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May 2010 Archive for Outlook Today

RSS By: Bob Utterback, Farm Journal

Bob Utterback has more than 26 years of experience and offers producers a disciplined approach to marketing.

Commodities weaker across the board!

May 25, 2010
Commodities were weaker across the board today, as the dollar was up sharply, almost 88 points and the Dow was down over 200 points below the 9800 support level. It all goes back to growing concerns over the European debt situation that is not leveling out. Instead fears are growing that it could intensify and become even more deflationary on the world economy.
So the question being asked, is this a buying opportunity for commodities or it time to be careful? Our prospective here at UMS is we are focused heavily on being short now because of growing concern that demand is going to be flat to declining and supply is building which will grow stocks for corn, beans and wheat.  
As a seller we also know based upon seasonal patterns, clear risk exists over the next three to four weeks. I saw one study suggesting the odds are greater than 80% that July beans would rally from Memorial Day weekend into mid- to late-June. I essentially do not want to argue with this seasonal bias.
I however have limited interest in trying to speculatively buy the market for this potential bounce. Instead, I would focus on making sure all short positions are prepared for a bounce and be lining up financing to ensure all positions can be held and actually increased if we are able to get a solid price bounce over the next 45 days.
The overhead resistance for December corn right now is $3.90 to $3.96, for November beans $9.45 and $5.55 for December wheat.  My suggestion is you need to sell very aggressively around these levels and then prepared to defend if you get much more than a 5% price event move.
In summary: Since the outside markets are getting increasingly volatile more than ever we need to focus on profit. We remain committed to selling the summer rally and then preparing this fall to buy commodities for the feed buying and reownership commitments.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Market Continues to Move between the Bull and the Bear!

May 19, 2010

The market continues to yo-yo between bull and bear. The European situation is going to turn positive, China’s going to continue to expand, the U.S. economy is expanding and an El Nino is going into a La Nino which is going to produce a corn yield below 157 and a bean yield closer to 39. This causes the bears to run for cover and bulls to buy and we push against overhead resistance.
 
Just as one gets comfortable being bullish the European situation trouble continues and talk persists that it may go on for some time. Traders are getting worried China may have to pull down their economy even more which hurts demand. As for the U.S. economy, while some jobs are being created they are not enough to offset the natural growth in population. We still have many people laid off in this recession which are long term unemployed and are having trouble getting new jobs because of their age and training. As for the weather except for parts of the southern Corn Belt the crop is off to a good start. What happens if the seed genetics are really that good and the dry weather really does not show up until late August to September. Under this pattern the demand is not as good as expected and yield increase for both corn and beans to 165 plus and 43 plus to see carryover closer to 2 billion and 400 million respectively. With farmers still holding big supplies of unpriced grain which is going out of conditions, we are setting up a situation where inventory will have to be dumped in July and August.
 
So which of these fundamental outlooks are correct?  Since February the corn market has been stuck between $3.96 on the upside and $3.70 on the downside. Both arguments are powerful which has not allowed either bulls or bears to dominate. Seasonally, from Memorial Day to the 4th of July, you have to give the edge to the bulls for a weather related bounce. However, if they can’t get something going, our bias is the cash markets are going to crash under the weight of big corn supplies that must be dumped. 
 
So what should you do? I have to suggest the clock is ticking. You much sell Dec corn between $3.90 to $4. If we move above $4.05 I would defend ½ of positions, if we move above $4.15 I would defend 100% of position.
 
In regards to beans, the horse is well out of the barn. We are now nearing major support levels. If they don’t hold the downside risk is easily $8.25. Equally, a July to early August dry weather event would really hurt bean yields. Therefore, I believe you need to be more cautious in your selling. I like getting a floor below the market if we crash but no margin call exposure if we rally. The strategy we recommending in our internet copy is selling at the money puts and buying 4 out of money puts. If you want more details call us at 1-800-832-1488.
 
Bottom line: Unless we have a major weather event or a major demand event, we believe there is real downside price pressure ahead for us. The problem is with last year’s high cost selling corn and beans for remaining old crop corn and beans is a losing situation. In regards to new crop the loss of profit incentive since early December has frozen producers into in action. Our fear now is producers are not going to do anything until the last moment. They will put in the bin and hope for a white knight to save them. Unfortunately, many times this only happens in the movies, this is real lift. Financial risk is now a fact we have to live with. 
 
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 

Commodity markets fall on rising U.S. Dollar!

May 17, 2010
The commodity market in general is falling on pressure coming from the rising dollar and overall concern about the European financial crisis.  Couple this with the concern that China is actively trying to slow down it’s economy so inventories don’t build up as it waits for the U.S and European situation to sort itself out, you have a lot of economic uncertainty in the market. The final factor that’s continuing to have impact on the markets is corn farmers still have a lot of old crop corn to move, along with a crop out in the field that’s starting to germinate. Granted there are some real production issues with parts of the Corn Belt such as Missouri which is exceptionally wet and poor stands, plus some of the replant due to frost in the northern Corn Belt.  The situation however on the supply side is we are starting the crop off very good. The big concern on everyone’s mind right now is when we get into summer, will the rain simply stop and burn up the crop?
As for the technical situation: The  market has been trading in a very established trading band since February. We have a very defined overhead resistance coming in December 2010 corn at the $3.95, $4.05 and $4.12 level. One would have to anticipate some level of short covering if the market were ever to close above these levels after Memorial Day. Equally, the market is nearing very good support at the $3.65 to $3.75 level.  
So what does it all mean?  All the bulls’ expectation for exploding demand is being tempered and the potential of producing another big crop is improving daily as the crop gets planted and off to a good start. Granted, we still have the seasonal summer concerns to worry about but once we get past the next 45 days we could be slowly declining into a negative return level for most corn producers.
Bottom line: We are actively very sold on 2010 and will be recommending a defensive position for 2011. Once 2011 moves below $4 we are essentially out of the hedging market.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 

Market continues to work higher!

May 12, 2010
The neutral to bearish USDA Supply and Demand report is now behind us. While some corn needs to be planted, overall the crop is off to a great start. The market continues to work higher, why?  Chinese purchases of corn have exceeded expectation. They bought again last night and no one really knows how much more they are going to take. This uneasiness is keeping the bulls in charge of the market right now. We are also testing some critical overhead resistance levels. If the market breaks December corn above $3.96 we would assume some sell stops would be hit. The next big levels are $4.05 and the final level would be $4.12. While some speculative buying is coming in I believe the real reason for the rally is simply short covering. Once its over, the bulls are going to have to have solid proof of continued strong Chinese buying or some major weather scare or we are going to trap the bulls right at the high.
 
Special note for those not watching the markets: If you can keep your cost around the $3.50 level and production around 187 bu. per acre, the July 2012 corn is posting around a $150 return above all cost now that it’s moved to $4.40. Even with all the talk about inflation one has to think this is a solid price level to start looking at selling. We will be looking hard at selling this and higher level in our electronic copy.
 
In regards to beans it has seen a lot of volatility today. It was higher on the open in unison with the corn and then started to break. It looks like a classic bear trap, stops get hit  every one gets excited, the market gets higher and then drops. Remember, the supply/demand report suggests domestic and global stocks are going to increase in 2010. Granted there may be some difficulty being short in August if we have a dry weather event but overall if the acres get planted we believe the trend will long term be lower.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.

Outstanding spring for many farmers!

May 11, 2010
Its been an outstanding spring for many farmers in the Corn Belt. Some would say it’s been the best spring ever (Ohio through Illinois) while others in Missouri have been under water or too dry. As for the northern Corn Belt this weekend’s frost will not help crops and actually force some replant but overall the crop in great shape for this time of the year.  So, from a supply side it’s all going to come down to rain and heat. Some weather boys are suggesting the end of the El Nino and start of the La Nina is going to force a serious dry spell into the market in August thru September. As we all know timing is everything. If it comes in late August, it will not hurt the corn but could really pressure beans. So right now, I have to say the odds are at least 65% for a crop in excess of 162 bu. per acre.
In my opinion any bullishness is going to have to come from the other side of the equation and that’s demand. I have to say the demand side of the ledger for corn is made of three primary areas. 

First, feed usage and while it’s stabilized with some increase in the poultry sector, hogs and cattle are going to take some time to increase feed consumption and the net impact will be stable but limited growth for now.  The next sector is domestic usage, specifically ethanol. It appears EPA is in no hurry to increase ethanol blend, the problem with the oil well in the gulf may help to hurry up the administration, but as it looks right now there is no change this summer, let’s hope they see the light. Therefore, corn ethanol’s big ally is the crude oil market. We are hovering around the $75. Talk is for long-term higher price action but the world economy needs to find its legs. What is happening in Europe right now could take more than a year to sort out, this coupled with weak employment statistics domestically would suggest there is no strong economic rebound immediately in front of us. I see the crude oil market remaining below $85 which keeps ethanol in check. Overall, I see the ethanol demand for corn increasing but not exploding and while this demand growth is currently factored into the market,  it is not considered new demand.


This leaves the big wild card to my way of thinking. China! The price of corn in China is quite high. They can buy our corn, pay all the freight and taxes and still make profit. The problem is Chinese government wants to stimulate domestic production rather than rely upon us. They have recently bought some corn but it’s not the big buying spree everybody has been expecting. I would suggest its simply to get all the lines of communication on tariffs, export licenses and other operational factors figured out. The real buying will start this fall if they need it .
The final factor that will affect the corn price action this summer and fall is unpriced producer corn. I still believe there is a lot of unpriced old crop corn around that has to find a home off the farm some time between June and late August. Simply put there is not enough storage space on the farm for both the old and new crop corn. The longer we go into the summer and producers are not selling, the more dangerous it becomes if we confirm a corn crop above 162 bu. per acre yield. My suggestion continues to be if you have hedge-to-arrive contracts and are open the basis, you really need to be getting inventory locked up.
In summary: short term I’m concerned that no real supply bullish factor exists. Granted weather can change things but its going to have to be significant enough to bring corn yield down below 160 bu. per acre. Second, while demand is good it’s not exploding. In the end it’s about how much carryover for 2010 will we have left over. I’m still arguing for 1.65 billion bushels or higher—now there are a lot of people below 1.2 billion and many over 2.0 billion bushels.  This is what makes the market.
So in the end as a producer I encourage you to remember why you are a hedger. Its about making a profit. For 2010, I believe the best opportunities are behind us now and all we can hope for is catch-up selling opportunities. I would suggest 2011 corn between $4.20 and $4.35 REPRESENTS A VERY GOOD BASE TO BE SELLING INVENTORY.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 

The markets are in turmoil!

May 06, 2010
The market is in real turmoil right now.  The concern over Europe sliding into deflation is causing the stock market and all related investments to question what the future is going to look like. In many ways, I have to suggest the emotions are very close to what was happening in the U.S. last September when our economy was under pressure.

The simple fact is the many countries have been living beyond their means and the bill has come due. I hope all U.S. taxpayers realize that this is what is in store for the U.S. economy if the current administration policy continues. You cannot tax and spend your self into prosperity!

In regards to the grains, they had a rather volatile day. The corn market started out weak in sympathy with the stronger dollar and weaker oil market and then roared back on good export and talk that the oil crisis in the gulf could eventually help increase the demand for ethanol production. The gains however could not be held and prices closed under pressure.

I am concerned the corn market is not breaking more than it has already. It seems to have a strong under tone and is just waiting for an excuse to go higher. I am recommending all hedgers be cautious right now from Memorial Day weekend into July. You need to be deciding now what you are going to do if December 2010 corn closes above $3.96 and $4.05. While this may sound bullish, I have to suggest long term I still believe the odds are better than 60/40 that December corn will move to lower levels in August and September and producers will be looking at close to zero to $50/acre loss if they are not careful.

The real big story however has been the bean market. The markets have been keeping the beans above water for some time now but I have been of the opinion it would only be a matter of time before the bottom fell out. Today could be that event.

First, the Brazil crop estimates have been increased to 67.8 million metric ton from 67.39 million metric ton. Essentially, the Brazilians are going to have a great crop and the Chinese are going to have all they need from them for the next few months. Soybeans closed under pressure down over 22 cents. With the technical double tops in the beans, I have to suggest the trend is now down until we get some type of solid weather event concern. Granted some advisors are talking about a late summer dry weather event but that is a long way away and putting weather premium into the market is not needed.
My position is to maintain all hedges and not look to defend until we have a solid close above the recent double top price action.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
 
 

Critical period for the bears!

May 04, 2010
Well guys and gals, we are now moving into a period of uncertainty for the bear. We saw corn completion at 68% rate after the close on Monday way above the 5-year average. The crop is emerging, not as fast as some want but still way above average. One should see this as very bearish.

On the other side of the equation you have China buying grain and talk of more purchases. At the same time, they are selling inventory out of their own reserves. I believe this is simply a bait and switch play and they want U.S. farmers to be bullish in planting more acres. In the end, will they follow through with the actual purchases? Pro-Farmer had an interesting discussion in their weekly newsletter about how in the past China has bought big but it’s a completely different issue when it came to taking delivery. Finally, the bulls are already talking about the change in the weather pattern. Talk is already starting to surface about an August to September drought in the southern and eastern Corn Belt. Bottom line, the fundamentals have strong players on both sides of the equation. I sense the bears are getting worried if the market cannot break quickly, they may panic.


On the technical side, I have to suggest there is concern for the bears. The market has been trading in a trading channel of about 20 to 24 cents since February. If the market breaks out later this week, all kinds of positive technical signals could be seen. Equally, if the market after last week’s strong rally does fail, the bull will reinforce very quickly to hold and actually extend positions.

Bottom line: Technically, for sellers the next two to three days are critical. Decisions must be made as to what you are going to do about your short position. I see five alternatives: Liquidate and reenter on a sell signal, change form move all short futures to long put to cap cash flow exposure, buy nearby long position or serial call to limit upside risk and finally sell out of money puts to give some upside price coverage. The  alternative chosen will depend upon cash flow, conviction about price activity, and how aggressive one wants to watch the market. The key is you need to made that decision today when things are relative quite rather than in the heat of battle when bad decisions are made many times from fear rather than solid risk management.
BEFORE TRADING, ONE SHOULD BE AWARE THAT WITH POTENTIAL PROFITS THERE IS ALSO POTENTIAL FOR LOSSES, WHICH MAY BE VERY LARGE. YOU SHOULD READ THE “RISK DISCLOSURE STATEMENT” AND “OPTION DISCLOSURE STATEMENT” AND SHOULD UNDERSTAND THE RISKS BEFORE TRADING. COMMODITY TRADING MAY NOT BE SUITABLE FOR RECIPIENTS OF THIS PUBLICATION. THOSE ACTING ON THIS INFORMATION ARE RESPONSIBLE FOR THEIR OWN ACTIONS. ALTHOUGH EVERY REASONABLE ATTEMPT HAS BEEN MADE TO ENSURE THE ACCURACY OF THE INFORMATION PROVIDED, UTTERBACK MARKETING SERVICES INC. ASSUMES NO RESPONSIBILITY FOR ANY ERRORS OR OMISSIONS. ANY REPUBLICATION OR OTHER USE OF THIS INFORMATION AND THOUGHTS EXPRESSED HEREIN WITHOUT THE WRITTEN PERMISSION OF UTTERBACK MARKETING SERVICES INC. IS STRICTLY PROHIBITED. COPYRIGHT UTTERBACK MARKETING SERVICES INC. 2010.
 
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