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May 2010 Archive for Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

You Might Think I Am Crazy, But Corn Is Setting Up For A Nice Rally & Wheat Is Looking For A Bounce...

May 24, 2010

CORN: Obviously the question as of late in the corn market is who will win the battle between those who believe we are going to see a record crop followed by record supplies, and those that believe world demand will challenge or perhaps outpace our actual productivity.  The concern lately has been in regard to how growth and demand will play out in the face of the looming Euro debt crisis. Personally, I feel the corn market has held up very well considering the circumstances. In fact we actually finished the week up 6 cents in the July contract. It certainly leads me to believe there is more strength in this market than most had originally anticipated. I believe the thoughts of a record crop may all ready be factored into at this point. Who out there is in this market that doesn't know or realize the total number of acres planted, the possibilities of huge crop, or some of the other major bearish news.

 

 

I believe the trades inability to take this market lower in the face of this much bearish news is an indication that we may have run out of steam to the downside, and sellers may be far and few between. This leaves corn in a situation that should provide less downside risk and more upside potential than we have had in many months. While I am 

certainly not claiming we are out of the woods and signaling for an all clear just yet. I do believe this market wants to go higher right now.  If we start to see the outside markets (US Dollar, Crude Oil, Equities) slow down some next week, I believe corn could post a significant rally.  I especially like the thoughts of moving higher right now as I believe we will start adding in some weather premium and our downside exposure should be fairly limited at least until we pollinate corn. From where I sit farmer selling looks to have been nonexistent on this price break. I certainly believe you are going to get another look at higher prices, stay patient and wait for the bounce. 

Question: Are you guys still in the Corn Position you promoted back in Mid-March?
Answer: Yes. We entered that trade on March 12th when we sold (1) July $3.50 Put & (1) July $4.20 Call. Each unit is currently up over $650. We have also had several other nice trades and hedges in this market that I have posted in our daily FDPRO Report.  If you didn't catch the update, we exited our other position back in early May when we were long (1) May 410 Put & short (2) May $5.00 Calls, that position end up profiting $2,850 per unit.

SOYBEANS: We have seen very little support in the bean market this week even though there have been some talks about tight old crop soybean supplies and rumors that China may be switching some cargoes to the US from South America. From what I had been hearing, it seems as if slower than normal producer sales from South America have kept their prices firmer, and have made our beans more attractive to those looking to import. I have also heard that ocean freight to Asia is lower for US exporters than it has been in some time.  All of this has caused a little run on old crop beans here in the US and has tightened current supplies. In addition, farmers with beans still in the bin have been a little reluctant to sell at these price levels adding to the pressure. This news may be old news though very quickly as the weakening Brazilian Real has helped South American prices as of late and is now starting to increase Brazilian farmer selling.  In addition I an now hearing talks that China will be drastically slowing down any new bookings of soybeans due to huge imports they have arriving at ports later this month and next.  We also need to keep our eye on the fact that more beans acres may be planted than we had anticipated as corn producers may be forced to switch some corn acres to beans due to overly wet conditions. There is similar concern in China now as farmers there are reporting a shift to more bean acres because of the planting delays in corn. 

 

Q. What positions do you guys currently have on in beans?

A. We finally exited our trade from early January where we purchased (1) May 1000 Put & sold (2) May $11.40 Calls against them. It was a great trade and profited more than $2,250 per unit. We currently have a slightly more complicated hedge on now that we entered back on 4/21. We sold (2) 1100 Aug Calls, purchased (1) 980 Put & sold (1) 900 Put. This strategy has really worked out well for us right now we up almost $2,500 per unit. 


WHEAT:
Currently everyone believes we have too much world supply, we can not compete in the export markets because of the recent gains in the US Dollar, it is the start of the winter wheat harvest, and now we are getting beneficial rains in the central Plains. How much more bearish type news can this market handle. It think in light of the circumstances, and that we could be facing a one billion bushel carryout projected out through the next marketing year we have some how managed to hold our own. My personal belief is that so many funds and large traders are short this market, either outright as the "trend-following" funds would be or have shorted wheat against their long corn positions that there may be very little selling left to come into this market near term. If this is the case, regardless of new and fundamental information this market will eventual have no where to go but up as the sellers try and take profits or start exiting their positions and have to become "buyers" to close out the other side of their trade. 

 

With this type of logic in mind I I think this market is due for a turn around or bounce to the upside.  There are actually a few bullish pieces of news I have heard this week floating around that could also add a little more substance to my argument than just merely having a traders type hunch about the way this market looks to have been behaving. You have reports that heavy rains in Eastern Europe may lower their grain production efforts. Poland is cutting its wheat crop forecast by nearly 1 million bushels. Farmers in Hungry are reporting that perhaps nearly 15% of their wheat crop may be damaged. Ukraine wheat production is expected to be down 2 million tones from last year due to severe weather. My only concern is that if some countries due start to need wheat they will be more attracted to the European market than ours simply because of the weaker Euro. If we can get this currency issue leveled out, I think the US wheat market could eventual gain some steam to the upside. 

 

The one thing I don't like right now, and something I encourage you to keep your eye on, is this crazy wide carry right now between the July 2010 to July 2011 contract, I believe it ended at around $1.08 on the close Friday. If this type of action continues one have to believe it would more than likely encourage more soft wheat acres next year, and not be good long term for prices.   

 

 

Q. Are you still in your short Wheat Hedges & Trades?

A. No, we exited all of our short Wheat positions this week as the market approached new lows. We made some fantastic returns on the short side during the past few months, and we may have gotten out a little early, I just didn't like the way the price action was playing out. I actually would like to get long this market in hopes that some of the current shorts get squeezed or caught off guard in a strange twist. This market is currently ripe for a quick explosive move higher base don the way it is setting up. Certainly not from a fundamental perspective, but just in the way the market is moving.  

 

* I just wanted to remind everyone that we offer a Free Trial Subscription to our Daily FD PRO Report for 30-Days. There is No-Cost or Obligation if you want to follow along or hear more details each day just sign up for free by clicking the link and entering your information.  www.farmdirection.com

 

If you have any questions or would like to know more about our services, please feel free to give me a call.

 

Kevin Van Trump
kvt@farmdirection.com
(816) 322-9800 

Professional Trader for 20 years at the CBOT & KCBOT 

Founder of Farm Direction

 

Remember, before you start hedging or trading using futures or options that even though there is potential for profit there is also potential for loss. Make certain you check with your banker, financial advisor or licensed broker before you enter into any positions. Also make certain you completely understand all of the risk associated with any type of strategy or hedge before you enter into the position. Information contained in this report is from sources believed to be reliable, unfortunately Kevin Van Trump, Farm Direction or it's affiliates can not guarantee the complete accuracy or insure results will happen or take place in a manner that has been described above. Any rebroadcasting or other use of this material and thoughts or opinions expressed herein without written permission of Kevin Van Trump or Farm Direction is strictly prohibited. Copyright Farm Direction 2010. 

 

Corn, China and Crude...How They Will Affect Prices

May 13, 2010
CORN: I have had a lot of questions as of late regarding China, I am assuming because of the recent rumors and talk of more U.S. corn purchases. In fact, it is being rumored now that the Grain Council president recently quoted on its website that China may have actually bought up to 15 cargos of U.S. corn. If you figure cargoes generally average about 55,000 tonnes, that puts their total purchases somewhere in the vicinity of 825,000 tonnes. If these figures are correct, that would mean 350,000 to 385,000 tonnes have yet to be reported. 
As far as planting is concerned, things have started to pick back up in China as of late. They are certainly not on schedule, but seem to be picking up the pace as they had been experiencing significant delays in many areas due to very cold, wet weather in April and early May. The U.S., on the other hand, looks to be in great shape and the recent forecast of warm weather coming down the pipe in the next couple of weeks should prove to be very timely. If the China crop struggles, the U.S. could be in line for higher prices and heavy demand. Keep your eyes of the Chinese crop! 

SOYBEANS:
 Do you realize they are now projecting the world ending stock levels for this year to reach almost 64 million tonnes? This is a huge jump if you consider we were just a hair over 43 million tonnes last year. They have now even gone as far as projecting the 2010/2011 world ending stocks will reach a new record high of just over 66 million tonnes.   

You have to believe with these types of inventory numbers and the quick start to the planting season here in the U.S. that it may be forcing a wait-and-see attitude from the end users with regard to booking beans forward at this time. 

On a more positive side, a few interesting pieces of information that I recently heard showed that the USDA has projected Chinese imports will rise another 6.5% to a record level this coming year. This basically means China will consume 57% of the total world trade in soybeans. In addition, higher oilseed stocks and weak prices in India have many looking for a slight drop in planted acres this year as producers could shift to more cotton or sugar.  


WHEAT: Fundamentally, the wheat market has really been struggling. I hate to bring it up again, but do you realize the recent USDA report estimates our ending stocks to be around 997 million bushels (up another 47 million bushels from last year's projected ending stocks)? This puts our ending stocks at the highest levels since the '87-'88 crop year.  Not to mention world ending stocks were also bumped up by nearly 5 million tonnes, putting them at 198.09 million tonnes, up over 30 million tonnes from last year.

I have heard of a few bright spots in the market. Strategie Grains, over in France, has cut its monthly estimate for the EU soft wheat crop by over 1 million tonnes due to bad weather in the western parts of Europe. And if you can actually believe this, export sales here at home came in higher than expected at 485,500 million tonnes versus expectations of 300,000 to 400,000 million tonnes. 

I am afraid that with supplies at these levels, it will take more than this to sustain a long-term rally. 

U.S. DOLLAR: It doesn’t look like we will see a ton of action today in the dollar with the Ascension Day holiday in Europe. I am starting to hear some rumblings over the acceptance of Estonia joining the EU. Many feel they are just not the right fit, actually adding to the struggles with their high inflation and falling GDP numbers. As the dollar continues to push higher, we have to wonder how it will ultimately start to affect our grain and livestock export numbers. The market certainly has one on the Green-Back!

CRUDE OIL: We were stopped out of crude oil this morning with a small loss. I believe right now this market is very uncertain in regard to price direction. It is simply not sure if it should trade higher on the news and optimism of a surging Chinese economy and prospects of an improving global economic situation and inflationary concerns, or plunge lower on fears of economic failure in the European zones and larger-than-normal inventory stock levels. I think the bulls will ultimately prevail, but we may see further downside pressure before we sustain long-term rallies. 

With the USDA raising corn consumption for ethanol by 200 million bushels, I start to wonder if maybe they know something that we don’t. I know one thing for certain: I generally like to bet on the side of the government, as they tend to have access to information that most of us do not. If the USDA’s estimates hold true, it will bring our new crop ethanol usage to almost 35% of next year's production. By doing so, they are assuming the EPA will increase their blending limit to E-15 and that Congress will increase the ethanol companies' credit and tariff. Would say Uncle Sam knows best, but if you remember back, the USDA did something similar to this by estimating how much soy oil would be made into biodiesel. A problem arose when Congress allowed the tax credit to expire and the biodiesel industry came to a halt. I am hoping for a different outcome in corn; keep your fingers crossed and hope that the crude oil prices can sustain a rally!  

 


 
 
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