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October 2012 Archive for From the Editor

RSS By: Brian Grete, Pro Farmer

Pro Farmer Editor Brian Grete takes time to talk with Pro Farmer Members about some of the key issues in each week's Pro Farmer newsletter.

Watching For the Buy Signal

Oct 12, 2012

Chip Flory

From The Editor

October 12, 2012

Hello Pro Farmer Members!

It was a crazy week for the grain markets! At the top of the front page of this week's letter I tried to offer some perspective on the choppy, unpredictable, extremely volatile pattern of trade grains have "settled into" over the past couple of weeks. But, with limited space, I'm sometimes worried I keep a comment too short to really convey what I'm trying to say. So, I'll try to make it perfectly clear.

We are not bearish the grain markets. Yes, I realize we've recommended corn and soybean hedgers be 100% sold in the cash market, which certainly suggests we anticipate lower prices ahead. But there are a lot of different factors that come into play in making that recommendation. With prices "this high," there is tremendously more downside risk than upside potential; the structure of the market is providing no incentive to put crops in the bin; and basis is "strong enough" to make a terminal move in the cash market.

But none of that means we're bearish -- or bullish. You've probably heard a Pro Farmer editor say this before, but it's worth repeating: "Do not get more bullish as prices rise." The reason we say that is because the higher the price, the lower the demand in a commodity market. So as prices rise, less is used which should result in lower prices (or at least steady prices). And once demand is choked off, the job of the market is to find a price that will increase demand.

The price that encourages more use can be found two ways: 1) Hold prices steady for a long-enough period of time to allow users to adjust to the higher cost scenario; 2) Drop prices to encourage additional demand.

Both corn and soybean futures have decided to drop prices (compared to August highs) in an attempt to encourage additional demand. The trick now is dropping prices low enough to trigger the first round of aggressive buying by end-users. In a market with tight supplies, the first big buy typically triggers a round of end-user buying as they all extend coverage from a 30-day supply to "something" longer... like 60 or 90 days.

We haven't seen that trigger yet. We're watching the charts closes for a technical signal to reown a portion of 2012-crop cash sales, but we're also watching for that first round of end-user binge buying that typically happens when corn and bean markets hammer home a harvest low.

 

That's it for now...

Have a great weekend!

To join Pro Farmer, click here!

This Year, Bigger Crop Equals Bigger Demand

Oct 05, 2012

Chip Flory

From The Editor

October 5, 2012

Hello Pro Farmer Members!

I was shocked by the presidential debate Tuesday night. As expected, Romney was good -- but I expect President Obama to be better. That's the message I tried to deliver on News page 4 of this week's newsletter. I'm not going to fool anybody into thinking I'm a huge Obama fan, but don't think for a minute that I'm a huge fan of Republican nominee Mitt Romney, either. Jim Wiesemeyer and I tried to be as objective as possible in our analysis of the debate and if this week's News page 4 comes off as we're "big Romney supporters" it's because of the single debate. After that performance, it was tough not to appear "pro-Romney" -- he was that much better than our President. (Again... in the debate.)

This could easily change in the next debate. President Obama will be much more prepared and won't be the push-over he appeared to be on Tuesday night. Romney was prepared... but he better double or triple up on getting ready for Round Two... Obama will be gunning for him.

There was some information that didn't get into the newsletter this week from PF crop consultant Dr. Michael Cordonnier. On the U.S. crop, he's leaning up a bushel on both his national average corn yield and national average soybean yield. That would put his corn yield estimate at 120 bu. per acre. But, he's still working with a harvested acreage estimate of 83 million, which would put still leave his corn crop estimate under 10 billion bushels.

On soybeans, his yield estimate will likely climb to 36 bu. per acre, adding 73.3 million bu. to his current crop estimate of 2.56 billion bushels. That would push his crop estimate to 2.63 billion bushels.

Dr. Cordonnier also told me this morning that Argentina's corn crop is nearing 20% planted, but corn that has already emerged might need to be replanted after recent cold temps frosted the plants.

Big events coming this week:

October 11: USDA Crop Production and Supply & Demand Reports. We all want to know what the new crop estimates will be from USDA's National Ag Statistics Service (NASS). But... do yourself a favor and go to the World Ag Outlook Boards' (WAOB's) carryover estimate first. That's because even if NASS does estimate bigger corn and soybean crops, we expect much of the production increase to be offset with bigger usage estimates to keep carryover estimates close to the 733 million bu. for corn and 115 million bu. for soybeans estimated in the September S&D Report.

Also on October 11: I'll be a guest on Futures Now, a new online, live-streaming show produced by CNBC. The streaming begins at noon CT on Tuesdays and Thursdays and I'll be on Thursday after the Crop Production and Supply & Demand Report to do some quick analysis with host Jackie DeAngelis. To watch, just go to www.futuresnow.cnbc.com. If you can't watch the live streaming, the show is available "on demand" any time after the live streaming.

That's it for now...

Have a great weekend!

To join Pro Farmer, click here!

Follow me on Twitter: @ChipFlory

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