The big news today is China’s decision to increasing banking reserve requirements. This is forcing banks to reduce their investments. Since many banks are invested in U.S. equities, the “talk” was of total volume of almost equal to the total daily trading volume on the New York exchange would have to be liquidated. While this is a big number, the bigger concern is with China contracting, Europe potentially slipping into another recession and our economy continuing to sputter and could overall demand continue to contract. Subsequently, the demand for commodities will be on the retreat. So overall the outside market is becoming a drag on the corn and bean complex.
In regards to corn and beans, I was overall favorably impressed by their overall ability to hold up in light of the general bearish outside market. It does appear corn has a little more short term concern about all the bad quality corn that has to move into the system. This could keep a lot pressure on the market until we first see a positive March USDA Supply and Demand report and potential weather concerns about getting the crop planted.
In regards to beans, we opened lower and then bounced. This week in Louisville, Ky., I got the sense that producers have done a decent job of selling old crop corn. While this will take some pressure off the cash markets domestically, I still have real concerns for beans. One our clients has called from South American with the observation that bean yields overall are up in excess of 10% and USDA is going to be forced to adjust up. This plus the fact China is trying to slow down the economy could easily flood the cash markets with a lot of beans very soon. My bias is March beans at current levels are a sell. If prices are firmer you should be using it to sell new crop beans closer to the $9.60 to $9.80 level for off the combine cash sales.
Wheat has stabilized but still has some real concerns. As the euro continues to fall it makes European wheat more price effective than U.S. wheat. We continue to see very poor exports. While I would love to tell you wheat is going to bounce but it really looks heavy and potentially setting up for one more serious downside leg into harvest. We would encourage you to really focus on getting some inventory priced in this March time period. Selling the carry is a solid way to get a better price for wheat.
The 10-year T-Notes have seen a rather active week as one would expect with all the problems we are seeing on the international scene. The positive note was the March contract was unable to break above 119 this week. Once the current problems with the Euro are over in say a month, the T-Notes are expected to start retreating slowly. We are actively encouraging selling of the march T-note between 118 and 119 and holding to last trading day. We continue to believe the current low values are long term multiple year lows and should be aggressive positioned for long term protection of upside long term interest risk exposure.
Natural gas has peaked off its December high and is trading sideways to lower. We are nearing a time period of peak price activity. We are would suggest producers stay on the sidelines right now and position themselves for June to start buying natural gas as a offset of future nitrogen price exposure.
The hog market continued its nice bounce off last week’s low. The June contract is now at $78 and appears positioned to try for a rally to the old high. Since we are moving into a time period of seasonal strength it only makes sense that one has a positive bias. The problem is the global economy. If talk of a another recession starts to gain momentum, it will kill both domestic and foreign demand. This all suggest to producers if we get back into the 80-cent level some measure of downside price risk should be considered.
The harsh weather is starting to impact rates of gain which is helping to bounce up cattle. As we suggested in hogs, we are really worried about the economy and subsequent consumers attitude about taking risk. The big concern I have is beef could really experience a double dip in demand if consumers start to be come spooked and close the pocket books. I strongly urge any producer who is unprotected not allow June cattle to drop below $87.25.
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February 2010: Anaheim, CA.
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