A Dangerous Time In The Markets
Oct 26, 2009
First off I’m going to be on a telephone conference tomorrow with Beck Ag at 8 a.m. Eastern and 7:30 p.m. Eastern. They will have a university specialist talk about the drying systems, plant pathologist talking about disease and I will be talking about the potential marketing impact for the year. The morning session call in number is (800) 701-9724 pass code 471031 and the evening session is (800) 701-9724 pass code 520551. If you need further details, look at our Web site for the press release.
Last Friday it looked like the lid was going to come off the market with the rain forecast. Many sellers were being forced to the sidelines because of big margin calls. As I told one client, I felt like a sheep being herded to a slaughter by the wolves. So today’s correction is not surprising but obviously uncomfortable for anybody who got out of position and great for those who held.
What’s ahead? Since the $3.80 level was breached by December corn, we have set up the potential for a retest of the $3.50 gap breakout levels. “If” it’s going to come, it will be quick and most likely in place by Thursday. The harvest conditions are going to be generally lousy from here on out. I have faith in the producer that we will get the crop out but it’s not going to be pretty. How much yield loss due to field loss and disease is a big bullish unknown? How will demand hold up will be a question if ethanol mandates are not increased?
All I know is at current cost if one looks into the future a $4.50 or better selling price for July 2011 for the 2010 crop sounds like a solid place to really start selling hard and scale up sell if the market does improve into the end of the year on continued crop loss. Remember, this rally is not about demand growth it’s all about inflation expectation and yield loss. What happens if neither are as bad as everybody fears?
The wheat rally has been a direct link to the corn, dollar and oil rally. Without the upside market rallying the wheat market simply can’t move a lot higher because of world stocks. This implies if you have old crop wheat in the bin you better not set your objective on prices much better than $5.80 to $6. Equally, if you are looking to sell next year’s product I believe you need to give yourself a chance for higher prices if more harvest problems develop in corn. So waiting for selling of inventory in the December time period is still recommended even though long term one could be quite bearish to wheat into the July time period because of large world stocks.
The bean market was down today but overall was not a complete washout. I have to suggest the bean harvest is moving slowly forward but the wet conditions is really slowing things down since beans have to be dried even if off the combine cash sales are desired. I’m still concerned about long-term price outlooks for beans with South America and U.S. acres being up next year. This puts the burden of proof on the bulls to drive prices sharply higher because of usage. It will take a close in the January beans above $10.60 to really ignite the bean bulls right now. Equally, a close in January beans tomorrow below $9.70 should trigger some long liquidation as margin call start to press recent buyers. Overall, this is still a very dangerous market right now with both the bull and bears looking for solid direction. Strong money management is recommended. If you are in futures keep your stops reasonably tight. If you are in options roll up your puts to keep close to market.
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