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.
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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