I very rarely have a chance to post in the mornings, but I have had several readers asking me about this Friday's USDA report and it's implications. Below I have listed a few stories form my daily report that I thought you might want to read. If you are not signed up yet and receiving my FREE e-mail updates make certain you get hooked up. There is NO Cost and NO Obligation, just click the link below to get started.
What To Look For In Friday's USDA Report
I have had several clients call in and question the importance of this Friday's USDA report. I think I need to clarify a few things for some of you. No, there will be no yield or production number's released until the January report. This could still be a big report though, so don't discount it as meaningless. I have tried to list what most of the big boys are looking for...hope it helps.
They may adjust the amount of corn used for ethanol up anywhere from 50-100 million metric tons. I wouldn't bank on that just yet, if they don't extend the tax credits the USDA is liable to reduce it. This is a tricky one. They could also increase our estimated corn export numbers if they decide to drop Argentina's crop size from 25 million metric tons closer to what others are estimating now could be just 22-23 million metric tons. They could also raise our exports if they increase Russia's import numbers. Right now they have Russia importing just 1.9, many believe their needs are double this and maybe even higher than that. There is also the Chinese concerns. Some guys are arguing they could actually drop the feed usage numbers by 25-50 million metric tons given the great quality of this years crop.
As for Soybeans, it is almost a given that the USDA will be forced to raise exports by at least 50 million metric tons, and the crush by 25 million metric tons simply given the current export pace and the high quality of our US beans. There are rumors and talks the numbers could be much higher, this report could certainly be very bullish for beans. Yes, we have built in some premium, but it could be a game changer. Make sure you take advantage of this move in small doses if it occurs. Don't be afraid to make some cash sales on the moves higher. With Domestic crush margins struggling now and China's crush turning negative I think it may be tough to sustain the big rallies, just make sure your getting some sales made while the music is still playing. Longer-term I think we will eventually trade even higher, anticipate the moves to be fast and furious. Have your plan in place and ready to take action. My coach always told me..."failure to be prepared is preparing to fail..." My kids hate it when I tell them that now...unfortunately it is very true.
Wheat is hard to gauge, because there is so much they could do with their global numbers. As far as here in the US, the big players are telling me they wouldn't be surprised to see the Hard Red Winter Wheat exports increasing by as much as 50 million metric tons given the significant problems now in Australia. I am also hearing that the USDA is a little more concerned after seeing the big asian purchases, this is just very uncharacteristic for them this time of year.
It will certainly be interesting to see how it all plays out. I will continue to play the game from the long side.
Why Russia Could Be The Wild Card
A client and I discussed the situation in Russia this past week, and he had no idea of the severity of the issue and what it could eventually mean for grain prices. I thought I would pass along some of the info just in case you have not been staying up on the story. To start with you have to realize that since Russia did away with mostly government owned farms their production in all areas has suffered. Privately held farms just don't have the resources or man power to equal the production of the government ran operations that produced massive supplies back in the 90's. Just another reason traditional communist friends hate the new democratic system. Obviously this years massive drought did not help matters. I think the USDA and the rest of the world may have massively underestimated just how much grain Russia will ultimately need. Because of the drought the USDA has reduced Russia's total "coarse grain" usage by about 2 million tons, but is estimating their wheat feed usage at more than double. I understand that the USDA is thinking the drought will cause a reduction in livestock and poultry numbers, but why is the USDA thinking that Russia will feed so much more Wheat than Coarse Grain (corn)? Russia has never feed more wheat than coarse grains ever, why would they start now...unless they simply don't have hardly any corn. If that is the case I would have to imagine rather than running the risk of higher death rates and reduced weights in livestock they would simply try and import more corn. Maybe the USDA is thinking something different, or maybe the USDA knows Russia has lost a substantial amount of corn and doesn't want to sound off the alarms. Any way you want to slice it I think the drought in Russia is going to strain global supplies more than any of us may have anticipated.
Drought In 2011 Predicted For The Midwest
I heard from a good friend of mine that Elwin Taylor (a well regarded Climatologist) was speaking at a banker sponsored event up in Illinois this past week, and was talking about the possibility of a significant drought in 2011. For those of you who don't know Elwin, he has been predicting very accurate corn yield estimates for the past 20 years or so. He hit this years estimate right on the button. All of his estimates are based on growing degrees and days from silking to dent stage. Normal time frame from silk to dent is 40 days. In 2004 corn took 46 days from silk to dent, and he predicted a record corn yield. The corn got 6 extra days to put on weight, and he was correct. This year corn went from silk to dent in just 32 days. I don't even need to tell you...obviously less time to gain weight and lower yields. It is not rocket science, he simply believes the more days from silk to dent, the more feed or weight the kernel will put on. I heard he also talked about some interesting drought facts. He supposedly researched tree records going back 800 years, and found the average time between Midwest droughts is around 19 years. The longest time period between any major drought in the Midwest during the last 800 years has been 23 years. You guessed it, 2011 will be exactly 23 years from our last major drought dating back to 1988. In addition it is believed that 16 out of the last 17 major Midwest droughts have started in the Carolinas the year before and moved their way into the Midwest. As we all know the Carolina's got rocked this year and their yields were very poor. He was also telling guys that any corn crop that is drought stressed (droopy leafs) at the 4 leaf stage will go from16 rows around ear to 12 rows around ear. I don't know if you should take this info to the bank just yet, but I have heard from several sources Mr. Taylor is very good at what he does and his information is considered some of the best.
Cornering The Copper Market???
You may have heard some rumors last month that a single buyer had purchased more than $1 billion dollars worth of Copper on the London Metals Exchange...come to find out now it was JP Morgan / Chase. Do realize this is somewhere around 65% of their entire Copper supply. In today's world this is an unbelievable purchase. I have heard they were launching their own Copper ETF next year, so this may be part of their plan or strategy behind the massive purchase. If you remember I thought something was up when they purchased RBS Sempra Commodities for close to $2 billion back in July. This gave them a host of LME warehouses, and a seat in the LME's coveted trading ring. It also gave their traders a specialist type seat inside the LME's ring of red leather couches, basically a session held for 15 minutes four times a day that allows elite trading firms to negotiate trades face to face, rather than through electronic trading. Just more special treatment for the insiders...Remember J.P. Morgan is one of the LME's 12 so-called category one ring dealers. That means the bank can make markets in the metal and hold it on behalf of its clients. It will be interesting to see how copper prices respond during the next several months, and how JP Morgan comes out in the deal.
Gold Continues To Surge Higher
Could we see $2,500 an ounce? I would not be surprised, I am certainly willing to bet we will see $1,500 an ounce in the immediate future. As Jimmy Rogers and others in the business continue to preach that gold could double in price the market continues to respond by making new highs. You have to believe as investors lose more and more faith in the governments and become more fearful of uncontrolled spending, they will continue to snatch up gold in an aggressive manner. Just take a look at China, they are buying up gold at a record pace. India is doing the same. Investors and countries are becoming more worried each and every day about inflation as we continue to print more money and rationalize excessive bailout programs. Repots show that Beijing has increased their imports of gold by more than five times that of last year. Not to mention China is now the worlds largest producer of gold, so to say the least China is very interested in owning and amassing large quantities of gold.
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