Looking To Next Week and the USDA Report
Mar 23, 2012
One thing you have to remember, just because I have a more "neutral" opinion about "money-flow" it doesn't mean the Ag markets are going to take an immediate hit. I just want to make sure you understand we can still work higher, I just don't think we can work dramatically higher without the "risk-on" flag being waved across the entire commodity sector. Point being, ending-stocks could in fact move significantly lower while prices may not reach levels obtained in 2008 or 2011. Remember, the stars must ALL align to get the extreme moves to new highs, right now I just don't see that being the case.
Not only is the fund interest not firing on all cylinders, but we also have to realize, when considering total marketing year sales for each crop we are still running behind pace. Essentially meaning we could see strong US sales in the weeks ahead, but in the end see no real adjustments by the USDA in regards to the current balance sheet levels. Therefore smart money may view the "upside potential" as somewhat limited when compared to the "downside risk" that could be associated with disappointing sales numbers.
It is not that I am bearish, because there are still some bullish "wild-cards" in the deck that could push us higher, I am just thinking there is more and more limited upside potential as big money repositions itself.
As you can see from my ratings I have dropped back to "neutral" corn. Based on yesterday's close the May corn contract had given up over $0.28 cents from last Friday. This is probably a big enough set-back considering the size and possible implications of the USDA report next Friday. But without the help of the "outsides" and little in the way of political easing we may see the markets turn to more "traditional" type analysis. With new crop ending stock pushing closer to 2 billion, it's tougher to argue from the bullish corner, especially if many of the funds elect to sit idle. Without some bullish help form the USDA, China or the US Fed, we are left staring at 95 million plus acres of corn being planted at a record pace, and being farmed by the best producers in the world, who own the best technology in the world, and have been able to prep fields better than ever...you do the math. I am not bearish as of yet, but we are going to need to get some help or I should say some "problems" to pop up if we are going to push significantly higher. The economy is going to have to get worse, the weather is going to have to get worse, China or the USDA will need to admit shortages, etc...
On a side note, I thought it was interesting that only 24-hours after Ukraine's Ag Minister announced the country will plant a record 11 million plus acres of corn, Interfax-Ukraine came out and said they think corn acres could jump some 35-40% to almost 12.5 million acres. If true this means the Ukraine could end up with a corn crop of around 32 million metric tons, or about half the production of all of Europe. Obviously that would allow Ukraine to be be extremely aggressive sellers of corn on the back end of 2012. With South America's corn production looking to have stabilized as of late on the recent rounds of rain, the world may soon have increasing supplies. It certainly all hinges on US weather conditions moving forward, so stay on your toes...
I am ever so slightly bullish wheat, just because the funds are leaning over the short-side of the boat and we have some near-term potential for a quick weather induce rally, especially with US price remaining very competitive. Based on the balance sheets or true fundamentals there is absolutely no reason I should be playing this market on this side of the court. With everyone leaning over one-side of the boat though and some volatile weather ahead, I am thinking the rough waters could quickly change everyones positioning.
I continue to remain the most bullish soybeans for a litany of reason that I have explained in great detail as of late, so I will spare you the long winded explanation. I would however caution you about being outright long large doses of flat price soy with the unknowns taking place right now in the outside markets. I prefer being spread against either corn or wheat, and only buying on the breaks, just my two-cents, and a way to hopefully limit longer-term risk.
With the major soy production problems in South America and what seems to be some type of bid beneath the corn market due to Chinese demand or miscounted bushels, I am choosing NOT to hit the panic button and I am NOT recommending any additional sales at this time. I just want to merely point out the waters are shifting to some degree and as producers and speculators we need to make sure we are taking notice, and preparing ourselves to make a move if need be.
I am predicting we will get some type of US weather related rally at some point during the next several weeks, the question is where do we rally from...and how long will it last. In any regards be prepared to pull the trigger when the weather premium starts being added. I learned a long time ago, you have to be able to hit the easy pitches in order to get on base. Forget about the "cutters," the "split finger" or "knuckle ball," right now we are looking for a simple "two-seam fastball" right down the center of the plate that we can take yard in order to lock in another 20-30% of our estimated new crop production. It's baseball season folks...Cheer Up! Be patient, we will get pitch we can hit, just make sure you are ready to swing the bat when it comes...
A few bright spots that could help support higher crop prices:
- Farmers moving into the fields to plant, therefore limiting farmer sales and possible strengthening the basis from here.
- US wheat staying extremely competitive on a global scale. Much cheaper than EU wheat and right on track with Aussie feed wheat.
- Chinese soybean imports continue to look strong. If March import totals come in where Chinese insiders are predicting, bean imports over the past six months will be up about 10% compared to last year.
- Continued talk in China about a shortage of quality corn, many now estimating a bid beneath the US corn market for both old and new crop bushels.
- If 1Q US GDP numbers come in extremely soft (say 1.5% rather than 3%) we might see some renewed interest in QE3 talks, therefore prompting the funds to get a little more aggressive. Not the case right now, but could be down the road so pay close attention to the GDP numbers.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -