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July 2010 Archive for Outlook Today

RSS By: Bob Utterback, Farm Journal

Bob Utterback has more than 26 years of experience and offers producers a disciplined approach to marketing.

Grains Gapped Higher; Stayed Firm into Close

Jul 30, 2010
Today’s sharply higher price action in wheat, corn and beans has now given the green light to the bulls. The gap higher price action reflects the end users desire to get coverage in place and sellers liquidation of positions due to margin call pressure. 
 
The wheat complex has gone from $5.80 level seen in early June to the current $7.19 level. The two main factors was a reduced crop due to excessive rains in the U.S. crop in May and June and the fear that Russia could be experiencing the worst drought in 150 years. It should be noted that even with Russia and U.S. yield drop, world stocks are still adequate. This however has not precluded end users to start looking more aggressively at locking up inventory just in case a 2008 event repeats. I have to suggest that with July 2011 above $7 and if one is able to store the incentive to planting wheat is increasing. The market however will not start to drop until we have a firm handle on how bad the  Russian crop has been hurt and how good of a fall we have to plant wheat. So at this time producers of next year’s wheat should be watching very carefully to start selling but not pulling the trigger yet. If you are inclined to get short this type of a market is an excellent time to be a buyer of puts rather than a seller of cash or short futures because it simply gives you more flexibility to take advantage of a upside price strength if seen.
 
We have been discussing for some time November beans has been trading at overhead resistance. Today’s gap higher action in beans must be given respect in that we have now opened up the potential of beans to test last fall’s high. With the cash basis levels still very much a premium to the futures, cash is pushing up the crop. With uncertainty still quite high about the upcoming crop yield potential the function of the market right now is to put enough weather premium in the market to ration usage and eventually stimulate more production.  As for how high we can go the $10.50 target must now be given at least a 50/50 chance. It will be critical that Friday’s gaps hold and follow through buying develops early week.  In regards to producers with unpriced inventory I would have to suggest no action unless November 2010 beans close below $9.85.
 
I would suggest right now the corn market is being pulled up by the wheat and bean market rather than being a leader. The higher wheat goes, the higher 2011 corn must go to buy acres. As it’s going up, it’s difficult to know where the tops will occur. This is the nature of a weather market. However, once it is in the market will go down as quickly as it goes up so you must be developing a game plan now on what price level you want from the market and when.
 
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 

Stronger Beans, Wheat Pulls Corn Higher

Jul 29, 2010
Corn, beans and wheat continue to bounce off technical support.  Some solid exports in beans but concern about wheat continues to spill over into the corn complex. Continued concern about the Russian wheat crop has sellers on edge. The July 2011 wheat contract appears ready to test the $7 level. With the carry that currently exists in the market, the potential for solid profits is looking stronger for wheat. I’m already getting questions from producers whether they should sell next year’s wheat because wheat growers are now going to resume planting when just 60 days ago they thought they were going to stop for 2010. The end result is wheat stocks will stabilize and the corn market will have to work harder to get the 90 million acres it needs planted next year to rebuild corn stocks.
 
My suggestion is all wheat producers need to be looking real hard at locking up inventory. I like the strategy of buying July $6.60 puts at 67 cents, then sell $5.20 puts for 12 cents. If one assume the cost of production is around $5.50 for 65-bu. wheat. An $8 call would represent around 45% return on investment. Remember, if the market does go higher your cash is worth more which neutralizes the risk of the short call.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Market down and producer sentiment is subdued!

Jul 26, 2010
I spoke at Purdue’s Top Producer workshop and Farm Journal’s Corn College last week. Producers were neither bullish or bearish about the market. Overall, I would have to suggest the attitude seems to be very subdued. This behavior is not really a surprise in light of the significant price movement we have seen before and after the USDA acreage report. Right now, I would suggest we have a very good crop coming on board overall, with a lot of holes due to the June rain. The test weights will be good as contrast to last year. My bias continues to be that we will be surprised as to how good the crop will be once the final numbers come in but the Chinese buying pattern will keep lows tempered. 
Long term, the real concern will be how much weakness will the domestic and international economy experience over the next year. Bottomline: December 2010 corn will have difficulty staying below $3.40 for any length of time but equally it will have difficulty spending much time above $4.25. This range-bound type market will be difficult for trend followers since no trend exists. It will also be difficult for clients who are long out-of-the-money calls or puts since the risk volatility will tend to drop as we move into fall and time value will occur. Subsequently the cost of the premium will be greater than the flat up or down side potential of the market.  

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 

Grain Market is all About Supply!

Jul 20, 2010
Today’s sharp price break is the bad part of weather markets.  We have seen the December corn price retract back to the technical support of $3.92 to $3.96, which is about a third of the $3.45 to $4.10 price move. If the market is going to go higher, one should not expect much more than a three-day break. 

Its now all about supply. How many acres have we lost due to too much rain? Second, will the good areas offset the bad areas? Crops around me are looking good so it’s may be difficult to be objective but overall I’m growing more confident we will not drop yield below the 161 bu. level like the bulls are arguing but neither will we go above 166 bu. level like the bears are suggesting. This suggests ending carryover in the 1.2 billion to 1.35 billion range. It’s adequate but could become tighter if demand exceeds expectation. 

Bottom line: If the bulls can’t push their advantage in the next 5 to 10 days, I believe they will take a break and we will see a seasonal decline into September. As for downside risk, it’s currently very difficult for me to argue a low below $3.45 in December corn but equally very difficult to argue much above $4.20. Long term I still believe the December 2011 contract must attract at least 3 million to 4 million more corn acres. Some will come from wheat but a lot may come from beans. To do this December 2011 contracts should have a strong price move up in the March to May time period into the $4.50-plus level.         

BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Weather Concerns Drive the Market

Jul 16, 2010
It's raining in July. One has to think the corn crop is not getting worse. In fact, overall, improvement in crop conditions reported this week proves that the crop has stabilized. The only concern that many are having is the potential of disease associated with hot and wet conditions. Many producers are now spraying fungicides to prevent yield loss.

So the question continues to be, How big will the yield be? Some in the trade are still above 166 bu./acre corn yield, while I would suggest yields closer to last year, around the 162 to 164 bu./acre level. The impact on prices should not be a straight line getting bigger with every bushel drop. Right now, a move from 166 to 165 bu./acre will have limited impact -- say, 10 to 15 cents -- while a drop from 161 to 160 bu./acre will have more than a 25- to 35-cent inpact. 
The problem is, now that the corn fields are hiding all the wet spots, it’s difficult to get a handle on how good the yield is actually developing. I would suggest the corn bulls will have to take a break right now. It will not be until after the August report, and more likely the September report and early yields start coming in, that we will have a solid handle on productivity.
Right now, I feel comfortable suggesting that in the next couple of months it will be difficult for the December futures to get below the June low $3.4325; a close above the February high of $4.142 should be equally challenging. To my way of thinking, this is a range-bound market in which selling against overhead resistance and buying against support is the way to position oneself in the market.
As for old-crop inventory unpriced, I still have to believe the risk is in the cash, with the basis exposure. If you have to move corn between now and September, I can’t recommend going much longer. Get it priced and look to reown on a fall low.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Market trend to go higher on weather and demand!

Jul 09, 2010
The July USDA Supply and Demand report this morning corn has now set the stage for December 2011 contract to retest $4.50 level by the March Prospective Planting report next year to attract more corn acres to be planted next year. Continued uncertainty as to weather conditions through out the month of July and August has allowed the implication to develop that corn stocks could move well below 10% stock to use ratio. This would be the tightest since 1973 suggesting caution as a seller. Growing demand for ethanol and a strong demand base from China is helping to eat up the record corn crop.  In the last 30 days, carryover has effectively moved from the 1.65 billion level down to the 1.35 billion. Fear is growing that with continued weather volatility, yields could drops below 163 bu./acre and carryover could decline to the 1.1 billion level.
As for soybeans, the market continues to disregard the increase bean acres seen on the June 30th report. Once again, soybeans continues to follow the same implication as corn regarding weather and that the focus right now is on declining crop conditions due to the excessive rains in June and potential hot and dry conditions being forecasted for early August. Carryover is currently forecasted at 360 million bushel.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Volatility is the name of the game!

Jul 07, 2010
Volatility is the name of the game now. Higher volatility is associated with uncertainty. Since there has been such a big drop in expected acres, yield is becoming increasingly important. USDA dropped the overall crop conditions yesterday giving rise to the fear that the corn crop will not exceed last year. If this occurs, carryover will move below a 10% stock to use ratio which is the tightest it’s been since 1973. This concern has given the bulls new resolve that the market next winter will have to move well above $4.50 in December 2011 corn to entice acres into production.  While they may be right, that’s next spring, not this fall.  My concern is the bulls are getting very motivated a little to early and if they don’t watch themselves they could get really trapped.
The weather forecast into the middle of the month is great for corn pollination. The only problem develops as we move into the latter part of the month. As for the demand side of the equation, the concern about a double dip economic recession is still very much a risk.
While the market has bounced up to within striking distance of previous overhead resistance, it’s becoming apparent the market is not wanting to surge higher until it gets a solid confirmation of yield stress.  
The final thing that is concerning the market is the big short position of the trend following funds.  When will they liquidate? The market has been trying to close above the 100-day moving average which it did accomplish today. Early next week the market will be making some critical decision if it’s going to move higher.
Subsequently, anybody playing the short side of the market must be sure that your adequately capitalized at this time. If you are over trading, you need to back down a little. If you are long puts I would roll up to keep close to the market.  As for selling calls, I would be cautious and postpone until we get past the July USDA Supply and Demand Report.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.

The Post-Holiday Market

Jul 07, 2010
We are now into the post-holiday period when everybody comes back from a few days off after seeing some of the country. Today’s price action has everyone very nervous. The bulls are arguing the crop's not there with talk of carryover down to 1.1 billion, suggesting weather premium has to be put into the market. The big question on many producers’ minds is what to do with unpriced old crop corn. As you know, those following our recommendations have been sold for some time. Last week’s Acreage report really hurt my bearish position, but overall I’m still ahead of the game. At this time, I have to suggest the bull has to push into the USDA Supply and Demand report next week to get the bears out of the market. The market is moving above the 100-day moving average, which is an important price level for the trend-following funds, which are currently very short the corn market.

The short-term players are trying to drive the market up to force them out of the market. To my way of thinking, if the bulls can’t push December corn above $3.93 by mid-July, the force of old-crop corn plus an improving new-crop corn will start to seasonally drag corn lower into the fall.  As for how far we will go right now, it really looks like the $3.40 level basis the December 2010 corn will hold things in check. As for the upside, with carryover potential below 1.1 billion, one has to suggest prices would have to be higher during the March to May time period next year to attract acres. This would suggest the $4.50 level could eventually be in the making. This is why feed buyers and speculative buyers need to be very focused on buying in the August to September time period. 
                        
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 
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