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November 2011 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.

Today's Macro Event Does Nothing to Change Fundamentals in the Grains

Nov 30, 2011

 

 

The question is if, when, and how much premium will the grain and soy markets try to add ahead of the critical South American pollination phase, the release of the January (end-of-year) USDA report, and this mornings announcement that the Fed, ECB, Central Banks of Canada, England, Japan and Switzerland are coming together in joint action to boost liquidity by  lowering rates on dollar swaps (Bearish the US Dollar / Bullish Commodities). 

 

 

With the funds now sitting massively short CBOT wheat, almost flat soybeans, and long close to 200,000 corn contracts, it is anyones guess. There is certainly a better story in crude oil than there is in corn right now, and the proverbial "wall-of-worry" in the Macro markets is as high as it has been at any point since the 2008 meltdown. If the funds see reasons to be long both gold & crude oil we have to honor the fact corn, beans and wheat may need to be purchased in order to balance their portfolios into the year-end.

Please don't misunderstand or take this to mean that I am bullish, I am just merely pointing out the fact if your looking for a bounce, the current environment might provide you with your best window of opportunity. Keep in mind there is still about 200 million bushels of corn unharvested. More than 25% of Ohio's corn is still out in the field, while Indiana, Michigan and Pennsylvania still has about 5% left in the field. With uncertain weather conditions, it may force a fair amount of that grain to stay in the field until spring. I doubt it, but we may see the market opt to build in a little extra premium because of this. In the end though I don't see it being a real concern.

As for the "outside" markets, it's all about this mornings announcement that the world is coming together to help bailout Europe. There is also news floating around that China has lowered their bank reserve requirements, a complete reversal from actions this past summer as they tried to cool their economy. This is positive for growth! 

The Euro Finance Ministers also agreed last night on two ways to leverage the firepower of their bailout fund, the 440-billion-euro European Financial Stability Facility (EFSF), using both an insurance scheme and a co-investment program. 

Another piece of good economic news out this morning came from the ADP jobs report that showed 206,000 new jobs being created in November vs just 130,000 being created in October. 

 

The bottom line is that today's environment has the US Dollar and US Treasuries under pressure and is adding support to all commodity markets!!!  

As you know I was one of the absolute biggest bulls in the market, well before most any of the others in the last run. I want nothing more than to be bullish, but I simply can not, the environment has changed...drastically changed! The "fundamental" stars are no longer aligned. You can no longer sit and argue the scenery hasn't changed! You have to consider the following and react accordingly:

  • The funds were at one point long 500,000 corn contracts, now they are holding less than 200,000 long positions. The funds were long close to 200,000 soybean contracts, now they are flat. The funds were long CBOT wheat, now they are short over 60,000 contracts. Still don't believe anything has changed?
  • Russia exported close to 4 million metric tons of grain last year, this year they will export closer to 20 million. Ukraine last year exported close to 4 million metric tons, this year they will export closer to 8 million, some thinking as high as 12 million. Ukraine setting new records in exports as government drops export duties. Kazakhstan last year exported close to 5 million metric tons of grain, this year closer to 9 million. Australian wheat is entering the picture, India has started to export in small doses, European wheat prices are dropping as they try to compete, China's crops are growing. Global competition is increasing each and every day.  Still don't believe anything has changed?
  • The funds were huge proponents of a weaker US Dollar and Quantitative Easing. They made fortunes as the US dollar weakened and commodity prices soared. The funds are reducing risk and exposure at a rapid pace. The cost of swapping Euro's into US Dollars now the highest level since the economic fallout of 2008. No arguing a stronger US Dollar equals lower commodity prices. In fact, JP Morgan, one of the worlds largest traders downgrades ALL commodities to a "SELL" (Nov 23rd). Still don't believe anything has changed?
  • This past growing season we produced an extremely poor corn crop here in the US, somewhere around 12.3 billion bushels, on about 91 million acres. Thoughts are producers will plant more corn this next year (closer to 95 million acres), and run a strong chance of having much better yields. Thoughts of a 14 billion bushel + crop is now in the air. Still don't believe anything has changed?
  • South American Corn and Soy Production looks to once again be on the rise. They have gotten off to a great start, and look as if they will plant more second crop corn than ever before. Talk in the trade is that we could see an additional 10-15 million metric tons of corn coming from South America. Consider that last year Argentina produced about 22 million metric tons of corn, now many think it could jump to 30 million. Still don't believe anything has changed?
  • Argentina is supposedly getting ready to ink a deal with both China and Mexico that will allow Argentine corn to be imported. Remember, Argentina is a major corn producer, this deal would certainly take away in some degree from US corn sales. Still don't believe anything has changed?
  • The largest Futures Clearing Merchant, MF Global becomes the 8th largest bankruptcy in US history. Not to mention some $1.5 billion in customer money has come up missing. Faith in the entire system is now being questioned. Many commodity traders are without funds. Still don't believe anything has changed? 
  • Europe is teetering, and close to falling into a deep recession as growth in many sectors cool. China's PMI data falls to 48%, a level not seen since early 2009. If Europe falls further Chinese growth will immediately grind to a halt. The Chinese government is no longer looking to cool down growth by raising interest rates, they are now trying to find ways to hold on to it. Global growth numbers being scaled back by all. Still don't believe anything has changed?

I am sorry, but my subscribers pay me to keep them informed and up to date on the latest developments and changes in the market. I hate to burst anyone's bubble or rain on your parade, but the "fundamentals" have drastically changed. Sure, we may end up short some bushels, and we may get a little bounce higher on tight supplies as producers kick and scream trying to hold on. But I can NOT condone or buy into the argument that the "fundamentals" have not changed. Trust me when I tell you they have changed...drastically changed. In fact, you don't have to listen to me, the market is screaming it! In the past 90 days wheat and corn has fallen by about $2.00 per bushel and soybeans by about $3.75.


 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

My Thoughts on Your Cost of Production Per Acre

Nov 23, 2011

 

I have had several lengthy conversations with some of our countries top corn producers, and the consensus is $5.50 corn is still extremely profitable and needs to be taken advantage of. No, it is not as profitable as $6.50 corn, but it does turn a good profit. Let's look inside the numbers for a moment:

 

 

  • Assume you can average a 180 to 185 corn yield. At $5.50 per bushel your gross revenue will be close to $1,000 per acre. 
  • If your "total" expenses are between $700 and $800, that still gives you a profit of $200-$300 per acre. There are very few businesses in America that can turn a 30% Net profit, and here you have one staring you in the face for a second year in a row. 

 

I know these numbers will vary from operator to operator, so I would encourage you to start working on both your variable and fixed cost estimates immediately for 2012 if you have not yet started. It is imperative that you know ALL of your expenses (or at least have general idea) before you start pricing bushels. 

I am amazed every year when producers tell me their cost of production per acre. As you can imagine, I here numbers all over the board, some down as low as $200 per acre (which is simply NOT possible). With our industry being so fragmented, there is no standard accounting practices in place, land prices vary from state-to-state, and producers tend to have their own methodologies for coming up with their break-evens. To let you know, many of the top producing operators I work with have these calculations down to a science. They have elaborate spreadsheets that equate their TOTAL expenses. If one penny leaves their farm it is accounted for. They include everything when figuring their TOTAL cost. If they own their land, they factor in what it would be worth in the "rental" market and charge themselves accordingly. They factor in their own pay, their payroll taxes, their estimated business taxes, seminar and learning expenses, fuel, travel, etc... For those of you who are not doing this, you are at a large disadvantage to your competition. Remember, you are trying to run a business, you are NOT trying to be a professional gambler! If you had the opportunity to invest in a business that could turn a 30% NET profit you would be all over it. Fortunately that opportunity is still on the table and being made available for a second year in a row. If you understand and know your net operating and production expenses it makes your marketing decision that much easier. If you owned a large construction company you would need to know your total expenses before you could place a bid, this is no different. As in any business you are trying to lock in and capture a net profit. 

Remember, there isn't a soul out there, including myself that knows where prices will be next year at harvest. Our job as producers is to properly identify risk as it pops up and comes about. From here we have to make the proper adjustments for our specific operation based on our own personal cash flow and financial needs of the operation. One of my clients has referred to me as his "point-man"...  He says, "When 'Charlie' pops his head out the weeds, I need you to yell duck." I thought that was a good analogy.  As we walk down this path together all I am trying to do is point out and identify the risk along the way.  If you fail to duck, shoot or react its all for not.   Just remember, when I tell you there is a steep decline ahead, and that the road looks to be a little rocky with a couple of hair pin curves, and a few patches of black ice....then you should try your best to throttle back and reduce some risk! 

As for today, some in the trade seem to be thinking we will see another strong ethanol production number this morning. If it doesn't play out this way I would suspect we setback even further.   I did want to let you know one of our clients up in Minnesota told us yesterday that his local ethanol plant called him up begging him to delivery his bushels NOW that he had contracted to deliver in March. I am being told they honored the March premium and the near-term basis. It worked out great for the farmer, as he no longer has to mess with the storage. It also leave some bulls with more hope and thoughts that the crop and the bushels are just NOT there. 

Technically I think it looks like the Dec Corn market wants to eventually test the most recent lows down around $5.72, if that doesn't hold the market may soon look for support down around the lows made last March at around $5.45. 

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on your profitability and cost per acre, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 



 

The Outside Markets and Their "Domino" Effect on Grains

Nov 22, 2011

 

I continue to field questions in regard to the recent strength of the US Dollar and in particular, how I see it playing out in the months ahead. As most in the agricultural world know, a stronger US Dollar ultimately weighs on the commodity markets and pulls livestock and crop prices lower. Therefore, this is why all traders have their eyes so intently focused on the European Debt Crisis and the contagion affects it could have on the commodity markets. As I was always taught by my grandparents, "Prepare for the worst, and hope for the best..." For argument sake, let's just assume the worst and throw ourselves down that slippery slope. In the event of a complete European melt-down, break-up, split, falling-out, default or whatever other term you want to use, the "Euro" currency would essentially fall to pieces and the US Dollar would soar. Any of the European countries left standing would more than likely fall into a deep recession, possibly even a deep depression. In turn, Chinese manufacturing and exports to Europe would slow and China's growth would start grinding to a halt. We have to assume the European banks would drop like flies, as their debt to GDP ratios would race out-of-control. Obviously banks would be pulling in their working capital and lines of credit as they try to limit any and all downside risk and ride out the storm. In a nutshel,l the commodity bull run would be over! World growth would be put on hold indefinitely, as it could take years for an aging European work force to pull themselves out of a mountain of debt.

 

 

Let's throttle back a bit, and assume some more creative accounting can be applied, and the books can be cooked a little longer in the world's most debt ridden countries. If this is the case, we will need to assume Germany and France will be asked to pick up the tab again and again. From where I sit, I am just not sure either one is looking forward or will be capable of pulling this off. Both leaders seem adamant about getting the ECB and the IMF more committed to the cause, as we have to suspect both Germany and France deep down inside know they can NOT continue to pick up the bill at each and every party. They understand that before long their credit rating will be in jeopardy just like the others, their cost to borrow will begin to skyrocket just like the others, and they will end up in the same pile of quicksand...just like the others. To avoid this mess, I am thinking the only solution (in the short-term) will be to print more Euro's. We all know that printing more Euro's, leads back to the same ending mentioned above...a stronger US Dollar! Keep in mind the French "AAA" credit rating is now on the radar screen, as Moody's Investors Services issued a stark warning yesterday, that because of the elevated rates being paid on the sovereign’s debt as well as weaker economic growth prospects, the country’s rating may soon be slashed. As I have mentioned for weeks, France is critically important. If traders start to see this "domino" waver or look as if it might fall, they will be extremely quick to reduce risk and overall exposure.

If we are back up to the most optimistic of views, we are left to hope that somehow, someway the European countries in question (Greece, Ireland, Italy, Portugal, Spain, etc...) will be able to drastically reduce their budgets and get their deficits under control before all other options are exhausted. If in some form or fashion this task could be collectively accomplished, the catastrophe could possibly be averted. Personally, I can't imagine this just all of a sudden happening, but if your looking to make a wish or happen to see a falling star, this gives you something to consider.

We could talk for hours about problems in the US, but until politicians want to do what is best for the country, rather than what is best for their respective party or campaign we will continue to spin our wheels. From where I sit it seems as if Obama and the Democrats could care less if the "Super Committee" fails so they can lay the blame on Congress. On the flip side, the Republicans would love nothing more than to see the "Super Committee" fail so they can continue to point out Obama's failures and hopefully urge American's to elect a Republican President. As the two parties continue to jockey and play for political positioning the US is falling into a deeper and deeper hole. Here is the equation of the day... Republican Gamesmanship + Democratic Gamesmanship = A Giant Looser For The American People!

 

Remember, this is only a small portion of my Daily Report that comes out every morning.  For more information on hos these "Dominoes" could eventually spill over and effect the Grain markets, go ahead an sign-up fo rhte 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 

 

Looking at the "Bigger Picture" in the Grains

Nov 21, 2011

As far as the Ag markets are concerned...I know I am on the right track when I am getting e-mails from the "wildly bullish," who are calling me a "sell-out," and the "wildly bearish" who are calling me a "candy @$$" for not just telling it like it is.

We have all heard the old adage time and time again in the investment world that "pigs get fat, and hogs get slaughtered." Simply meaning, if your a pig you want to eat, but you don't want to eat so much that you end up in the hog-slaughter. It is of my opinion, the same holds true in the investment world.

Being a "bear" in this environment is OK, just as long as you keep the longer-term perspective that the world is rapidly changing, and "demand" is growing by leaps and bounds. As the world tries to accommodate by ramping up production, we are going to have times of glut and times of shortages. As producers, we have to try and ride the waves, not getting overly bullish or overly bearish...i.e. NOT getting ourselves overly fat!

 

As we sit here today, there is no question in my eyes that we may soon run into a glut of supply, especially "IF" global weather patterns cooperate. You can no longer ignore the fact that every country in the world is deeply concerned about "food security."
 
There are fields being cleared, agricultural technology is being ramped up, massive grain storage facilities are being built, and everyone is preparing for a possible shortage of food in the next quarter century. As the world frantically tries to gain ground on demand, the scale is constantly tipping back and forth trying to find just the right balance. For about the past 18 months the scales had shifted towards the world being short of "supply." Now as the world accommodates it looks as if we may add a few extra pounds, tilting the scale back in the opposite direction.
 
Some continue to argue the fact, but I believe the "wildly bullish" may simply be too deep in the forest to actually see the trees. I understand the basis is abnormally tight in many areas. I also understand farmers are reluctant to sell in your home town, but I also see a much broader picture:
  • A picture that shows feed wheat in the Black Sea region, and now wheat out of Australia being scooped up in large quantities by those who had been buying US corn. Japan, China, now possibly Mexico...
  • I see Argentina being almost approved to export corn into China and Mexico. I see Ukraine corn adding to our competition as well.
  • I see massive supplies and better quality soybeans being offered out of South America, prompting traditional US buyers to source more from South America and less form the US. We are now some 35% behind pace in export sales. I think we will improve, but still we will end up well behind pace.
  • I see good weather and early planting in South America is going to allow them to offer soybeans to importers much earlier than they have in the years past. In fact, China is already booking late Jan early Feb beans from SA, whereas they most always book those shipments from the US.
  • I see an early planted soybean crop in South America allowing for more second crop corn acres to be put in the ground. In fact, I am hearing in many parts of SA corn seed is sold-out as producers are ramping up to plant more second crop corn than ever before. Some talking that second crop corn production in Brazil could surpass the regular crop production this year.
  • I see a US corn crop that could end up with 95 million acres being planted and possibly 14 billion bushels of production if weather cooperates. Keep in mind we are coming off two back-to-back poor production years. The odds of a third are far and few between (though some will argue things happen in 3s).
  • I see Russian exports going from less than 4 million last year to almost 20 million this year. I see Ukraine exports jumping from close to 4 million last year to over 8 million. I see Kazakhstan exports doing the same.
  • I see Australia getting ready to harvest a bumper wheat crop and driving price competition in the Southern Hemisphere lower.
  • I see players in the EU like France (who was the world's second largest wheat export last year) loosing clients right and left to cheaper more convenient exporters. Leading me to believe they too will need to get more competitive in the weeks and months ahead.
  • I also see an extremely nervous investment crowd. A crowd of Hedge Fund, Index Mangers and Swap Dealers who are deeply concerned about the European Debt Crisis and the contagion affects it may have on global banks. This is leading me to believe we will have fewer investors with big muscles to push the price rock up a seemingly steeper hill.
  • I also see a speculative trading environment that is now more deeply concerned about the validity and safety of their capital than ever before, following the recent MF Global debacle. This also has the regulators on edge and looking to tighten the reigns in the commodity markets.
 
My point is, this is a heavyweight bout and we are early in the fight. "Demand" was the clear cut winner the past couple of rounds, as "supply" had its bell rung by a stiff uppercut (poor growing conditions). This round looks as if it will be more of a split-decision with global "supply" seeming to have finally gotten its legs back underneath itself.
 
My fear moving forward is momentum might allow "supply" to win the next couple of rounds, thinking "demand" may simply have punched itself out of the fight too early, and will need a couple of rounds to regroup in preparation for a flurry later down the road. Be smart when betting on this match-up. Most of us have had the privilege of seeing these two duke it out in the past, so you know it is extremely rare for one to completely knock the other out.
 
As you start to place your bets on "Supply" just keep in mind that "Demand" is extremely sneaky and very resilient. In the past he has looked to be down and out for the count, only to throw a last second haymaker, that sends "supply" reeling. With that, the crowd goes wild and the fight is back on.
 
I am assuming if you are the corner man for "supply" (bearish the market) then you will be telling your fighter to lookout for South American weather, as it truly is the only punch "demand" has left in the upcoming round that could do any substantial damage. If you are working the corner for "demand" (bullish the market), there are several more combinations and punches that you have must tell your fighter to be concerned with. You have the "one-two" coming out of Brazil and Argentina.
 
You have the "left-hook" from Australia and the Black Sea Region, and you have the possible "round-house" knockout (that is very well disguised) to look out for if the European Debt problems continue to spread. All I can tell you is being the corner man for "supply" sounds a whole lot easier right now than trying to coach in the opposite corner. There is simply too many pushes coming at "demand" right now. The best advice for "demand" is to simply tie-up, stay off the ropes, and try to make it out of this next couple of rounds without getting completely knocked out.
 
In my opinion, if we can weather the storm and keep our head above $5.00 in corn and above $10 in soybeans, we can make it threw the next two rounds and possibly mount a rally. We are obviously going to need to see some production type glitches for this to occur. I am afraid if not, "supply" wins the next round (the South American production year), and will also cruise through as any easy winner through the following round (the US production year).
 
I am telling you now, if "supply" unanimously wins those two rounds, "demand" will be fighting a long road back. Just like in boxing, once you get down by a large number of rounds to a skilled opponent it makes it tough to comeback. If South America makes it through the production year unscathed, and we throw 95 million corn acres in the ground with a 165 type average yield...Demand will need an unexpected knock-down to get back in the fight!

 

 

 

Thanks for reading, I hope this helps. Remember, this is only a small portion of my Daily Report that comes out every morning. For more of my thoughts on the Fight between "supply" and "demand," go ahead and sign-up for the 30-Day trial of my daily report, no obligation. Simply sign-up by click here Van Trump Report

 

Rumors of Chinese Interest in US Soybeans

Nov 15, 2011

 

Fundamentally, there is already starting to be some early debates about next year's corn vs soybean planting intentions here in the US. There has been early speculation that many of the big corn-on-corn producers in the top producing states like Iowa, Illinois, etc... will be switching some corn acres back to soybeans. The problem is, if soybean prices don't drastically start to gain on corn, they may find this to be a financially difficult decision to make. If you use the current 2012 basis, and assume corn will cost $150 per acre more than soybeans to produce, you will quickly see that in most every high production state corn is close to $200 per acre more profitable than soy. In year's past, if the numbers favored corn by $40-$50 there really wouldn't be much of a shift in acres. Above $100 per acre and there starts to be a little buzz. Once corn becomes more profitable by $150 per acre, massive shifts generally takes place. Informa just made this adjustment by adding a large number of corn acres and reducing the number of soybean acres that US producers will plant next season. It is still awfully early to be talking about next year's crop, but if we end up with 95 million corn acres, supplies could be massive. Right now the trade seems to be thinking the producers will need to be enticed to plant more soybean acres, therefore we have seen a slight bounce in the soy the past couple of days.  

 

 

There were also some rumors overnight of renewed Chinese soybean interest, but the spreads aren't really confirming this news. I do have to believe Chinese demand and US soybean sales will pick up in the coming weeks, but I doubt by the end of the marketing year we will end up anywhere close to the current USDA export sales estimates. I did hear this morning that South Korea's "Major Feedmill Group" (MFG) purchased three cargoes totaling 180,000 metric tons of corn for late Feb early March delivery. They also picked up over 100,000 metric tons of "feed wheat" at the cheapest price they have paid in over a year.  Renewed global supplies simply continue to weigh on prices, despite demand staying strong.  

I know many of you are tired of hearing about how great South America is doing, and how early Brazilian planting is putting them in position for a massive soybean crop. Unfortunately, those are the facts. I have however heard from reliable sources that heavy rains in some key growing regions are starting to worry some of the larger producers, as they fear the odds are quickly increasing in regards to a major rust problem hitting the crop. It's tough to find anything really bullish to talk about these days when it comes to Brazil and their soybean crop, but this is certainly something we will need to keep our eye on as we move ahead. Especially with many now estimating Chinese soy demand is starting to inch higher.

Just be careful feeling too optimistic about the soybean bounce the past couple of days. If you look back at the Jan soybean chart you will quickly see that since October 14th (one month ago) we have broke about $1.00, falling from a $12.83 high to an $11.67 low just three days ago. We are certainly at the lower end of the recent range, and my suggestion is if we get a nice bounce don't be afraid to price more of your 2011 and 2012 bushels.  

Thanks for reading, I hope this helps.  Remember, this is only a small portion of my Daily Report that comes out every morning. For my thoughts on how the USDA numbers are impacting prices moving forward, go ahead and sign-up for the 30-Day trial of my daily report, no obligation. Simply sign-up Here  Van Trump Report
 

 

 

Can You Defend the "Fundamentals" in the Grains?

Nov 11, 2011
I have to point out the "fundamentals" are simply getting tougher to defend. Thursday we had rumors circulating that Brazilian wheat is now entering the Eastern US feed market. Many claimed this was impossible since Brazil is a net "importer" of wheat, but we should remember, they do actually export a small amount of lower quality wheat each year. I am sure they are simply trying to move a few tons before the Australian harvest pressure hits the global market. Will this amount to much? Absolutely not. From what I heard, it was rumored that just two cargoes (a little over 100k tons) were being purchased, as it actually penciled cheaper than US wheat. I am sure this is very poor quality wheat, so I give it very little consideration in the grand scheme of things, but in any event it certainly can not be viewed as bullish, especially with recent the setback in US export sales data.  I also should point out that Egypt was back in the market buying wheat. This time around they decided to buy 120k tons from Russia and 120k tons from Ukraine. As you can imagine buying form the US was never a consideration...last year this was NOT the case! 
 
If you are trying to find a way to be fundamentally bullish US soybeans right now, all I can say is, good luck. South American planting seems to be running well ahead of schedule, the USDA just shaved 50 million metric tons off of their US soybean export numbers, and now many insiders are looking for additional cuts to be made in the soy crush numbers. This doesn't even take into account the fact many in the trade still believe the USDA needs to cut another 50 million from their US soy export estimates. We may get a little pop the next few weeks as Chinese crushers may opt for cheaper US beans, but on a longer-term scale we have to prepare ourselves for possibly much cheaper prices. I suggest you continue to view rallies as an opportunity to price more bushels (both this year and for the 2012 crop). I am afraid without a significant weather issue in South America during the next couple of months, we may find our desired pricing opportunities few and far between. The researchers over at Goldman Sachs seem to be on the same page as well as I heard earlier  in the week they cut their three-month soy price forecast to $12.20 a bushel from $12.60. They also cut their six-month soy price forecast to $12.50 from $13.00 and their 12-month forecast to $12.00 from $13.00.
 
The corn market, with the exceptionally strong basis seems to be providing many producers with an excellent opportunity to make some cash sales, re-own the board, or lift and roll hedges. With the "volatility" on the board falling off in a big way after the report and the basis remaining strong, now would be a great opportunity to pull the trigger on more cash bushels, and look for a way to "re-own" the board. For those of you who like to play the game in this manner, this is the best of both worlds.  Your cash sales are going to pay off better than expected with the jump in basis, and you can pick up the bull-call spreads cheaper than you could have in the past. Even though I am NOT wildly bullish, I do respect the lower yields and tight balance sheet. For this reason I would, in fact, re-own a percentage of your final 2011 sales in corn. I will send out some specific thoughts and strategies to our paid subscribers about corn in today's "From the Desk" report, so be looking for it. 
 
I am obviously not alone in thinking there could be some additional upside left for 2011 corn, as Goldman Sachs actually raised their corn price estimates for near term supplies. From what I have heard they raised their three-month price forecast to $6.85 per bushel from $6.15. They also raised their six-month price forecast to $6.50 from $6.15, but they left their 12-month corn price forecast unchanged at $5.50. Point being, re-ownership of this year's crop should be considered on some of your final sales, but re-ownership of  new crop sales should not at this juncture.    
 
The "Outside" markets have become a complete circus as of late. Similar to Greece, the powers that be are looking to kick out Italian leader Silvio Berlusconi and replace him with one of their own. From what I can gather, the rumors continue to point to former EU Commissioner Mario Monti as the next puppet in line to be a part of the show. In fact, it wouldn't surprise me to see Monti given the reigns over the weekend. Who knows, we may come in Monday morning to a new government in Greece and a new government in Italy. Unbelievable...if one government won't do what you want, just kick them to the curb and put one in place that will...certainly a unique approach! I mean no disrespect to Monti, as he is a very sharp economist who is currently head of Milan's prestigious Bocconi University, but I am starting to feel I am somehow sitting front row at a "P.T. Barnum" production as I watch the Eurozone performance play out. 
 
 
Thanks for reading, I hope this helps.  Remember, this is only a small portion of my Daily Report that comes out every morning. For my thoughts on how the USDA numbers are impacting prices moving forward, go ahead and sign-up for the 30-Day trial of my daily report, no obligation. Simply sign-up Here  Van Trump Report
 

Where Do Grains Move From Here?

Nov 09, 2011

 As you know, the highly anticipated USDA report came out at 7:30am this morning and shook the grains up a bit before they all finished down on the day. 

Below is a quick look at a few of the more important numbers and the particular adjustments made by the USDA. The corn yield was a bit of a surprise being dropped to 146.7, but the ending stocks were higher than many had thought, and there was no jump in ethanol or feed usage. In fact, feed usage was actually lowered. I wouldn't advise chasing any rallies at this time. 

 

* Don't foget that Europe is obviously still at the forefront of everyone's thoughts, with political and financial uncertainty in Greece, Italy and possibly even Spain. It is of my opinion that we are beyond what the European politicians are saying and we must carefully watch what the growth, inflation, and deficit numbers are saying out of Europe in the coming weeks. I promise you now, if a recession starts to spread through Spain, France or even Germany the budgets and balance sheets will get extremely difficult for Italy and others to maintain. What many readers may not realize is Italy's GDP (economy) is actually larger than that of Canada, larger than Russia, larger than India, and larger than Australia. My point is, if I were to tell you any of the four countries mentioned above were in jeopardy of a default or going under there would be a much greater sense of fear and urgency. Understand, Italy is a big deal!

 

 
Corn Yield Estimate - Reported at 146.7 vs 148.1 last month. The average trade guess was right around 147.8 bushels per acre. The range of guesses was between 145 on the low end to 149.5 on the high end.

Total Corn Crop - Reported at 12.310 vs 12.433 billion bushels last month. The average trade guess came in around 12.380 billion bushels. The range of guesses was between 12.045 on the downside to 12.55 on the high side. There was no FSA survey available for this report so hence very little change.

US Corn Ending Stocks - Reported at 843 vs 866 million bushels last month. Average trade guess was just a hair under 800 million bushels. The range of guesses is from a low of around 690 million to a high of 900 million bushels.

Ethanol Usage - Reported at 5 billion vs 5 billion bushels last month. Some were thinking the number could have been adjusted higher by +50 to +100 million.

Feed Usage - Reported at 4.6 vs 4.7 billion bushels last month. Most were expecting a +50 to 150 million bushel jump so a cut was unexpected to say the least.

US Corn Exports - Reported at "unchanged" vs 1.6 billion last month. Many thought these numbers would be left unchanged, but some well respected sources were thinking they would be trimmed by some 100 million bushels to 1.5 billion.

Chinese Corn Import - Reported at 3 vs 2 million metric tons last month. The trade was looking for the number to increase, but no one really knew by how much with China in negotiations with Argentina, a larger Brazilian crop, and a huge discount of wheat to corn possibly altering demand. 

World Corn Ending Stocks - Reported at 121.6 vs 123.2 million metric tons. The average trade guess was thinking this number would be down around 122.4 million. The range of guesses were from 120 to 125 million. Bigger South American crops were thought to have offset some of the gains in demand. 

Chinese Corn Production - Reported at 184.5 vs 182 million metric tons last month. Some recent private surveys estimated the crop closer to 189 million metric tons, so there were some thoughts the USDA could have bumped this number up.

Brazilian Corn Production - Reported at 61 vs 61 million metric tons last month. The US Ag attaché recently raised its estimate of the country's 2011-12 corn crop to 64 million metric tons, so there was a strong chance the USDA would follow suit. 

Argentine Corn Production - Reported at 29 vs 27.5 million metric tons. Last year Argentina corn production came in around 22 million metric tons, some are estimating the crop could be as large as 29.5 million metric tons this year, but with the USDA already at 27.5 million metric tons they will want to see more confirmation before bumping even higher. 

Soybean Yield Estimate - Reported at 41.3 vs 41.5 bushels per acre last month. Most in the trade seemed to be thinking this number would remain "unchanged" or slightly lower to 41.4 bushels per acre. Personally, I thought we might actually see this number increase, eventually to 42 bushels per acre by year-end. 

Total Soybean Crop - Reported at 3.046 vs 3.060 billion bushel estimated last month. This number was not really expected to change much with the range of estimates from 2.950 on the low side to 3.110 billion on the high side. 

US Soybean Ending Stocks - Reported at 195 vs 160 bushels per acre estimated last month. Many in the trade are looking for this number to jump to 180 million bushels. The range of guesses I have heard are from a low of 150 million to a high of 225 million. I personally thought we would be close to 200 million bushels for this report, and maybe even closer to 3000 million by year-end. 

US Soybean Exports - Reported at 1.325 vs 1.375 billion bushels reported last month. Most in the trade were looking for that number to fall between 1.300 to 1.350 billion. Most were expecting the report to cut 11/12 US soybean exports by 25-75 million bushels. 

Brazilian Soybean Production - Reported at 75 vs 73.5 million metric tons being estimated last month. Some in the trade talking about a crop that could end up north of 78 million metric tons. As I indicated yesterday most in the trade doubted they would adjust this number or the Argentine soybean number in this report. 

Argentina Soybean Production - Reported at 52 vs 53 million metric tons estimated last month. Argentina produced just under 50 million metric tons last year, some were estimating a jump to 55 million metric tons coming down the pipe eventually, so this cut to 52 was a surprise. 

World Soybean Ending Stocks - Reported at 63.56 vs 63 million last month. Most were looking for this number to jump up to 63.5 million this month. The range of guesses I have been hearing is from 62.5 on the low side to 65.5 million on the high side. 

US Wheat Ending Stocks - Reported at 828 vs 837 million estimated last month. Most in the trade were looking for the number to fall to 817 million. The range of estimates was from 653 to 891 million.

Global Wheat Ending Stocks - Reported at 202.6 vs 202.4 million estimated last month. Most were looking for the number to fall to around 201.5 million. The range of guesses was from 195 to 204.5 million. 

Thanks for reading, I hope this helps.  Remember, this is only a small portion of my Daily Report that comes out every morning. For my thoughts on how the USDA numbers are impacting prices moving forward, go ahead and sign-up for the 30-Day trial of my daily report, no obligation. Simply sign-up Here  Van Trump Report


 

 

 

 

 

 

 

 

 

Previewing Tomorrow's USDA Report

Nov 08, 2011

The grain and soy markets will obviously take their direction tomorrow morning from the US Department of Agriculture report. The report is scheduled to be released at 7:30am CST, I have listed a few of the most anticipated numbers below along with my thoughts and comments.

Keep in mind I have spoken with hundreds of producers who found it tougher than ever this year to predict yields in their own fields, therefore I have to believe the US Department of Agriculture is facing a fairly daunting task, a slight move in either direction would not surprise me at this juncture.

If you are looking for specifics or extreme adjustments, I believe it will take more specific data, which the USDA more than likely will not have available until the end of year numbers are released in the January report.

Many producers have actually been surprised by their yields, and had no "real" accurate figures until the corn or soybeans were finally harvested. There was such extreme variances amongst fields and varieties that no one seemed to be able to get a real grip on yield forecasting.

I seriously doubt the US Department of Agriculture has been able to fair much better, so we should go into this report with the mindset that anything is possible. With this in mind, you have to believe regardless of tomorrow's data, the market will continue to keep some premium built into the price until the end-of-year specifics are revealed.

My point is the numbers could be released either way tomorrow and those on the opposite side will discount the numbers to some extent, opting to wait for "true" confirmation in the year-end report. My best overall guess is that the report is viewed as bullish corn over soybeans. 

 
As for today, look for the trade to stay fairly range bound ahead of the numbers. The data below should give you a better idea of what I am thinking and what the trade will be looking for from the report tomorrow morning.  
 
Corn Yield Estimate - The average trade guess is right around 147.8 bushels per acre (which would place us at a six-year low). Last month the USDA was at 148.1 bushels per acre. As you can see, most in the trade are looking for the USDA to lower their yield estimate. The range of guesses is between 145 on the low end to 149.5 on the high end. Some very well respected sources are leaning toward the low end of the range, but I am having a harder and harder time buying into those beliefs. I personally think producers saw their crop stabilize as of late and we will see very little adjustments to the downside. I would suspect a 147 yield number is about as far as we will go to the downside. I may be completely off base, and since we are still very conservatively long from below $6.00, a significant drop would be welcomed, I am just not sure I see it in the cards.  If we get a smaller number, or a $0.30 to $0.40 cent rally tomorrow I think it would be a great selling opportunity for producers. Look to pull the trigger on more 2012 sales as well as some additional 2011 bushels.  Those who are also speculating in the markets on the long side, may want to reward the rally by banking your profits and exiting your long positions. I would have to believe a bullish report will be an opportunity for the funds to be a seller and bank some profits. Do NOT chase the rally if one occurs! There are just too many bearish cards starting to stack up against us for me to envision a significant rally being able to hold.  
 
Total Corn Crop - Last month the USDA estimated the total USDA crop at 12.433 billion bushels, this month the average trade guess is slightly lower and should come in around 12.380 billion bushels. The range of guesses was between 12.045 on the downside to 12.55 on the high side. You really can't be looking for any change in acreage as there was no FSA survey available for this report. 
 
US Corn Ending Stocks - Average trade estimate for carryout is just a hair under 800 million bushels. Last month the USDA had it estimated at 866 million bushels, so the obvious consensus is lower. The range of guesses is from a low of around 690 million to a high of 900 million bushels.
 
Ethanol Usage - As usual the Ethanol Usage numbers will be highly scrutinized. Currently the USDA is estimating 5 billion bushels will be used to produce ethanol. With a recent increase in production there are some thinking this number could be adjusted higher, some are thinking +50 million bushels in this report, maybe even jumping by 100 million bushels by the year-end.
 
Feed Usage - Most seem to be expecting a +50 to 150 million bushel jump   closer to 4.750 billion bushels, but with strong demand for DDGs and feed wheat being used in the feed rations it may actually limit corn’s gains in feed usage. 
 
US Corn Exports - Many believe these numbers will be left unchanged, but there is also a strong argument being made by some well respected sources that US exports may actually be trimmed by some 100 million bushels to 1.5 billion.
 
Chinese Corn Exports - Currently the USDA is estimating China will import about 2 million metric tons of US corn. The trade is obviously looking for this number to increase as China has already booked this many bushels. The question is how much higher will the USDA move their estimates. This number is hard to judge with China in negotiations with Argentina, a larger Brazilian crop, and a huge discount of wheat to corn possibly altering demand.    
 
World Corn Ending Stocks - Currently the USDA is estimating world ending stocks to be around 123.2 million, but the trade seems to be thinking this number will head lower to around 122.4 million depending on how the USDA views Chinese and Brazilian crop. The range of guesses is from 120 to 125 million, so this could be a real wild card. There is certainly better demand than is currently being forecasted, but bigger South American crops could easily offset these numbers. 
 
Chinese Corn Production - Currently the USDA is estimating the Chinese crop at 182 million metric tons. The problem is some recent private surveys have estimated the crop closer to 189 million metric tons.
 
Brazilian Corn Production - Currently the USDA is estimating the Brazilian corn crop at 61 million metric tons. The US Ag attaché in Brazil has just recently raised its estimate of the country's 2011-12 corn crop to 64 million metric tons, so there is a strong chance the USDA may soon need to raise their estimates as well. They have also raised their Brazilian corn export forecast as well. Remember, there is a strong link between the the USDA attaché report and USDA report for Brazil...More so than other countries for whatever reason, so look for a bounce. 
 
Argentine Corn Production - There is some thoughts that Argentine corn production could go from around 22 million metric tons this past year to as much as 29 million metric tons this year. The USDA is currently estimating Argentine production at 27.5 million metric tons.
 
Soybean Yield Estimate - Currently the USDA is estimating a yield of 41.5 bushels per acre, most in the trade seem to be thinking this number will remain "unchanged" or slightly lower to 41.4 bushels per acre. Personally, it wouldn't surprise me to see the number actually increase eventually to 42 bushels per acre by year-end. I just haven't heard from many producers who have been experiencing significant bean yield losses.
 
Total Soybean Crop - The USDA estimated last month we would produce 3.060 billion bushel of soybeans. That number is not really expected to change much, but it is still down considerably from last year's 3.33 billion bushels of soy harvested. If you remember we had an average yield last year of 43.5 bushels per acre. The range of estimates seems to be from 2.950 on the low side to 3.110 billion on the high side.
 
US Soybean Ending Stocks - The USDA is currently at 160 bushels per acre. Many in the trade are looking for this number to jump to 180 million bushels on less than favorable exports. The range of guesses I have heard are from a low of 150 million to a high of 225 million. This number will be highly anticipated. It wouldn't surprise me to see this number up above 200 million for this report and maybe even closer to 3000 million or even higher by year-end. 
 
US Soybean Exports - The USDA is currently estimating US exports at 1.375 billion bushels. Most in the trade are looking for that number to fall between 1.300 to 1.350 billion. Most are expecting the report to cut 11/12 US soybean exports by 25-75 million bushels. I have heard some estimates though as low as 1.250 so be prepared. 
 
Brazilian Soybean Production - Brazil last year produced 75.5 million metric tons, this coming season they should see a repeat performance at worst with many in the trade talking about a crop that could end up north of 78 million metric tons. Right now the USDA is estimating their production at just 73.5 million metric tons. I am just not sure they will bump the number in this report, so don't bank on it. 
 
Argentina Soybean Production - Argentina produced just under 50 million metric tons last year, and now most everyone believes they will produce more, with some estimating a jump to 55 million metric tons. Currently the USDA is estimating their production at 53 million metric tons, so I doubt we will see any major adjustment at this time.
 
World Soybean Ending Stocks - This number should jump slightly higher, with most in the trade looking for a move from 63 million last month up above 63.5 million this month. Once again South American production will be the key. The range of guesses I have been hearing is from 62.5 on the low side to 65.5 million on the high side.
 
US Wheat Ending Stocks - Most in the trade seem to be thinking they will fall from 837 million this past month down to 817 million. The range of estimates is from 653 to 891 million.
 
Global Wheat Ending Stocks - Most are thinking this number will fall from 202.4 million last month to around 201.5 million this month. The range of guesses was from 195 to 204.5 million.
 
Thanks for reading, I hope this helps.  Remember, this is only a small portion of my Daily Report that comes out every morning. 

For my thoughts on how the USDA numbers will impact prices after they are released tomorrow morning, go ahead and sign-up for the 30 day trial of my daily report, no obligation.  Simply Click HERE

ATTENTION! China's Corn Production Growing

Nov 03, 2011

 

Production numbers out of China are showing another record corn crop. From what seems to be circulating, it looks as if they have jumped from just over 177 million metric tons produced last year, to just over 189 million metric tons produced this year, according to some private estimates. For what it is worth the USDA had their production estimated at 182 million tons. The point is, even though the Chinese numbers may be a stretch, you can't rule out the possibility that the USDA could add to their 182 million estimate just to be safe. For the Chinese this would essentially be their seventh "record crop" in the past eight years. This time around it seems somewhat legitimate though as I have heard from good sources they planted about 6% more corn acreage in 2010, and look to be adding another 5% in 2011. Let's not forget they also had fewer weather related production hiccups than they had the previous year. I have certainly never been one to buy into the Chinese bookkeeping, but I am afraid this time they may be throwing out numbers that are somewhat in the ballpark. I am not suggesting that we panic, because I truly believe they have a corn shortage issue brewing and have finally reached the tipping point where they can no longer support their own domestic demand. Sources I have spoke with say their is still an urgent and pressing need to continue expanding corn acres to help accommodate demand being created by the expansion of hogs, beef and dairy operations. My real fear is the "technological" gains they may soon start to realize. Remember, while here in the US, most corn is grown on farms averaging 250 acres, in China most of the corn is grown on farms averaging about 2 acres in size, and is planted and harvested by hand. To give you a real understanding, consider the fact that "big farm operations" in China actually doubled this year, meaning that farmers with more than 20 acres actually jumped from 2% to 4% for those raising corn. I want to make sure you realize that even though China is not too far behind the US in total corn acres planted, they are way behind the US in total corn produced. From what I hear it is believed their average corn yield is about half of what the US producers have been seeing. To be specific I continue to hear their average yield is right around 85 bushels per acre. Most are using older-single cross hybrids, their pesticide controls and sprays are less than adequate, irrigation is poor, planting and harvesting can be extremely time consuming and leaves them exposed to weather related risk, etc... My point is, yes, they have tremendous "demand," but let's not forget they also have big potential to produce more "supply!"
 
If you like what you hve read and want more information about global corn demand or would like more help with making cash sales and taking a long-term view of the market, we'd like to help you.  We have a lot of good cash sales and hedges on the books for the farmers we work with.  If you would like to learn more about us CLICK HERE to Sign-up. 
 
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