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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.

Can You Defend the "Fundamentals" in the Grains?

Nov 11, 2011
I have to point out the "fundamentals" are simply getting tougher to defend. Thursday we had rumors circulating that Brazilian wheat is now entering the Eastern US feed market. Many claimed this was impossible since Brazil is a net "importer" of wheat, but we should remember, they do actually export a small amount of lower quality wheat each year. I am sure they are simply trying to move a few tons before the Australian harvest pressure hits the global market. Will this amount to much? Absolutely not. From what I heard, it was rumored that just two cargoes (a little over 100k tons) were being purchased, as it actually penciled cheaper than US wheat. I am sure this is very poor quality wheat, so I give it very little consideration in the grand scheme of things, but in any event it certainly can not be viewed as bullish, especially with recent the setback in US export sales data.  I also should point out that Egypt was back in the market buying wheat. This time around they decided to buy 120k tons from Russia and 120k tons from Ukraine. As you can imagine buying form the US was never a consideration...last year this was NOT the case! 
 
If you are trying to find a way to be fundamentally bullish US soybeans right now, all I can say is, good luck. South American planting seems to be running well ahead of schedule, the USDA just shaved 50 million metric tons off of their US soybean export numbers, and now many insiders are looking for additional cuts to be made in the soy crush numbers. This doesn't even take into account the fact many in the trade still believe the USDA needs to cut another 50 million from their US soy export estimates. We may get a little pop the next few weeks as Chinese crushers may opt for cheaper US beans, but on a longer-term scale we have to prepare ourselves for possibly much cheaper prices. I suggest you continue to view rallies as an opportunity to price more bushels (both this year and for the 2012 crop). I am afraid without a significant weather issue in South America during the next couple of months, we may find our desired pricing opportunities few and far between. The researchers over at Goldman Sachs seem to be on the same page as well as I heard earlier  in the week they cut their three-month soy price forecast to $12.20 a bushel from $12.60. They also cut their six-month soy price forecast to $12.50 from $13.00 and their 12-month forecast to $12.00 from $13.00.
 
The corn market, with the exceptionally strong basis seems to be providing many producers with an excellent opportunity to make some cash sales, re-own the board, or lift and roll hedges. With the "volatility" on the board falling off in a big way after the report and the basis remaining strong, now would be a great opportunity to pull the trigger on more cash bushels, and look for a way to "re-own" the board. For those of you who like to play the game in this manner, this is the best of both worlds.  Your cash sales are going to pay off better than expected with the jump in basis, and you can pick up the bull-call spreads cheaper than you could have in the past. Even though I am NOT wildly bullish, I do respect the lower yields and tight balance sheet. For this reason I would, in fact, re-own a percentage of your final 2011 sales in corn. I will send out some specific thoughts and strategies to our paid subscribers about corn in today's "From the Desk" report, so be looking for it. 
 
I am obviously not alone in thinking there could be some additional upside left for 2011 corn, as Goldman Sachs actually raised their corn price estimates for near term supplies. From what I have heard they raised their three-month price forecast to $6.85 per bushel from $6.15. They also raised their six-month price forecast to $6.50 from $6.15, but they left their 12-month corn price forecast unchanged at $5.50. Point being, re-ownership of this year's crop should be considered on some of your final sales, but re-ownership of  new crop sales should not at this juncture.    
 
The "Outside" markets have become a complete circus as of late. Similar to Greece, the powers that be are looking to kick out Italian leader Silvio Berlusconi and replace him with one of their own. From what I can gather, the rumors continue to point to former EU Commissioner Mario Monti as the next puppet in line to be a part of the show. In fact, it wouldn't surprise me to see Monti given the reigns over the weekend. Who knows, we may come in Monday morning to a new government in Greece and a new government in Italy. Unbelievable...if one government won't do what you want, just kick them to the curb and put one in place that will...certainly a unique approach! I mean no disrespect to Monti, as he is a very sharp economist who is currently head of Milan's prestigious Bocconi University, but I am starting to feel I am somehow sitting front row at a "P.T. Barnum" production as I watch the Eurozone performance play out. 
 
 
Thanks for reading, I hope this helps.  Remember, this is only a small portion of my Daily Report that comes out every morning. For my thoughts on how the USDA numbers are impacting prices moving forward, go ahead and sign-up for the 30-Day trial of my daily report, no obligation. Simply sign-up Here  Van Trump Report
 
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