corn crop could be well over 190 million metric tons.

World Corn Carryout - 127.2 million metric tons vs. 121.6 million metric tons 

Soybean Ending Stocks - 230 vs 195 million bushels estimated last month. Most were thinking we would fall somewhere between 195 and 255 million. The average guess seems to be around 215 million.

US Soybean Exports - 1.30 vs 1.325 billion the USDA was estimating for soybean exports last month (down 25 million). Most in the trade are thinking this number could be lowered by another 25 to 50 million bushels, just like last month. The range of guesstimates were a reduction of 25-75 million bushels.

US Soybean Crush - 1.535 vs 1.635 billion bushels estimated last month. Even though I think this number is still a bit too high, I am hearing the USDA will more than likely not be adjusting this number at this time.

Wheat Ending Stocks - 878 vs 828 million bushels reported last month. The trade was looking for a number between 731 and 867 million bushels, with an average guess of 830 million. Last year we were at 862 million. Personally, I don't see much of a change coming down the pipes.

US Wheat Exports - Cut by 50 million bushels to 925 million. 

World Wheat Production - 689 million metric tons vs 683.3 million tons estimated last month.

Understand, there are some guys trading on "facts" and some trading on "hope." As of right now the "facts" have already been placed on the table, while "hope" still remains up in the air.  Point being, the casino is still taking bets on the "hope" side, while those who bet on the "facts" are more than likely already in.

 

I obviously can NOT guarantee you it will play out like this, but it certainly feels like the set-up. With this in mind I continue to preach making sales ONLY on the rallies between now and the Jan 12th report. If you need to sell 100,000 bushels, split up your sales into smaller increments and pull the trigger when the market rallies, DO NOT chase the market lower...at least not yet!  

 

Of course if the EU folds up shop and calls it quits there is no where to go but lower.  This is why I continue to urge producers to get profits locked in on at least 30-40% of your production. Right, wrong or indifferent there is just too much risk in the waters right now not to bank some of the profits.  Lets hope these are our worst sales of the 2012! 

 

Some data from today's report that you should consider: 

  • Corn production increased 1.0 million tonnes in the EU,up 0.7 in Canada and up 7.3 million for China. China’s endingstocks increased 5.3 million. 
  • Biggest issue is raising Chinese production from 184.5mmt in Nov to 191.8 today and subsequently raising world carryout 5.6mmt to 127.2mmt. This could certainly reduce the bull arguments for big Chinese purchases.
  • US Wheat carryout raised 50mmbu. +25HRW +15SRW +10 WW. Australia raised 2.3mmt, Arg 1.5, Canadian 1.1. Net/net, world carryout up 5.9mmt
  • World wheat endingstocks were forecast at the highest level in twelve years
  • US Soy ending stocks jump form 195 to 235 with some anticipating this as just a quick stop on the way north of 300 million bushels. 
  • Bean Oil stocks up 200 million pounds, may have been one of the most bearish numbers on the board, should help anyone long meal over soybeans. 

 

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

What Is the "Reality" in the Grain Markets?

Dec 07, 2011

 

It is starting to be extremely tough to discern if US money managers are more afraid of missing a "year-end rally" than understanding what NO Eurozone means for the world economies. 

Obviously all eyes will be on the EU Summit meetings this Thursday and Friday. Hopes are that EU policy makers are finally looking to create some type of a "fiscal union" that would allow the ECB to become the primary lender of last resort. The thoughts of a "Eurobond" or "fiscal union" coming out of this meeting are inspiring, but I truly doubt a reality. I would suspect on a much weaker note we will hear news indicating that the IMF will lend to Italy, using funds, from the the ECB, EFSF, and who ever else is willing to throw money into the hat. Several analyst are thinking the total amount could be close to 500 billion euros. This certainly is a big number, and something of this magnitude would excite the market (at least initially), or at least until someone smarter than the average bear asks how this solves the core structural problem of being in debt and NOT being able to pay down the balance. 

 

There are now reports circulating that several key "US Senators," all from the Banking Committee will be meeting today with the IMF's Christine Lagarde to discuss the details of the Eurozone debt crisis. I have no idea why we would be sending in the "hired guns" if there weren't some type of backdoor bailout underway, that includes good old Uncle Sam's printing press of dreams. In a press conference they said, "We will be trying to 'thread-the-needle' between drastic budget cuts, and backstops that could prevent any panic from people making irrational decisions."  I love the part about "people making irrational decision." Call me crazy, but aren't the guys saying this the same people that have the so called 'magical-money-tree' in their backyard?  An "irrational decision" is continue to give countries huge bailouts when they can not even begin to pay back their original loans.  My coach always told me the definition of "insanity" was doing the same thing over and over while expecting different results! I think we know who is insane here... From where I sit, it looks like the game plan is to save the banks and "banksters," give them enough money so they can save the sovereign debt, and to hell with the real economy and or any real semblance of a "valued" currency. 

The problem I continually have, and the one I need to constantly remind myself of is that we no longer live in a "real" economy, so I guess the "fantasy" bailout plan should work like a champ. In a world where currency has no "real" value and economic numbers are twisted and turned and the books are cooked I think it should be perfect. Don't forget in fantasyland we have become a total "self-funding" mechanism as the Fed prints and prints and keeps banks and governments fat and happy. The only thing we need now are some toy soldiers and tanks to keep the sheep quiet.  I could obviously go on and on about these ridiculous plans, and how trying to avoid mistakes and problems, in the end only makes the matter worse.  If we had any vision at all we would be buying Disney stock right now because they are the originators of making Fairy Tales come true... Maybe clicking our heels three times is the answer (I should have told them that sooner).

 

On a realistic note, and from a "Macro" prospective it is getting very difficult to argue against weaker global economic data, continued long-term risk in Europe, and signs of decreasing physical demand in the Asian commodities. This exact thought process is promoting many large investors to bust out of their long commodity plays and look for alternatives.  If there continues to be more evidence of these concerns revealed in the days or weeks ahead, I would anticipate more commodity length could be liquidated and taken off the board. I was hoping the "liquidation phase" had just about ran its course, but unless something drastic changes, all I can see are short-term rallies followed by more selling pressure.  

I know nobody wants to hear it, or wants to listen to bearish news, but my job is to make you aware of inherent risk as they develop. I am telling you now, this slowdown in China is nothing to scoff at. Do you realize their benchmark equity index has now fallen to its lowest level in six weeks, on more concerns regarding a real-estate bubble and a slowdown in Europe. Several analyst are now thinking that a significant correction in their real-estate market or additional slowdowns in Europe will lead to poor loan portfolios and pose a big threat to economic growth next year. The bottom-line is if the European debt crisis gets worse, I would suspect so called "hot-money" will probably continue to flow OUT of China! Keep in mind the Shanghai has fallen by about 17% this year, that's on top of last year's losses of about 15%. Sure one could argue that a move by the central bank to lower required reserves for banks for the first time since 2008 will eventually turn things back around, but as of right now their stock market hasn't seemed too excited about the news. I would suspect we will see even more reductions in the weeks ahead by the Chinese government. As for their "real-estate" bubble, I don't even want to touch that subject. From what I am told, the Chinese banks’ exposure to their property market is grossly understated. We all sadly know how this story ends, let's just hope they can kick that can further down the road before the bubble burst. In any regards, we need to keep a close eye on the slowdown taking place in China.

As for the grain and soy markets, weather in South America seems to be of the most importance. There continues to be extensive talk about dryness in Argentina and the potential for a significant setback. I personally think it is still a little early to be jumping on that bandwagon. It is my opinion that Brazil's weather is most important right now, especially for corn. With Argentina's crop a good month or two behind Brazil's they still have plenty of time to see improved conditions. All you need to do is look back at last year when there was extensive talk early about poor conditions in Argentina, only to have things improve dramatically as the rains came late.

Here at home traders are gearing up for this Friday's USDA report. Most of the guys seem to be thinking we will see a cut in US corn exports, feed usage will be left unchanged, and ethanol numbers being heavily debated in both directions (my guess is they leave them unchanged or give them a slight bump). I am not in the camp that they will be lowered. As for soybeans, you have to imagine we see a 25-50 million bushel cut in US exports. There is also some talk that domestic usage may fall slightly as well. In summary, this means that many traders are thinking both corn and soybean stocks may get larger on Friday. If we see any extremely bullish numbers the market may get caught leaning over the wrong side of the boat. I would simply advise keeping your exposure limited and looking to sell any major rallies.

One of my good clients sent me in a quick and easy to read budget for his corn production next year. I have had a lot of guys asking where most are coming in so I thought I would include the numbers. The range of budgets I have seen are coming in  somewhere between $700 per acre on the low end and $950 on the high end. Obviously based on your yield per acre, cash rents and miscellaneous expenses, most guys are looking at a break even for corn next year between $4.75 and $5.50. 

I am afraid many guys are finding themselves very close to break even or possibly already in the red for soybeans, especially if you factor in the basis. From what I am hearing many producers are looking at a break-even somewhere between $10.50 and $11.20. If your a producer, with prices getting dangerously close to break-evens, I don't see much incentive in chasing more "crop production" right now. Instead of buying more land or renting more acres, I like the idea of buying more storage, and giving yourself more marketing options. This can help eliminate the marketing forcing your hand to sell during the extreme down-cycles. More seasoned marketers may find these waters best for liquidating the cash bushels and making the necessary adjustments on the board, which I also like in today's market place. Anytime you can take advantage of an improved basis and reduce your overall risk exposure, I find it to be a true "win-win." 

If you don't have a hedging account or an advisor that can help you with these strategies, I seriously urge you to consider finding one. I am not saying it is a necessity, but as the markets become more extreme, there are certainly situations and strategies you could be implementing to improve your overall results and reduce your overall risk. As big money pours into Agriculture, they unfortunately bring along some of their rules of warfare. One of their biggest and most famous rule is "Adapt or Die." If you think you are going to continue to market the same way you have in the past, while big money pushes prices to extremes in both directions, you may need to do some serious self-evaluation. The rules of the game have changed, the touch football game you were playing in the back yard with your friends has turned into a tackle football game with billions of dollars at stake. Make sure you're playing by the same set of rules as the rest of the players, and have all the new helmets, safety gear and training to play at this new break-neck speed. You will need to bring your "A" game if you are going to grow in this highly competitive marketplace. 

Quick Corn Budget (per acre expenses)
Seed $100
Fertilizer/Herbicide $200
Equipment $60
Trucking 15cent by 200 bu $30
Crop Insurance $50
Fuel/Repairs $30
Drying/Storage 20cents by 200 $40
Sub Total
$510/acre
Going Rent
$400/acre

Total Per Acre: $910 Divided that number by 180 bushel production estimate and it equals a $5.05 break even. *Lower the yield down to 150bpa and you are looking at a $6.05 break-even.

 

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

 

Quick Look at this Week's Fundamental News

Dec 05, 2011

This is going to be a busy week, and one that I expect will end in a big crescendo on Friday, after we hear more specifics from the European leaders, and get a first hand look at the December USDA crop production report scheduled for release prior to the open on Friday. This should provide the trade with a nice blend of "Macro" economic news and more "Fundamental" crop data.

Looking more specifically at Agriculture, we have Informa throwing out some World Production numbers today, USDA export inspections, followed by the Canadian production report on Tuesday, ethanol production numbers on Wednesday, export sales on Thursday and the USDA Supply/Demand report on Friday morning (actually the WASDE and world crop production report. Most seem to be thinking 2011/12 US wheat and corn stocks will adjusted ever so slightly, while soybeans may jump a little based on reduced Chinese demand, US exports and domestic usage. Even though the numbers are important, I would suspect the trade is much more focused and more eagerly awaiting the USDA's January Stocks and Final Production data scheduled to be released on January 12th.

 

As I mentioned above, the soybean market will remain fixated on US export sales. I could throw a hundred different numbers and scenarios at you, but most all of them point towards lower US soybean exports. I think the simplest scenario, and easiest to understand, is if US soybean sales in the coming weeks move at a similar pace to last year's sales from here on out then we will fall massively short of the current USDA estimate. In fact, several leading analyst in the industry are now thinking we could fall to 5 or 6 year lows.

I am not sure I am willing to go to those extremes, but I definitely think US soybean exports are a major concern. When considering this issue, I want you to keep in mind there are two sides of this argument, and it all hinges on overall Chinese soybean demand. You have one group who believes China will soon stop releasing soybeans from their state reserves, and will be rebuilding them instead. If this is the case the current USDA estimate of China importing 56.5 million metric tons may be too low. Some big players like Cargill are thinking they will import closer to 58 million, COFCO is thinking closer to 58.5 million, and Singapore-based Noble is thinking China could import above 60 million. On the flip side, the players at Oil World and the Australia & New Zealand Bank said they don't see it happening, especially since some of the biggest crushing facilities in Guangdong and Shangdong are now looking at margins close to three year lows. There are actually reports circulating that margins in Dalian, are now at their lowest since 2005. Obviously crush margins have an overall bearing on demand, and this is something we should continually keep our eye on moving forward. If these numbers don't turn around, you would have to believe Chinese demand will have to slow even more. Even though China may ramp up some of their short-term buying in order to replenish supplies while their domestic demand is low (essentially giving them a window of opportunity to catch back up). If crush margins don't pick back up after their "restocking phase," then we may actually see Chinese demand fall back even further.

I am starting to hear more talk that Ukraine grain may be of less quality than some had anticipated. The word around the market is that despite Ukrainian feed wheat and corn to Taiwanese buyers being some $15-30 a ton cheaper than that from the US the quality is somewhat suspect. There is also more global competition from Brazil being talked about, and more rumors that Brazilian feed wheat is now being shipped into the EU. Thoughts are Brazilian feed wheat is actually cheaper than their own EU feed wheat. Let's not forget that Australian feed wheat is also being delivered into Southeast Asia cheaper than US corn. Throw on top of this the fact that Mexico is opting to purchase US wheat instead of US corn, and you can easily see why many analyst are worried that US corn demand is slowly falling out of fashion. Before we get too overly bearish, keep in mind even though exports are struggling, we are still seeing robust domestic demand for ethanol usage, therefore net-net I don't see a real big change...especially if wheat can find some type of bid or traction in the next few weeks.

There is still some bantering back and forth as to whether or not the USDA will eventually bump their bushels used for ethanol higher than their current 5 billion being estimated. On the surface one would have to imagine the USDA will indeed adjust the number higher, especially when you consider the recent surge in production. Be careful putting a lot of faith in this however, since we know most blenders are gobbling up supplies in an effort to capture the $0.45 cent blenders credit before it expires in less than 30-days. If you look beyond the obvious you will notice ethanol margins out into 2012 are much lower and domestic demand for ethanol is actually lagging. This makes me second guess whether or not the recent jump in production will be enough to compensate for the drop in demand that could immediately follow the expiration of the $0.45 blenders tax credit.

In summary, the "outside" markets could definitely add some support through year-end. I also believe fund liquidation in the grain and soy markets will slow the next couple of weeks, leaving me to believe we will stay stuck in this rangebound type atmosphere somewhere between $5.60 and $6.60 in corn. I am afraid soy may continue to drift lower, while wheat may actually find some traction.

As for hogs, I continue to urge producers to lock in a portion of their sales. I am hearing more talk about lower prices on renewed Chinese supplies and weakening demand being possible in the weeks ahead. I doubt this set-back is of any long-term significance, but I think you need to take advantage of the recent strength in the deferred contracts just to be safe.

 

 

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