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July 2013 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.

Will a freeze be the next wild card??

Jul 31, 2013

Weather remains next to "ideal" for many US producers as cooler temps and light rains are forecast into mid-August. Right now the only real concerning bullish weather card left in the deck gaining much attention are thoughts of an "early-freeze." Talk is circulating that if a freeze across the Midwest were to occur just 1-2 weeks earlier than normal 20%-30% of the US crop could still be at risk. This keeps the "freeze" card clearly in play. Yes there are concerns regarding lack of GDU's and overall lack of sunlight, but those are not single cards, they take much longer to play out and will need to be suited in order to lay down a run. Essentially meaning they will need to be paired up with other bullish cards in order to produce a winning-hand. 

Another reason for the early cold weather fear is the cooler than normal sea-surface temperatures starting to be recorded. I know we haven’t talked much about the La Nina weather pattern in the past few months, as we have lately been in more a "La Nada" mode, or in between the warmer El Nino and cooler La Nina patterns. However, we are now getting official confirmation that sea-temperatures have finally moved off-center pointing to a weak La Nina type event.  What we have to understand is that this type of weather event favors early freezes in a large portion of the northern US. 

Keep in mind corn generally takes about 60-days from the time of tasseling and pollination until the corn kernels reach what many call "maturity." This is "IF" the crop gets a normal amount GDUs and sunlight. From there the corn kernel  becomes "black-layered," most often considered free of significant damage from a killing type frost. With the crop not only behind in planting, but also lacking major heat and sunlight there is a greater risk for early frost damage. 

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With beans making new lows...should you be selling?

Jul 30, 2013

 Soybean bears are not only talking about record US acreage, but are already starting to talk about another record crop coming down the pipe in South America. As I have pointed out for several weeks, lower corn prices will quickly discourage South American producers from planting corn and more bean acres will begin to surface. Possibly meaning another NEW record soybean crop for South America just around the next corner. Here at home traders continue talking about how the USDA may have underestimated last years crop. They also remember how the USDA magically found 35 million more bushels in last September's report and over 90 million bushels back in the Sept 2007 report (so don't think it is not possible).  

Technicians continue to view near-term support in the $11.80's range. Thoughts are if we close below that level the $11.20's could be the next step lower.  To the upside, the $12.50 to $12.60 range looks to be heavy resistance. To some surprise the USDA actually dropped the soybean ratings for the week to 63% "Good-to-Excellent." More specifically, Iowa fell by -3%, Minnesota by -2% and Illinois by -1%. Point is the USDA could certainly justify some type of reduction in "yield." Maybe they raise planted acreage a touch and offset it by reducing yield??? The cool wet weather and lack of overall growing units is certainly raising some eyebrows in regard to yield estimates.  

There has been a ton of talk as of late in regard to the "resurvey" of soybean acres and what will be reported in the upcoming August 12th report.  To follow my preview sign up for my free daily report.  45-Day Free Trial

Will corn prices continue there slide down?

Jul 29, 2013

Corn technicians are digesting the fact the SEP13 contract has now made NEW lifetime contract lows. The question is will the DEC13 contract follow suit, targeting the $3.98 area (current contract low)? A sub-$4.00 print certainly sounds scary, but with the funds tendency to be "repeat performers," meaning they like to stick with what is working, I suspect most technical bounces will be meet with more selling pressure by the funds. Personally, I believe breaking prices below $4.00 in the DEC13 contract will be tougher than many are estimating. Below are few cards in the deck that may scare some of the bears and keep prices from breaking in any real hurry:

 

  • Funds - With the funds out of the long side, and most "indexes" exclusively buyers any legitimate bullish news could bring on more buying than normal with short covering and index buying. 
  • China - With China's wheat crop in jeopardy and corn stocks low, there is potential for explosive Chinese corn imports. Talk is USDA's current estimates could now be too conservative rather than too optimistic. 
  • Harvested Acres - Many traders starting to think USDA's harvested corn acreage number is too high. Some folks talking a 3-5 million acre reduction. I personally don't see anything of that magnitude, but I could see harvested acres closer to 88 million as opposed to the 89 million plus currently being estimated by the USDA. Hint: Keep your eye on the USDA's bean resurvey numbers. If the show a lot more beans going in the ground, the corn harvested acreage number will really fall into question. 
  • Early Frost - With pollination worries coming to an end and the crop planted so late, weather bulls will now start to focus on the threat of an "early freeze." I am not saying there will be one, but it might be enough of a worry to keep some of the short pressure sidelined.

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Corn Markets Next Bullish Story?

Jul 28, 2013

Corn bulls are talking about the fact Mexico has now purchased an estimated 1.65 million tons - almost double last year - which now puts them at the top spot for new crop importers thus far.  The word is Mexico is in the midst of a "severe drought" and extreme heat has added to the problem by drying up reservoirs, some of which are only at 10% of capacity in top growing areas. It's expected that this will be the worst agricultural year in the country's history and that up to 60% of sown areas could be a total loss. Thoughts are with many US producers having very little new-crop corn booked we are going to see just how much and how long they are willing to store the bushels. It could get interesting if US producers simply harvest the corn and stay tight fisted. We might be looking at another big pop in the basis come early 2014? CLICK HERE to get my daily newsletter for all the news on what is driving the grain markets....Thank You 

Are soybeans done??

Jul 25, 2013

 Soybeans and soymeal have taken massive steps backwards the past few days in both flat price and the basis (in old-crop). The bears in the trade continue to talk about how the USDA must have grossly underestimated last years US soy crop, and how the upcoming release of soybeans from the Chinese government is going to drastically change the dynamics of the market. New-crop soy has somehow held it together (until today), with most of the bulls previously thinking yield is overestimated and uncertainty surrounding the "resurvey" data set to be released in the Aug 12th USDA report. Now all of a sudden with good rainfall projected out into August, maybe the yields aren't going to be as bad as some of the bulls had anticipated. Rather than 41-42 bushel yields they are talking 42-43 bushel.

Bottom-line, the old-crop price break is certainly weighing on new-crop prices, but with the August rains still not guaranteed, the trade will remain somewhat apprehensive in penciling in a "record acreage" along with "record yields."  This combination remains tough for many to swallow.  Most can buy the record acreage talk, but seem to have a very hard time swallowing the record yield! I am in the same camp, and until we know for sure that the weather is going to cooperate in August and early-September, I have a hard time taking myself into any additional 2013 sales. I like our current position (70% priced/hedged) and will continue to look for rallies as additional opportunities. I am NOT going to be a seller of our final estimated 30% of production on the breaks. In my opinion there is just still too much time left to get overly aggressive. Technicians are hoping the $12.20 support area can hold in NOV13 soybeans. Talk is a close below that level could prompt additional "tech" selling and take another quick $1.00 off the price. We are definitely on a "slipper slope right here so make certain you have limited your downside risk. Keep hedges in place!

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Why I'm neutral to bullish wheat??

Jul 23, 2013

 Wheat continues to flirt with NEW lows in the sub-$6.50 range, prices not seen since June of 2012... while I however remain "neutral to somewhat bullish" this market.  

My reasoning: The Chinese wheat crop might be worse than what is being reported; The Black Sea Region, while harvesting much better yields than last year seems to now be backpedaling a bit in terms of total estimated production. The USDA's office in Kazakhstan is now thinking their production will be more like 14.0 million metric tons vs. the USDA who just recently lowered their estimate to 14.5 million tons because of a "lower planted area;" I am also starting to hear more talk out of Moscow that though wheat production has drastically improved over last year, Russian wheat exports might not make that big of a jump. There is talk the 54 million ton Russian wheat production number the USDA is currently using might need to be dropped to 53 million tons; Another bullish card in my opinion is the fact the former Egypt government let wheat supplies fall to dangerously low levels, meaning the country may soon have to be more aggressive buyers than in the past; Lets also not forget the US spring wheat tour starts today, with a record 70 plus participants leaving Fargo on routes across ND, western MN and northern SD. My hunch is with conditions falling, an extremely late planted crop, and many fields left unplanted, participants might be a little thrown back by what they find this year. Producers, looking to price more bushels, in my opinion, should continue to sit tight for a bit.  To recieve my next recommendation sign up for my free daily report by clicking here

China's wheat rumored to be in poor condition!?

Jul 22, 2013

 "Wheat crop has suffered" is what I am starting to hear more talk that China's more severely than original reports had indicated. Word is the damage was not only caused by frost during the growing season but also rain during harvest. Some insiders are now thinking close to 20 million tons of wheat or more (15-17%) could eventually be declared unfit for human consumption. To put it into context, that would be like Australia losing about 80% of their normal wheat production. The thing we need to remember is that China used a lot of wheat last year for feed when there was little to any corn to import and prices where sky-high. The question now is how much wheat do they have left? The other question is without a large supply of wheat on hand, what will act as a substitute for corn? Could corn imports in China explode to 10 million metric tons this season without a substitute? Even though global wheat output is expected to rise this year from last, we will still be below "demand" and could eventually push wheat stocks to some of the lowest levels in the past few years. 

 
Bottom-line I still see no compelling reason to be short this market right now. Producers who are still holding a few remaining bushels following harvest, in my opinion, should continue to hold, possibly looking for more bullish news out of China. I am not so sure the "basis" here in the US is going to be a big mover, so those who have access and can play the board may be better offer moving the "cash" bushels and simply re-owning with some type of limited risk "call." This creates cash-flow and helps limit you downside exposure to just the premium you paid for the call, while still giving you upside potential. As always, talk over the specifics with your individual advisor.
 
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Should I be selling soybeans??

Jul 18, 2013

 Soybean bulls continue to talk about the current USDA estimates being too high for new-crop production. Not only do they believe the acreage number is high, but also firmly believe the 44.5 bushel per acre yield is overly optimistic. The folks over at Lanworth seem to be in agreement, lowering their most recent soy production estimate by 45 million bushels, down to 3.315 billion in total production vs. the USDA's current estimate of 3.420 billion bushels. I am not saying whether they are right or wrong, but if you start whacking 100 million off the production number, I can assure you the trade is going to start getting real nervous staring at another sub-200 million bushel carry. Keep in mind, all it takes is the current USDA yield of 44.5 bushels per acre to drop to 43 bushels per acre and the Lanworth estimate becomes right on target (assuming the USDA's harvested acres of 76.9 million holds up).

As I mentioned up above the bulls want to argue the "yield" will be more like 41.5 bushels and "harvested acres" will be closer to 76 million due to late planting and fewer double crop beans going in the ground because of the late wheat harvest (thoughts are of the 8 million double crop acres, 1 million never got planted, and others may produce poor yields). If this plays out, then all of a sudden we are looking at total production of around 3.15 billion and the potential for a NEGATIVE ending stocks number! The problem is if this does happen, prices would rally to more extreme levels and quickly start to ration the current optimistic USDA demand estimates, hence ending stocks would not end up in the "red." It would however give producers an opportunity to price more new-crop soy at better profit levels. If your waiting to price more bushels and reduce more new-crop risk, like I am, then this is what we are cheering for. For those who are short call premium, banking profits and moving to the sideline sounds like a safe bet, at least for the interim. No I am not turning wildly bullish soy, I am just letting you know what cards we need to see come out of the deck to get higher prices. And we need this to happen sooner rather than later. Several very reliable sources in the trade are still predicting sub-$10 soybeans by October. Therefore keep your hedges in place.

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I seriously doubt we have heard the last from the Chinese in regards to wheat?

Jul 17, 2013

 Wheat harvest numbers out of Russia and the Ukraine are starting to become more accessible. From what I have heard up to this point, Russia has harvested about 21.5 million metric tons vs. about 12 million at this point last year. Bulls in the trade however are pointing to the fact yields are coming in lower than had been originally predicted. This is true, but just keep in mind they are still running about 25% above last years level.  Adding those two together - nearly double the crop and 25% better yield - is making it tough for the wheat market to gather much upside momentum. Russia is also still severely undercutting global prices and once again is the reigning "low-cost" provider. One positive is that Iraq has reportedly become concerned about Russia's wheat "quality," and is rumored to be seeking offers from US, Canada, and Australia, at obviously higher costs, but better quality. Rumors are also circulating that the Chinese government might be done with their US SRW wheat buying binge, most likely moving on to other varieties at this point, and unfortunately other origins (supposedly now bidding for 500,000 metric tons of Australian wheat). From my perspective, I seriously doubt we have heard the last from the Chinese in regards to wheat...

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Has the weather story played out?

Jul 15, 2013

 Corn bulls who have been riding the recent "weather train" may soon find themselves running out of track. For some producers the crop certainly needs a drink, and the next 2-3 weeks will prove to be mission critical for those who are in harms way. But with a "mild" forecast for most, I suspect "weather premium" will start to be carefully monitored and more heavily rationed. If the rains come like many are now forecasting, and conditions continue to improve, talk of a 14.5 to perhaps even a 15 billion bushel crop may soon start to circulate. Keep in mind with a projected 89.1 million acres "harvested," a 169 bushel average yield would puts the US corn crop over 15 billion bushels.  I am NOT saying this is going to happen, but as long as traders believe there is still this type of "potential" it will be hard for new-crop prices to gain a ton of longer-term traction to the upside...

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A Whole Lot of China Questions?

Jul 13, 2013

The bullish Chinese "wild-card" is certainly in play, but what data, if any, should we believe coming out of there? What happens if and when the Chinese economy turns back around? What happens if Chinese stimulus is injected? How much more corn will China purchase?  What is wrong with sourcing supplies form Brazil and or Argentina, is their relationship waning?  Is US quality just that much better? Are the Chinese tired of dealing with South American logistical problems?  Will the new economic data out of China Sunday night show more slowing for the Chinese economy? I'll be watching what they are doing very closely. If you would like to get the detailed information from my report,  CLICK HERE.....Thanks

 

Less Lowered Rated Corn to Increase Yields?

Jul 11, 2013
I have been traveling extensively the past several weeks, in over 15-states, and the difference I am seeing this year compared to the past couple of years is fewer fields of "BAD" corn. The top-end or should I say record yields might be off the table many producers due to the late plant and or wet conditions, but as a whole there seems to be a lot fewer bad areas. I believe this will prove to be extremely important when the USDA starts to compute our national yield average. Remember, there is just 7% of the crop rated "Poor-to-Very Poor" compared to over 30% of the crop by this stage last year. My suggestion is rather than focusing in so heavily on the "Good-to-Excellent" side of the equation we start to pay more attention to the "Poor-to-Very Poor."  I should also note that I have personally visited and spoken with several producers in key growing regions who are all singing a similar tune, "things look fairly good right now, BUT if we don't get some timely rains during the next few weeks this crop could turn in a hurry..." Producers continue to remind me that this years crop is NOT extremely strong and has fairly shallow roots, meaning even though it appears to look good from the road the slightest hiccup in weather could quickly cause yield reductions.  If you want to read the entire detailed story, CLICK HERE.   Thank You

Will the buying frenzy continue?

Jul 09, 2013

Global end-users of grain and soy have been more aggressive buyers ahead of the upcoming USDA "Supply & Demand" report due out Thursday morning. Reports released yesterday showed China buying another 840,000 metric tons of SRW wheat for 2013-14, along with another 120,000 metric tons of soybeans. There were also reports of another 135,000 metric tons of soybeans sold "unknowns" and 120,000 metric tons of corn sold to Mexico. Question is will the recent buying frenzy continue? It is interesting, and we should take note, spot wheat prices are about $0.30 cents cheaper than spot corn prices... keep in mind, most demand for wheat once again is clearly as a feed substitute. The kicker is with wheat acting as a substitute for corn, and being in much more ample supply, the old-crop corn story is NOT nearly as sexy as the old-crop soybean story....

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Are we plagued with negative corn news???

Jul 08, 2013

Corn bulls continue to talk about tight old-crop supplies, while the bears are pointing to what could be much better new-crop yields than the trade has been anticipating. Several sources on the ground in Iowa, Illinois and Indiana believe the "crop conditions" are improving. Which we will get clarification on this afternoon in the weekly USDA condition report.  In my opinion the best way to summarize "conditions" is that better than expected conditions in the Eastern corn belt are trumping the poorer conditions in the Western corn belt.  

Lets just keep in mind, we still have a long way to go until the crop is in the bin. My new-crop price target of $4.20 to $4.50 still remains intact (especially as thoughts of a 2.0 billion plus carry remain alive), but the burden of proof will soon clearly fall upon the bears. The question is will there be enough negative headlines, press and data to feed a market that is increasingly growing in bearish population??? Keep in mind China is becoming a more aggressive buyer on the breaks, and the old-crop story may still have some legs left. Especially if we see the USDA reduce ending stocks to a sub-700 million numberon Thursday like some in the trade are predicting. Producers should continue to keep hedges in place, while looking for any type of rally back towards the mid-$5.00 range as an opportunity to make catchup sales or further reduce new-crop risk. Spec's should continue to play the game of selling the rallies and banking short-term profits on the breaks.  

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Soybean traders nervous about re-survey and tight old crop.

Jul 01, 2013

 Soybeans traders are a little nervous about the fact the USDA is going to "re-survey" soybean acres in 14-states (results published in the August report). Traditionally the bean acreage size tends to shrink between now and harvest, but bears in the trade believe the "re-survey" could eventually show an additional 1 to 2 million soybean acres. Meaning the thought of 79-80 million soybean acres is still alive in the trade. I personally doubt we see a number of this magnitude, but nonetheless the rumors and fear remain in place. As we sit right now the 77.7 million acres (now estimated) is a NEW record and well beyond the 77.2 million acres planted last year. Moving forward the question is obviously "yield," and in particular if the late planted beans can produce anything close to the 44.5 bushel per acre currently being projected. Keep in mind the current crop rating is 65% "Good-to-Excellent" vs. just 54% last year at this time. As for old-crop, the USDA confirmed extremely tight supplies, meaning premiums should continue to stay in place at least through early August. Bottom-line, producers with a few old-crop bushels remaining can probably afford to stick around to see if any more fireworks go off. On the flip-side more aggressively pricing new-crop bushels seems like sound "risk management."   For a FREE 45 day trial to my report CLICK HERE .

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