Weather Concerns to Trump "Outside" Markets
May 21, 2012
The "weather" cards we have been waiting for as producers are starting to be dealt from the deck. The temps are heating up, the humidity level is dropping and there is now very limited rainfall in the forecast for several top producing counties throughout the corn belt. Wheat has been on an absolute tear, gaining close to $1.00 per bushel since the previous Monday, as more talks of 100 degree heat and a "high pressure ridges" cause the trade to readjust and re-think their "short" grain positions. In my opinion "weather" woes will continue to trump the "outside" market blues for the next few weeks. Even though the economic situation in Europe has not improved, nor has the Chinese economy stopped slowing down, "weather" will now become the most important ingredient for price. As long as a few new "weather" cards continue to hit the table each week our downside breaks should be somewhat limited. With soil moisture levels being more closely monitored and questioned, look for the mood of the market to shift their line of questioning form "how big will the crop be" to now "how much damage will be done to the crop" in these hot dry conditions. As the questioning changes so will the mood of the markets.
Yes there are some extreme weather rumors circulating in the trade right now. Certainly no one seems to have a handle on the Russian situation as of yet. I continue to hear a broad range of guesstimates. Right now the USDA is estimating Russia will produce about 56 million metric tons. The trade is throwing out numbers anywhere from 2 million lower to 10 million lower. My thoughts are an actual number below 50 million metric tons, could start to make a substantial difference in the US balance sheets. If US exports were to pick-up you could see the HRW carryout decline by 100 to 120 million bushels in a heartbeat, so pay close attention.
Since many of "bears" were caught "off-sides" with the South American weather issues a few months back, everyone seems to be taking much more precaution in regards to what is happening in Russia. It is my opinion that since there is too much "unknown" right now, specs need to play the game from either the bullish side of the fence or on the sideline, do not get cute by trying to pick a top in a weather-rally. Producers on the other hand should use the recent gift and start slowly making sales into each big run-up. Meaning if you need to price, hedge or sell an additional 30,000 bushels before or during harvest then do it in small doses on the days we rally. Just keep in mind the world should still end up having a significant supply of wheat despite the recent production setbacks. Yes there are going to be some balance sheet reductions due to weather related problems, but in the end I am thinking a massive supply of wheat in India and other parts of the world will eventually bring prices back down to earth. Make sure you are taking advantage of the rally…we have been patiently waiting for.
Corn is also showing some renewed strength, and is obviously being pulled higher by the first real "weather card" to come out of the deck here at home. Simply stated, the Midwest is hot, in fact producers in several high-producing locations are talking about corn "rolling" before noon. We are seeing corn in China push to levels not seen since the all-time highs were posted back in fall of 2011. Throw on top of that the fear we could see less wheat being feed and more corn and you can see why we are rallying. Think about it like this, at the start of last week wheat was actually a little less expensive than corn, now all of a sudden corn is some $0.60 cents cheaper than SRW and some $0.70 cents cheaper than HRW.… Obviously if this trend were to continue global corn feeding would start to gain back a large portion of its recently lost market share that switched over to the cheaper wheat alternatives. I don’t see this being the case longer-term, but lets enjoy the rally while it lasts.
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets. Just click here - Van Trump Report