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September 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.

Previewing the USDA Report

Sep 29, 2011

 

I hate to break out my "crystal ball," as I have found it often has a mind of its own. So I say with all sincerity, proceed with caution when reading my commentary below. I will give you my best attempt at what I think could come from the USDA numbers. I have found trying to predict or play these games throughout the years to be been an extremely disheartening and painful experience at times. I personally think this report tomorrow could be extremely dangerous, just from the fact that it somewhat flies under the radar screen and is not highly publicized. It also provides many "wild card" opportunities. Most give center stage to the wheat market, but be careful buying into this, as there are some critical corn and soybean numbers being released as well. I include insight into each of these numbers, along with the reasons they are important, in my daily report. If you are not getting the report each day, make sure you get signed up by following the link below. There is no cost or obligation. 
 
As far as the numbers are concerned, below are what I believe to be the most important points. 
 
Corn Ending Stocks: USDA is currently at 920 million. The average trade guess is around 960 million. Bottom line, most in the trade are thinking we will end up with more corn, because of more "feed wheat" substitutions and generalized rationing across the board. I know some in the industry think we may end up over 1 billion, while on the flip side there are a few who believe the lack of harvest and available bushels in the South may lead to a slight decrease in ending stocks. I personally think we will be a little higher, maybe not all the way to 960, but around 940. To move drastically higher, you are going to need to see a number below 900, in my opinion. 
 
Soybean Ending Stocks: USDA currently is estimating 225 million. The average guesses are ranging from 200 to 240 million. To trade limit-up, you will need to see a number in the low 200s or high 190s. At 240 million or higher, and you have potential to trade limit-down. Don't forget, USDA can readjust the 2010 numbers on this report as well.  
 
Spring Wheat Production: USDA is currently at 475 million. Many in the trade are expecting a lower number, most are looking for a number around 440-450, but I have heard numbers flying around all the way down around 400 million. The thoughts are that higher protein levels have weighed on production totals.  
 
Don't forget there will also be many other critical numbers being released, such as corn feed usage, wheat feed usage, total wheat  production, total ending stocks and much more. Make sure you get tomorrow's report to see all of the insight and how the "big boys" are playing the data.  
 
I hope everyone has banked big profits with my "bear spreads" the past few weeks; they have worked like a champ! Our hedges have also paid big dividends on the break. Good luck tomorrow and have a good weekend. Don't forget, tomorrow is the end of the quarter and end of the month for traders and "window dressing" may be in play! The Chinese holiday starts on Monday. 
 

How Low Can We Go?

Sep 28, 2011

Tough day in the markets today. Risk off in about every asset class. I know some of you have questions; you are asking if you missed the top in prices, if you should hurry and sell now. Hold on tight. I still believe we are fundamentally in a demand-driven market, and eventually that will become a major concern, but right now it is all about money flow and asset preservation.  

To explain what happened today, you need look no further than fund managers who are "hoping" things in Greece and the European debt  are getting better. Yesterday, the markets traded on this hope and pushed higher, as I said in my report. However, today was a different story, and hope seemed to disappear as we wait to see what Germany will decide in its vote tomorrow morning.  

 

Another thing "big money" is looking at is that SocGen, the large French bank that I warned you about last week, has announced it is trying to sell its stake in Newedge. If you didn't know, Newedge USA LLC is the biggest commodity brokerage in the U.S., with the largest customer segregated account of all the futures commission merchants listed with the U.S. Commodity Futures Trading Commission (CFTC): more than $24 billion, according to the CFTC website.

 

I have been telling you for weeks that this European banking deal could be bigger than you think. SocGen controls a large line of credit for the global commodity market. I have heard it may also be selling its custody and securities unit, SGSS, but I cannot confirm that. Most in the industry doubt that any other European bank will be able to step in and buy Newedge, but there is some speculation that either Macquarie Bank, Australia's top investment bank, or one of China's top banks may be interested in swinging the deal. In any regard, it is extremely obvious that SocGen is trying to cut costs and sell assets to free up massive amounts of fresh capital. Larger rival BNP Paribas, I hear, announced a similar plan to unload riskier assets, and some analysts expect the smaller Credit Agricole to follow suit. Just realize as we move forward that there are many extremely fragile moving parts in this equation; it is not all about yields and acreage. 

 

I prefer to be a realist; therefore, I continue to sit on the sidelines and view most rallies as a short-term anomaly. This Greek deal has to find a solution, and the European banking situation is certainly nothing to take lightly. As I said earlier, I still believe we are fundamentally in a demand-driven market, and eventually that will become a major concern, but right now it is all about money flow and asset preservation.  

 
If you have any questions about the blog or any of the content, feel free to look us up. If you are not receiving our daily e-mail, you can sign up for a FREE trial by following the link. There is absolutely no cost or no obligation. Sign me up for FREE  "The Van Trump - Farm Direction Report"
 

 

 

Grains Show Strength Ahead of This Friday's USDA Report

Sep 27, 2011

Had a better day in the grain markets today as the Greek vote gave some much needed confidence to the equity markets, which in turn spilled over into commodities. However, we are not out of the woods yet, as we need to keep our eye on the German vote scheduled for later this week.

From what I hear, the German parliament is due to vote on the bailout. Supposedly, the German "lower house" of parliament is scheduled to vote on the 29th (Thursday), and the "upper house" will vote on either the 29th or 30th. I am told the more important one is the lower house.  The key will be whether Chancellor Angela Merkel can secure a majority of her coalition for passage. The original vote date was scheduled for Sept. 23, and there is some thought that the vote may be delayed once again from Thursday to Friday; it wouldn't surprise me if they bumped it back even further.

If this vote fails, the "outside" markets will be hit extremely hard. My gut is telling me the votes in both Greece and Germany will pass and the "outside" markets will start to stabilize, at least for the interim. I would have to imagine this provides some wind behind our sails and should prompt a "Risk On" type environment. Understand, though, this is just a hunch and we could just as easily see a major meltdown in Europe. There are players on both sides of the net, and no one really knows where the next volley will take us.      

As for corn, I was pleasantly surprised by the export inspection numbers yesterday and the fact that of the 34.3 million bushels reported, Japan, China and the other Asian countries snatched 21.4 million. With some support and export demand coming back into the market on the break, the bears may start to refocus their attention on more South American acres being planted this coming crop season.  Most in the trade are thinking that South America will plant an additional 10%. This is something we really need to keep our eye on now that both Brazilian and Argentine planting are under way. Corn conditions improving by 1% really didn't seem to have much of an impact, but should certainly confirm the fact that our national corn yield has started to stabilize. 
 
As for soybeans, there are thoughts that tighter residual numbers could actually be much higher than the USDA estimated, ultimately leaving carryout tighter than the market has anticipated. Some of the bulls were disappointed that we didn't see the USDA drop soybean conditions this past week. The thought was that the freeze in the North would have done enough damage to prompt a slight downgrade...obviously not enough.  
 
We need to be aware that this Friday's USDA corn stocks report could hold a few wild cards as well. Remember, the Sept. 30 USDA stocks report was the one last year where USDA magically found 300 million bushels of corn. There seemed to have been some confusion over whether the bushels they counted were from old crop or the new crop. In any regard, the corn market broke some 50 cents on the news. Just wanted you to know anything is possible, so don't downplay the report this week as being significant only for wheat. Look for fourth-quarter feed residual and ending stocks to be debated.
 
If you aren't taking my report, you need to at least get the trial run, especially before this Friday's USDA report. Last year, it was a game changer. We have made some terrific cash sales and have some fantastic hedges in place, preparing ourselves for the recent downturn in grain prices. If you are not receiving our daily e-mail, make sure you get signed up for the FREE trial by following the link. There is absolutely no cost or no obligation. Sign me up for FREE  "The Van Trump - Farm Direction Report"

Grain Prices Head Higher, But for How Long?

Sep 26, 2011

 

Even with today showing signs of strength, I wouldn't take your seatbelt off just yet; I have to believe this wild ride is still far from over. Soybeans have now broke more than $2.00 from their August highs. Just in the past week, the funds have liquidated close to 50,000 corn contracts and over 60,000 soybean contracts, and they now sit massively short CBOT wheat (largest short position since the early summer of 2010). Rest assured, there is certainly blood in the water and the sharks are still swarming. Do you realize that traders holding just 10 long silver contracts in the past five trading sessions have lost a half million U.S. dollars? Just think for a minute about what has happened to the large diversified funds that are holding long positions in silver, gold, copper, crude oil, corn, soybeans, coffee, sugar, etc. To say the least, they have gotten their bell rung. They were already on the ropes; now a flurry of blows leaves many in the trade asking if they will be able to make the "standing 8 count." 

Soybeans have definitely taken it on the chin as of late, and I am extremely happy that we exited our long soy short corn trades with profits when we had the opportunity a couple of weeks back. There has been a strong seasonal play the past few years to be short November beans from late September into early October, and we are certainly seeing the trend continue. The key moving forward will be just how many cargoes of soy end up being sourced from the U.S. versus South America. The next six months will certainly tell the tale. If you look at last year's numbers, you can see that of the 21 million tons of soybeans China imported during the fall and winter months, only about 2 million tons came from Brazil. I am hoping that trend continues, but I assume a lot will depend on "quality" and "currency." Speaking of quality, soybean oil was under extreme pressure last week, and this may be a market that we need to start keeping an eye on. If the talk about more "green" beans and potential frost damage up north plays itself out, we may see less available bean oil later on down the road -- just an FYI. 

As for corn, the "tech" traders seem to have their eye set on the $6.15 to $6.20 area, and I am afraid they may find the momentum this week to make it happen. For this reason, I continue to remain on the sidelines. The risk of a "domino type" effect taking place if Greece were to default has simply become too much for most to handle. In my opinion, some type of resolution or longer-term game plan has to be proposed and accepted before the funds start adding more risk. 

The next biggest catalyst for the eurozone will likely be tomorrow when the Greek Parliament votes on a property tax measure that needs to be passed in order for the country to qualify for the next round of bailout funding. I am afraid, though, that it will only be a matter to time before the trade starts to focus on China, which overnight saw the Hang Seng Index fall 1.7% to its lowest in more than two years, China's Shanghai Composite down 1.6% and the Nikkei Stock Average lose 2.2%. All I can say is that you need to be extremely cautious, as there have still been zero workable solutions proposed for the European debt situation, the slowdown in China and U.S. unemployment. Gold has rallied back over $100 from the overnight lows, silver has rallied back big as well, soybeans are some 30 cents off of their lows and wheat has made a 20 cent recovery. The Greek vote tomorrow is still looming; the German vote later this week will be another hurdle. I personally doubt we have seen the low of the move and will continue to sit on the sidelines looking for more bargains.  

If you're looking for answers to these questions and many more, make sure you are getting my daily e-mail. We have made some terrific cash sales and have some fantastic hedges in place, preparing ourselves for just this type of move. If you are not receiving our daily e-mail, make sure you get signed up for the FREE trial by following the link. There is absolutely no cost or no obligation. Sign me up for FREE  "The Van Trump - Farm Direction Report"

 

 

 

 

Where Do You Stand on 2011 Cash Sales?

Sep 23, 2011

 I continue to field calls from "Producers" wondering why corn has broken by more than $1.20, and both soybeans and wheat by more than $1.70 in the past few weeks. My answer remains the same as it did three weeks ago..."Money Flow." I said it when we approached $8 in corn, "money flow is starting to dry up and may soon become our biggest enemy..."  Guess what? That time is upon us.  This is exactly why I recommended (for several weeks) that you make all of your remaining 2011 cash-flow sales while we were up above $7.25.  No, it was not that I had found a crystal ball, but you could feel the "money flow" or "big boys" were starting to question the risk-to-reward ratios, not just in corn and beans, but in all of the commodity markets.  The outside fear of a global slowdown was looming, along with threats of a default stemming from the European Debt issues.  

Right now, the heat in the kitchen finally seems to have gotten too hot for many of the larger traders to stomach, and liquidation has started taking place in almost every major market.  Traders are now fearful that the US economy may continue to struggle, with no real solution for improving the unemployment situation, for improving homes sales and valuations, or a solution for the ever mounting debt problem that will not adversely affect economic growth.  Similar type issues are also now being discussed in Europe, and there is talk of a deeper slowdown in China.  Some are even going as far as saying that we could be in worse shape now than we were back in 2008, because most all of the major countries in the world are much more in debt now than they were back then. Therefore, due to their high debt levels, there is very little they can do from here to help bail us out.  
 
I certainly can not argue that point, but on the flip side I have to believe companies and consumers are operating much more efficiently now than they were back in 08'. I believe companies are much leaner, they are sitting on much more available cash and are now in a position to better weather the storm.  American consumers are also operating at much more conservative levels.  Many have already lost their homes, jobs, etc... My point is, it might be tough to fall very far, when it seems as if most will be falling out of the basement window.  When you are already on the ground floor, the fall is generally not too severe.  
 
If your looking for answers to these questions and many more make sure you are getting my daily e-mail.  We have made some terrific cash sales and have some fantastic hedges in place, preparing ourselves for just this type of move.  If you are not receiving our daily e-mail make sure you get signed up for the FREE Trial by following the link.  There is absolutely no cost or no obligation.  Sign Me Up For FREE  "The Van Trump - Farm Direction Report"
 

Significant Downside Risk

Sep 22, 2011

The key phrase that everyone keeps noting today, is the Fed's comment that "significant downside risk" still exist in the US economy.  To say the least this has been tough for global traders to swallow. Throw on top of that, economic data from China overnight showing that manufacturing has slowed down for the third straight month in a row, and that European factory output has also slowed down as well, and we seem to have a recipe of fear rolling across the board. The theme of the day is obviously "Fear On" and "Risk Off."  As the "big boys" get rocked, long positions across the board are being liquidated.  Will Chinese demand take a step back or surge higher? How will "Trade Wars" between China, Brazil and the US affect prices? Will dry conditions adversely affect grain production in Ukraine and Russia or will their supplies continue to weigh on the markets? With ethanol margins shifting quickly on massive fluctuations in crude oil prices, will ethanol demand start to fade? How drastically will increasing "Feed Wheat" demand hurt corn prices? Are you looking for the insight on what the "big boys" are predicting for "Total Harvested Acres?" How will new acreage adjustment in both North and South America affect next year's crop? Will input cost continue to rise or is a set-back coming?

If your looking for answers to these questions and many more make sure you are getting my daily e-mail.  We have made some terrific cash sales and have some fantastic hedges in place, preparing ourselves for just this type of move.  If you are not receiving our daily e-mail make sure you get signed up for the FREE Trial by following the link.  There is absolutely no cost or no obligation.  Sign Me Up For FREE  "The Van Trump - Farm Direction Report"

Will China Confirm Corn Purchases?

Sep 21, 2011

 With no confirmation of Chinese buying the market seems content on taking some "hot air" out of the balloon.  You have to wonder if these rumors will be confirmed with China on the verge of starting harvest.  Certainly talk of supplies in China being tight are not being challenged, especially since there are reports circulating that cash corn in China is changing hands for around $10 a bushel in certain locations. The concern is that domestic corn from harvest will fill voids in supplies much quicker than any US or Argentine purchase.  My thoughts are that corn purchased today by China wouldn't hit the ground in their country for at least another 4-6 weeks at the absolute best.  Therefore, you have to basically discount any talk that stems from the thought that  purchases are being made because of an "emergency" type situation over there. As I indicated yesterday, I think there is a much stronger chance we see Japan or South Korea step in and buy corn as opposed to China.   

There wasn't much press about it, but it may have some bearing on us down the road.  In case you didn't hear, The Office of the US Trade Representative filed a formal "unfair" trade complaint against China yesterday with the World Trade Organization for allegedly locking US poultry exports out of their country. From what I have been told, back on Sept. 26, 2010, China levied harsh penalties and taxes on any companies importing US poultry. They made up some story about the poultry not meeting their requirements, and hit the companies with big penalties if they imported any. Most however believe the move was made by China in retaliation to the US trade sanctions that were made against Chinese steel and Chinese tires being imported into our country. Bottom-line is they were made because we made it harder for their steel and tires to come into the US, so they decided to black-ball our poultry.  To say the least, the penalties have hit US poultry exporters like Tyson Foods, Pilgrim's Pride and Perdue right were it hurts. The thoughts are about $1 Billion in exports and hundreds of jobs have been lost because of this political bantering. Just look at these numbers: Back in 2008, US poultry exports to China were valued at $676.7 million; in 2009 we exported $647.3 million; in 2010 export values dropped to $135.4 million; Now through July of this year we have exported just $37.2 million. Essentially China has switched all of its poultry purchases over to competitors in Brazil and Thailand. The problem I see is that trade tensions between the two countries are seriously heating up. China won't take this latest filling by the US lightly, I just hope it doesn't prompt them to take similar retaliatory type actions towards US grain and soy exports. 

This may also be a little outside the box, but I am a little concerned about a recent announcement by the "Bank of China," after they advised several European banks (Societe Generale, Credit Agricole, BNP Paribas, and UBS AG) that they would no longer trade foreign exchange forwards and swaps with them due to the ongoing debt crisis in Europe.  This could certainly make some of the bigger players in the "outside" markets nervous and ultimately weigh on the trade, so be aware of the situation. 

Thanks for reading!  If your not getting my full report each morning before the markets open make sure you call the office and get signed up for the FREE 30-Day Trial 816-322-5300 or you can simply click HERE to Sign-Up!


How Will the European Debt Affect My Crop Prices?

Sep 16, 2011

 

I had some folks asking me about the implications of the European Debt situation and "if or "how" it could ultimately affect their crop prices. 
 
There hasn't been a lot of talk about it, but the recent downgrades of the French banks "Credit Agricole SA" and "Société Générale SA," could end up being a much bigger deal than any yield release by the USDA.  This is certainly a little out of the box, and you may need to know a little history before you can tie the two together, but what if I were to tell you Société Générale also known as "SocGen" one of the oldest banks in France, and in European terms they are larger than Credit Suisse and have a huge global presence. The real kicker is they provide lines of credit for thousands in the hedge fund industry.  If you remember back to 2008, one of their futures traders actually lost $7.2 billion (thought to be the worlds largest loss).  I would also point out that many still believe that the US government bailed out AIG, in order to keep "SocGen" from taking what some have estimated would have been an $11 billion dollar hit.  Looking back, if the US government hadn't stepped in, a "SocGen" type default would have brought down the entire house of cards. My point is that with so many lines of hedge fund credit being tied to "SocGen" and some of the other European banks, you have to believe that any type of major issues in liquidity will force them to tighten their lines and possibly reel back in some of the credit they have extended to the funds. I am telling you now if something like that actually plays out it will rock the corn market more than any yield data being reported by the USDA in October. My point is we still have to keep a close eye on the developments in Europe, "Money-Flow" continues to be King, and as of right now it seems to be walking upon an extremely fragile tightrope. 
 
Keep in mind this is not a knee jerk type situation, and if it were to develop it would take some time to play out. It is also not a direct corn, soy or wheat type play, it would be broad spread and affect the entire commodity market.  Therefore do not hit the panic button, just be aware of the situation and keep your eye on things in Europe. A good point is the news yesterday that super bank "UBS" took a $2 billion dollar loss on their trade desk, and talk is now circulating that they me need to throttle back while some type of restructuring takes place. this is not bullish the commodity markets by any regards, but rather just another small "wrinkle" in the story.  My point is that if we get enough "wrinkles" in the page, the bullish story may become tougher to read.  
 
As far as the near-term is concerned I would have to imagine with the EU finance ministers meeting in Poland with US Treasury Secretary Tim Geithner on hand, some bullish posturing by the European banks will be released, therefore it wouldn't surprise me to see the Euro rally, adding some pressure to the US Dollar early next week.  The dollar being pressured could add a little support to the commodity markets in general and may give you another opportunity to make a few more cash sales as we head further into harvest. Don't miss your opportunities when they come around.
 
Have a good weekend!    

Why The Market Is Performing This Way

Sep 15, 2011
I just wanted to post a small portion of my daily report that I sent out this morning before the open, because I thought it might give you a better idea baout why the market is performing in this manner.  Look for the FSA acreage numbers to be out at 1:45pm this afternoon.  Hope this helps. 
 
I certainly don't want to be the guy that spoils the party, I am just getting more and more concerned about global demand and global supplies.  Yes, here at home we are looking at a smaller crop, but the current corn prices justify more than this just a crop being reduced to 148 bushels per acre, you and I both know there are a ton of moving parts in play right now.  It is of my opinion though in order to add another $1.50 or $2.00 to the price of corn we are going to need some serious help. The question is where does it come form?  China is supposedly getting ready to harvest a record crop thought to be somewhere between 180 and 182 million tons and growing. Regardless of if the numbers are true or not, you still have to believe China waits to import any large quantities until a little later in the marketing year, or at least until they are able to absorb a large portion of their domestic harvest.  Yes, there are arguments that Chinese producers may be inclined to hoard with prices in China at these extreme levels, but I doubt anything like that factors in until sometime in 2012, when supplies tighten up a bit more.  In Argentina, the worlds second largest supplier of corn, they produced about 22 million metric tons last year, where as this year insiders are thinking they ended up producing some 27 million metric tons plus. With this data the Argentine government has just decided to release 7-8 million more tons of corn for exporting (as I reported yesterday). There is certainly nothing bullish to speak of coming from this front.  In fact all of the reports coming out of South America seem to be talking about how many more corn acres they are going to plant next season in both Brazil and Argentina, certainly not bullish by any stretch. If you turn towards the Black Sea Region, once again nothing bullish to speak of.  Sources in Ukraine are indicating they are definitely going to produce more corn than they had previously anticipated, and we all know what the onslaught of "feed wheat" from this region is doing to global corn demand. India has decided they will throw their hat in the ring and start export as well, and now Australia is talking about a bigger crop.  Weekly ethanol data yesterday was the lowest in the past five weeks.  My point is things may start getting a little more rocky.  I have been saying for the past three or four weeks that you need to be getting everything sold that you are not comfortable storing.  If by chance we run higher then we still have bushels left to sell.  My fear is that we break and you are forced to sell at the lows of this cycle because you need the cash flow or don't have ample storage to carry it into 2012.  
 
Sure we might pick up another $0.50 to $0.75 cents on fund repositioning or some other market variables.  But if your waiting on a move to $8.50 or higher by year end you are essentially making a bet on one of three horses that are left in the 2011 Corn Derby: 
  • Horse #1- I will call her "Philly Freeze" - This horse is a winner if temps drop below 28F for any extended period of time during the next three or four weeks.  She is not a come form behind winner, as the longer she waits to make her move in the race, the lower the payout. She needs to make her move early if she is going to pay off. One thing the crowd likes is that when she comes in she generally pays off in a big way, and her jockey is the best in the business (tough to get any better than the big man upstairs). 
  • Horse #2 - I will call her "Wild Acres" - She is a real beauty, young with very few races under her belt, but she has HUGE potential. If she gets the right start, has the right jockey, and is on a muddy track she could pay off big. Essentially by betting on "Wild Acres" you are thinking the USDA will cut harvested corn acres substantially. For a big pay-off you need a cut of 750,000 plus. With the FSA and USDA riding this youngster anything is possible, they may decide to let her run, or for the betterment of the sport pull her back and shut her down, you just never know.  Definitely untested in the big races.  
  • Horse #3 - I will call her "Official Ruling" - I have seen this horse run many times through the years, she can often be a crowd favorite early in the race, but in the end very rarely makes it into the winners circle. She is generally the most hyped in the field, but more times than not fails to deliver the big pay-outs.  Some in the racing world even go as far as saying she is on the "take." I wouldn't go that far, I just think the crowd often places the expectations much too high for her to deliver. For this old girl to pay off big you will need to see the yields continue to fall.  I would be inclined to guess the closer we get to 140 bushels per acre the larger the pay-out and the better her chances.  Just remember there is no rhyme or reason to how this horse will run, I have seen the jockey take her out out of the gates strong only to see her ease back later in the race. I have also seen her pour it on down the stretch.  This horse can make you extremely happy and extremely sad all in the same race, so be prepared for anything.  Once again a lot depends on the jockey and the conditions of the track. Just don't count your chickens before they are hatched with this girl still in the race.
In my opinion these are the only three horses left in the 2011 Corn Derby at this juncture. China buying corn in any big quantity is out of the race; both of the South American horses are out of the race, as they are planting more corn acres and raising their exports as we speak; Russia and Ukraine are out of the race as well on larger than expected supplies; Canada is a scratch, with no real losses to speak of; Ethanol Production and Domestic Feed Usage didn't feel they had enough growth left in the tank to compete and are no real threat to win the race, so they pulled out as well.  
 
I hope you get my point.  As the possibilities to win and the number of bets come off the board, we in turn need to be reducing the number of bets we actually have placed. Once the venue changes, more horses enter the field, and things start to heat back up we can always look at placing more bets. I just don't want to see you bet the farm when the odds of the game have changed so drastically in the past few weeks.  Right now all that is left are three very unpredictable long-shots.  Yes, there is certainly potential that one of these three horses could come in and pay off big, but there is also a strong chance that neither of them finish the race.  I like betting on the long-shots just as much as the next guy, but the key to winning is knowing how much to bet, which horse to bet it on, and in which race.  As with any type of gambling or speculation "risk-management" continues to be the most important tool.  
 
The reason I am pointing this out is because right now you are walking up to the window at the track and placing your bet on one of these three horses.  I would be very apprehensive right here betting it all on one of these three horse in this particular race. Maybe if you want to throw a few bushels at a possible "trifecta," I can understand, just be careful betting the entire farm.  Make your sales, place a few bets on the long-shots and enjoy the remainder of the race.  As a good buddy of mine said, trading a "weather market" and the "growing season" is like running a 50 yard dash, after it is over and for the remainder of the year we are back into a marathon, enduring the ups and downs of every hill and valley in this very long race....
 
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A History Lesson We Should Never Forget

Sep 14, 2011

I wanted to take a quick moment to reflect back on recent history.  It is as if America and Europe have switched places almost three years ago to this day. I was always taught to embrace and learn all I could about history so as to better avoid common mistakes and pitfalls that others have endured.  I hate to point out the obvious, but it was on September 13th of 2008, a Saturday to be exact, that Timothy F. Geithner, the president of the Federal Reserve Bank of New York called a "special" meeting to discuss the future of Lehman Brothers, which included the possibility of an emergency liquidation of its assets. There has been countless speculation on the nature of that meeting, who was present, who was actually involved, who was pulling the strings, who was not allowed to be present, and specifically how it all played out... All I can tell you is that shortly before 1:00 am on the following Monday September 15th, Lehman Brothers was forced to file for Chapter 11 bankruptcy protection and what ensued was a massive exodus of most of its clients, drastic losses in its stock, and devaluation of its assets by credit rating agencies across the board. The filing marked the largest bankruptcy in US history, and is thought to have been the key domino to have fallen in what is now considered one of the worst global financial melt-downs in our history. It was on the afternoon of September 15th, three years ago almost to the day that Lehman Brother shares tumbled over 90%.  The Dow Jones closed down by over 500 points, which at the time was the largest drop in a single day since the days following the attacks on September 11, 2001. I hate to bring it up, but we also must remember what happened to corn prices thereafter, when the "money-flow" dried up.  As a reminder, you should remember that it took less than 60 days for corn prices to fall all the way back to $2.90 per bushel. This is the same summer of 2008 where price for corn for the first time ripped to almost $8.00 per bushel. Guess what??? Here we are again, money-flow is getting extremely nervous, and Timothy Geithner is being called to another "special" meeting.  This time it is not so much about the US, but rather our European counterpart. We all know first hand how important "money-flow" has become to overall price appreciation, so we have to make certain we are prepared for any such event that could rock the boat. Just remember, we had no idea back in 2008 that prices would fall as rapidly as they did, or that the big boy's would so quickly pull all of their chips off of the table.  I remember many advisory services and traders touting that corn would soon be at $10.00 and soybeans would soon be well above $20.00. I am not writing this to scare everyone, I just want you to remember that things are not always as they appear.  You have a business to run, and when profit margins present themselves you need to take advantage of these opportunities. Yes, times are good, and the money-flow has helped us reach some very favorable levels, but just as the markets and the money-flow giveth the markets and the money-flow can taketh away.  Learn from past history, limit your downside risk and secure your rewards with prudent hedging strategies and cash sales.  I hope for all of our sake nothing come to fruition, and that we are able to weather another financial storm, make it through these times unscathed.  All I can say is keep your fingers crossed, and make sure you are prepared with proper risk strategies in place. There are some great services out there that can help you build good risk-management strategies, if you need the help I urge you to give them a call.  I am just of the belief if you are any less than 50% sold in these type of waters, with these types of profits on the table you are taking excessive unneeded risk. 

Will the USDA Let the "Bulls" Run on Monday?

Sep 12, 2011

 

All eyes are focused on the USDA report scheduled for release Monday morning at 7:30am (CST). Just remember, the USDA has indicated that they will NOT be adjusting acreage changes from the FSA certified acreage data until the October report. In my opinion those could really be game changing numbers, so be prepared. Many in the industry are looking for a a cut of 100,000 to 300,000 in soybeans acres, and anywhere from a 200,000 to a whopping 1 million acre reduction in corn. The bottom line is that a reduction in corn acres of anywhere close to 500,000, with a yield of 150 or lower, and we will be staring down the barrel of a record low stocks-to-use ratio. More than a 200,000 acre reduction in soybean acres and we fall to dangerously low levels as well. The main reason I mention this is because I don't want to you to think that every thing hinges on Monday's USDA yield estimates and demand numbers, the "total harvested" acres are still the main key to this equation in my opinion.

 

For those of you looking for shorter-term price direction, I have include my best guess of where the market heads based on USDA "yield" estimates. Hope this gives you some type of guidance or direction. Remember, there is much more to the report than just "yield."

If the USDA Corn Yield is:

  • 150 or higher - I believe we have potential to trade "Limit Down"

  • 150 to 148 - I believe we trade in a $0.20 cent range from here, obviously dependent on what some of the other numbers indicate.

  • 148 or lower - I believe we have potential to trade "Limit-Up"

It is almost crazy for me to make such broad sweeping comments, when we all know there is a ton of other data that will need to be digested on Monday to determine overall price direction, but with so many producers fixed on the yield number, I thought I would give you my two cents. I also wanted to include the average trade guesses and ranges that I have been hearing on my end to help you sort out the numbers on Monday morning.

  • Corn Average Yield Guess @ 148.8. USDA currently @ 153 bushels per acre. Range of guesses running from 145 to 153 bushels per acre. I am throwing my hat in the ring at or around 149-150, with potential for the yield to ultimately fall to 147.

  • Corn Total Production Guess @ 12.5 billion bushels. USDA currently @ 12.914 billion. Range of guesses running from 11.91 to 12.91 billion. I also like the 12.5 total production guess, if I had to pick I might error to lower side of the number.

  • Corn Ending Stock Guess "Old Crop" @ 974 million. USDA currently @ 940 million, last year the USDA was @ 1.708 billion. The range of guesses are between 929 million on the low-end up to 1.0800 billion on the high-end. I am think we end up lower than this and place my bets on the lowest end of the range, it actually wouldn't surprise me to see us fall below 900 million.

  • Corn Ending Stock Guess "New Crop" @ 635 million. USDA currently @ 714 million. The range of guesses are between 497 to 757 million on the high-end.My guess is that we end up between 600 and 700 million, because they will more than likely cut export and livestock demand to help offset production losses. 

  • Soybean Average Yield Guess @ 41 bushels per acre. USDA currently @ 41.4. Range of guesses running from 40 to 41.8 bushels per acre. My guess for this report is at 41.1 bushels per acre or higher...I see no major adjustment made.

  • Soybean Total Production Guess @ 3.025 billion. USDA currently @ 3.056 billion. Range of guesses running from 2.925 to 3.085 billion. I have to believe the USDA keeps us well above the critical 3 billion level for the time being.

  • Soybean Ending Stock Guess "Old Crop" @ 232 million. USDA currently @ 230 million, last year the USDA was @ 151 million. The range of guesses are between 223 and 240 million. Once again I think we end up at the low end of the range, due to exports being better than most have anticipated.  It wouldn't surprise me to see us down around 220 million. 

  • Soybean Ending Stock Guess "New Crop" @ 152 million. USDA currently @ 155 million. The range of guesses are between 110 to 188 million. I doubt we drop much from their current estimates, as I believe they are questioning demand.

  • Wheat Ending Stocks Guess @ 667 million. USDA currently @ 671 million. The range of guesses are running between 628 to 705 million. I doubt we see any real significant move by the USDA, but if I had to bet I would imagine a slight downward revision could be int he cards.

Yield numbers from several of our producers in Illinois continue to come in much better than anticipated, while an equal number continuing to report a wide variety of both good and bad yield numbers. A couple of very good sources in the industry that are out in the fields in many locations have told me they have personally ridden with producers who have experienced yields below 50 bushels per acre in one field only to have production top 150 bushels per acre in another field right down the road. With yields all over the board like this I just find it hard to believe our national "average" will be able to hang in there. There is also some talk about much larger kernels in the field and better than anticipated "test weights."  If you remember, I told you several weeks back that the blanks in the cob and the severe tipping could actually allow the kernels that were still alive to gain more weight than one might think. Well, that is exactly what has happened for many producers. In fact, there is talk circulating from a few "crop scouts" on the eastern leg of the Pro Farmer Tour that are indicating the fields they had checked during the tour are actually coming in 15-20 bushels higher than they had estimated, most likely due to better than expected test weights. Be careful however, thinking that your "test weights" are getting bigger just because the kernels are getting longer. One other thing we need to think about as we continue to hear about these better than anticipated yields is that the moisture levels on most of the good fields have been on the high end. Word out in the field is that moisture levels are running from just under 14% on the top of the hills, and on the burnt up plants, all the way up to 30% moisture on some of the higher yielding plants. With the lower moisture levels being on the fields that are producing the least amount of bushels, you have to be concerned about the expense and just how tough it will be to dry down this excessively large portion of the bushels.

 

I continue to believe the Ag markets will stick with their "pre-report" theme of selling off on any substantial rally. With better than expected yields coming in early, and no real weather threat in the forecast, some of the "Bulls" may feel they are a little overextended and may look to make some last minute adjustments. Better than expected export sales in wheat, and good numbers in corn may prompt a little early rally, but I would suspect it will be used as another opportunity to lighten the load into the report. 

Personally, I am going to stick with being long soy over corn outright, and will be looking for an opportunity to add to the position if the report provides the opportunity.  From a spec standpoint, I will be looking for any type of major break on Monday as an opportunity to add some length.  From a producers standpoint, any type of limit-up move in corn, especially a push above $8.00 in the March contract next week should provide some additional opportunities to roll-up hedges, maybe even some opportunities to sell some deep out of the money $9.00 or $9.50 calls, and a real chance to pull the trigger on a few more cash sales.  Have a good weekend, and lets hope the USDA gives the "Bulls" another opportunity to run on Monday morning!

 

Make sure you are signed up so you can get today and tomorrow's report before the USDA releases its supply and demand numbers for September--could make for a big move in the markets! Sign up today and you will also receive my personal cash sale recommendations as well as access to my full marketing strategy. Remember, YOUR livelihood is traded on a global market. Prices don't react to fundamental news like they used to. In the FULL report, I bring you the inside scoop on what the big money players (hedge funds/managed money) are watching and how to take advantage of it! Simply follow the link below. You can also click the button below to follow my team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 
 

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What Do Soybeans Look Like Headed into Monday's USDA Report?

Sep 08, 2011

As for soybeans, I believe it comes down to "harvested" acres, with Chinese "demand" also an import factor. I am hearing numbers all over the board as far as "yields" are concerned, but I have to believe we end up somewhere between 40.5 and 41.5 when all the cards are counted.

I am just not buying into those extremely low yield estimates that are floating around. I have actually talked to a few producers who tell me they believe they will see better yields this year as compared to last year. Primarily though, most producers still seem to be estimating slightly lower yield numbers. With the recent rains and cooler temps, I myself will continue to err on the side of caution, and believe that we will ultimately see a number at or just slightly lower than the USDA's current yield estimate.

The real question then becomes not so much about "yield," but rather how many acres we will get harvested. If we see a reduction in harvested acres of 200,000 or more, we will need to see some rationing in soybeans as well. A reduction of 100,000 acres, and prices are probably not too far from where they need to be. No reduction in acres, and we will be looking at a setback until more traction or outright soy "demand" from China is penciled in. Right now, that is simply not the case, as China, along with other Asian countries, continues to book South American soy for October and November delivery. As you know, this has traditionally been a time when they start booking U.S. soy for delivery.

I am also starting to worry more about U.S. soybean export demand, especially as I now hear that the Chinese crush margins are running at a negative 15 to 20 cents. If demand continues to falter, you could also see ending stocks numbers jump in a hurry. Regardless, I believe the downside in soy is still no more than $1.00 to $1.50 lower at this point, while your upside could be as much as $2.00 to $2.50, just depending on how aggressive the funds become if and when they really decide to jump on the bandwagon. This essentially gives you a range of $12.50 on the low end to around $15.50 on the high, with the potential for an extended "fund" induced rally to push us beyond the $16.00 level, especially if the "outside" markets can provide us with some sort of a tailwind. If you are looking for the market to "tip" its hand in one direction or the other, keep your eye out for any hints of harvested acres during the coming weeks, or additional setbacks in demand from leading importers/end users.

After talking with a few insiders close to the Brazilian market, I am starting to wonder if the recent stories and press regarding more acres being switched from soy to corn is simply more "hype" than it is "reality." I am not saying that more corn acres won't ultimately be planted in Brazil. I am just letting you know that for most of their producers, soybeans still pencil better, primarily due to the high costs associated with "ammonium nitrate" and their ability to get their hands on large quantities. We just need to be careful buying into the fact that producers in Brazil are going to plant more "full-season" corn at the expense of soybean acres. I am just not seeing or hearing the same thing from producers on the ground.
 
I certainly believe we will continue to see more "second crop" corn being planted by Brazilian producers. I am just not sure the "full-season" varieties will make as big of a splash as some are anticipating. The southern areas may be more friendly to the concept than other parts of Brazil, but I am still not completely sold on the fact that more "full-season" corn will be planted in lieu of current "full-season" soy. I included a few more details in the story section of the full report. If you aren't signed up, go ahead and click the link below, it only takes a minute.  
 
As for grain and soy markets today, I continue to believe the mood of the market has switched to selling the rallies ahead of the USDA report. You have to believe that if "longs" are looking to square up positions ahead of Monday's report, they will continue using the rallies to unload contracts. With this in mind, I doubt we see any real sustained strength between now and the report.
 


 
 
 

Make sure you are signed up so you can get today and tomorrow's report before the USDA releases its supply and demand numbers for September--could make for a big move in the markets! Sign up today and you will also receive my personal cash sale recommendations as well as access to my full marketing strategy. Remember, YOUR livelihood is traded on a global market. Prices don't react to fundamental news like they used to. In the FULL report, I bring you the inside scoop on what the big money players (hedge funds/managed money) are watching and how to take advantage of it! Simply follow the link below. You can also click the button below to follow my team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 

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Don't Panic on the "Breaks"

Sep 07, 2011

A great trader once told me, most every big "bull" market will always give you another chance to get back in.

I am becoming fearful that we may start to hear more rumblings about better yields coming out of the areas of Illinois and Iowa in the weeks ahead. This may prompt the market to start second-guessing itself and be cause for some type of retreat from the higher end of the trading range. Fears of increased acreage in South America, and here in the US next season, along with pressure from the outside markets, may eventually provoke even greater fears and cause the market to actually test the lower limits of the trading range that I mentioned above.
 
In the end, however, I have to believe we will eventually find a way to gain more traction and once again test the upper limits of the range on weather-related fears, shortage of supply, increases in global demand, etc. A great trader once told me, most every big "bull" market will always give you another chance to get back in. My point is that I wouldn't chase the rallies if you are looking to spec. If you're a producer, don't panic on the "breaks." Use the rallies to make your cash sales, and recognize the fact that you might have to store any unhedged or unpriced bushels until brighter days come back around.
 
I still promote making your cash sales NOW if you are going to need cash flow during the remainder of 2011. Those who have the means should consider some type of limited risk reownership plan to protect their upside on the bushels that they sell. If you are purely a cash marketer, get yourself to around 60% sold and look to store the remaining bushels. Pulling the trigger on 10%-15% of our 2012 crop isn't a horrible idea either, especially if you have some of your inputs locked in and the current prices pencil well for you.  
 
My thoughts are that without some type of positive government intervention such as QE3, we may find the agricultural markets stuck in a trading range, buoyed by hopes of higher world demand and thoughts that extreme weather conditions could prompt a shortage at any given moment. Without QE3, the US dollar may find more traction and strength on increased fears of a European meltdown, which ultimately works against the agricultural markets. 
 
As for today, we got an early bounce out of the gates on reduced USDA "condition ratings" and the "outside" market push. The "outsides" are being helped by news overnight that the German courts have rejected a series of legal challenges to the eurozone rescue measures, while insisting that the German parliament must in future be consulted in advance about any new bailout measures. The decision is definitely being viewed as a short-term victory for proponents of the "bailout" and in particular the ruling German government. The kicker is that the courts have ruled that the budget committee in Berlin must give its prior approval before any German government guarantees or money can be given for future emergency lending to other members of the 17-nation eurozone. You and I both know it is only a matter of time before another European nation needs some type of bailout. The question now becomes, will the German parliament pass the measures or block the deal?
 
After the higher move out of the gates, we needed more "bullish" news and really didn’t get it. What we got were reports of better than expected weather and better yields in both corn and beans by grain analysts at Country Hedging. Remember, the market is still massively "long"; if traders look to square up ahead of Monday's USDA report, there may be some additional pressure as well in the next few days. The theme as of late has been to "buy the breaks"; my hunch is that during the next couple of days we may see the trade take more of a "sell the rally" type attitude.

 

For more on where I believe corn, soybean and wheat prices could make their runs as we head into harvest, sign up to receive my FREE full report. Sign up today and you will also receive my personal cash sale recommendations as well as access to my full marketing strategy. Remember, YOUR livelihood is traded on a global market. Prices don't react to fundamental news like they used to. In the FULL report, I bring you the inside scoop on what the big money players (hedge funds/managed money) are watching and how to take advantage of it! Simply follow the link below. You can also click the button below to follow my team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 

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Should You Be Thinking About Making a Cash Sale Here?

Sep 06, 2011

 With how much prices fell back today, I wanted to address the question of cash sales as many producers have been frantically asking me all day today.  To be clear, I continue to believe there is still more room to the upside....BUT we have to honor the fact that "money-flow" and a "risk-off" type mood may pressure the trade.  The situation in Europe has the "Big Boys" nervous, gold is surging to new all-time highs and quickly approaching $2,000 per ounce on fears and uncertainty. Crude Oil is under pressure as economic growth in Europe, China and hear at home are all being questioned. Bottom-line, the "outsides" are working against us, while fundamentally the crops seem to only be shrinking.  Informa's numbers earlier today didn't help as they estimated corn yields at 151 and soybean yields at 41.5 bushels per acre.  Trade took this as bearish and piled on the pressure bringing prices down.  Tomorrow could be another story as the brand new released crop condition ratings look to be something the bulls can sink their teeth into.  Corn Crop Conditions reported at 52% Good/Excellent compared to last weeks 54% Good/Excellent rating.  Last year at this juncture we were at 69% rated Good/Excellent.  Soybean Crop Conditions reported at 56% Good/Excellent compared to last weeks 57% Good/Excellent rating.  Last year at this juncture we were at 64% rated Good/Excellent.

With the basis at the "Gulf" starting to slip even further on poor export interest, there is some fear that "demand" rather than "yield" may soon start to be more of the focus.  Certainly there is no debating the fact that the current USDA yield number will be reduced in the weeks ahead.  The question though is starting to linger as to if and when "demand" will start to pick back up.  As end-users come to the realization and fear that US corn bushels simply may not be available in the months ahead, many may be tempted to start booking less expensive alternatives such as "feed wheat" now, before supplies become more limited later in the marketing year.  This is certainly cause for concern and poses the question as to how US exports will fair in the days and weeks ahead, as cheaper global alternatives seem to be the the only real solution.  
 
I am certainly not expecting a major market set-back solely caused by a reduction in "demand," especially with the USDA crop report slated just four full trading session away (next Monday). I do however believe the "Big Boy's" may be looking to reduce their overall "risk" in several of the commodity markets as more fear and concern over the European Debt situation comes back to the foreground. As I have been saying for weeks, this situation is far from over, and may continue to be a thorn in our side as we try and move to higher ground in the grain and soy markets.  

Look for a "risk-off" trading environment to pressure the markets early on, European news will dictate direction this week and may provide us with some excellent buying opportunities!

In conclusion, producers may want to hold off any additional cash sales at this time until the smoke clears and the dust settles.  It may become volatile and push the extremes, especially if the European Union falls to pieces.  I have no reason to believe we couldn't see a limit up or down move this week.  Try to remain calm and ride this storm out.  If you would like more in depth help on making some cash sales, or would like to have the ability to call and talk to I or one of our guys at Farm Direction, go ahead and sign-up for my report.  
 
Hope this helps, Thanks   
 

For more thoughts on where I believe Corn, Soybeans and wheat Prices could make their runs as we head into harvest, Sign-up to receive my FREE Full report.  Sign-up today and you will also receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, YOUR livelihood is traded on a Global market. Prices don't react to fundamental news like they use to. In the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 

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How the "Outsides" Are Pressuring Prices, Demand

Sep 01, 2011

In the last few days, the trade has seemed excited in regards to the Fed notes (minutes) form their August meeting.  I urge you to be cautious buying into the somewhat misleading facts that the press has been running with.  Everyone continues to think the Fed is guaranteeing that they will keep rates "exceptionally low" at least through 2013. The fact however remains, that they actually expects economic conditions to remain weak enough to warrant low fed funds rate through 2013...big difference! More rhetoric that seemed to exit the trade was that "A few members felt that recent economic developments justified a more substantial move at this meeting..." Interpreted as QE3 was discussed and actually suggested by a few members. Just remember,  If they had any hidden "bazookas" or "cannons" left in their arsenal they would have already used them, my guess is they are left with just a "Daisy Rider BB Gun." 

In a slightly longer-term perspective, I believe that once we get through month-end rebalancing, "money flow" will soon start to become concerned about the upcoming European bailout vote taking place in Germany. Since the "bailout" agreement was announced last month, German voters and legislators have raised their voices against Chancellor Angela Merkel and her administration. Challenges from within her party now threaten to undermine her entire coalition. According to insider reports, 23 members of the center-right coalition are set to vote against the bailout, many from within Merkel's own "Christian Democratic Union." The bottom line is that those in Germany seek more, rather than less control over eurozone funds and currency. A bailout agreement was set forward on July 21st, and since that time the EU and IMF leaders have been calling for Germany's support. A delay in Germany support will work against their goals, and could ultimately put Greece's fragile economy even further at risk. As of right now, the critical vote is scheduled for September 23rd, but there is talk it could be delayed out to September 29th.

From my perspective, with the funds long close to 400,000 contracts of corn already, and many large players still very concerned about the US, European and Chinese economies, there may be some apprehension on their behalf to add more length at this juncture, or at least until more "unknowns" are answered. With this being the case outright long positions may prove to be extremely volatile and hard to manage, during the coming sessions.  Bull spreads and Bull-Call spreads might actually be a much safer venture at these extreme levels. "Producers" who still have new crop soybean bushels to sell may find it more advantageous to use "Bear" spreads in the futures markets to hedge their price risk, rather than making cash sales at the current time. 

Bottom-line, my fear is not the current "fundamental" outlook for corn or soybeans, my fear is what type of investment "potential" the big money players believe to be left in the corn market.  With talk that demand could completely fizzle out at....

For more thoughts on where I believe Corn, Soybeans and wheat Prices could make their runs as we head into harvest, Sign-up to receive my FREE Full report.  Sign-up today and you will also receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, YOUR livelihood is traded on a Global market. Prices don't react to fundamental news like they use to. In the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 

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