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April 2012 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.

Thoughts on Last Week's Big Corn Purchase

Apr 30, 2012

   

Even though I am making sales and reducing risk, I am hoping that the "character" of the market is changing.  From where is sit, it looks as if "new crop" corn has played the lead roll the past several weeks, basically ever since the USDA "Ag Outlook" meeting in February and certainly since the USDA "Planting Intention" numbers were first released a couple of months back. My point is "supply" had taken center stage over "demand." Our only hope moving forward right now is that "demand" will once again take over the "lead roll" and pull us higher.  We caught our first glimpse of this on Friday as May corn was able to close up over $0.40 cents on the week. I personally think we are going to see some follow through movement higher in the coming sessions as "old crop" supply looks as if it needs to ration more demand. However with new crop prices dangerously close to falling into the "red" we can NOT afford to bet the farm on "wishful thinking."  
 
My belief is that producers HAVE to take advantage of any and all rallies that ensue during the next few weeks. Yes, I understand there is currently no "weather" premium built into the "new crop" prices, and that the early harvested corn in the South could end up going to "exporters" ultimately leaving end-users to the North short supplies. But I also realize there is a strong chance we could end up getting between 96 and 97 million corn acres in the ground, and without a weather problem we could see a yield close to 170 bushel per acre! With prices still at profitable levels and previous sales up above $6.00 there is no reason to get overly aggressive to the bullish side and take unnecessary risk. Yes, there are several variables that could allow us to move higher, but for those with limited "storage" and in need of the "cash-flow," I simply do not like the odds well enough to risk it. My best advice is to pull the trigger on the upcoming rallies and look for ways to reduce more of your downside exposure. There is some talk that May corn may need to push another $0.20 to $0.30 cents higher to ration demand before it goes off the board, hopefully this will help pull new crop prices up a bit form here and give us an opportunity to price a few more bushels.      
 
After the USDA confirmed the largest one day corn sale since 1991, US "new crop" corn managed to close last week up a whopping $0.02 cents. Do you realize just since last week the USDA has reported 690,000 metric tons of "old crop" sales and 2.15 million metric tons of "new crop" sales. As I have been mentioning, the "new crop" corn market just doesn't seem to be digesting the bullish news as one would have anticipated, especially with the cash market continuing to strengthen and the "old crop" ending stocks shrinking on many balance sheets to below 500 million (some even talking 300 million). 
 
Below are the Top-6 "Daily Corn Sales" as reported by the USDA. This dates back to April 14th, 1977 when the ESR first began "Daily Sales" press releases.
 
#1.  3.72 million metric tons reported sold to the "USSR" on January 9th, 1991
 
#2.  2.00 million metric tons reported sold to the "USSR" on October 3rd, 1989
 
#3.  1.86 million metric tons reported sold to "Unknown" on July 6th, 1979
 
#4.  1.45 million metric tons reported sold to "Unknown" on July 9th, 1979
 
#5.  1.45 million metric tons reported sold to "China" on December 20th, 1994 
 
#6.  1.44 million metric tons reported sold to "Unknown" on April 27th, 2012
 
I hate to say this, but I am very concerned about the way this market is reacting to "bullish" news, and I urge you to take notice sooner rather than later.  Because of the weak reaction in the Dec contract to the large purchases, I am encouraging producers to quickly get sold to....
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -       


Should You Be Selling 2013 Crop?

Apr 26, 2012

   

Shrinking South American soybean supply continues to dominate the trade. With some analyst dropping their soybean production estimates for Argentina to 37MMT and down to 62MMT for Brazil, the trade is extremely nervous about short supplies. The last time the Argentine soybean production fell below 40MMT was back in 2008/09 at 32MMT. That was the season with the serious LaNina issues brewing. The bottom line is we could soon be digesting a 35 million metric tons loss in South America soy production. The best case scenario is probably a loss of 25 million metric tons, Argentina at 43MMT and Brazil at 66MMT. As you can see, anyway you slice the pie we are going to need more price rationing in order to meet global demand. I am even starting to hear a handful of very well respected analyst thinking it could take a couple of years to replenish global supplies. That is even taking into account the fact Brazil might produce a record soy crop closer to 80 million metric tons next year and Argentina may produce a record 55 million metric tons. The moral of the story is be patient and don't get too overly excited about selling a large quantity of beans too far out, it is starting to feel like Brazil is dangerously close to being sold out and Argentina will simply not have enough "quality" soymeal supply to fulfill global demand.
 
US soymeal sales are certainly causing many in the trade to believe the US "old crop" crush numbers are simply too low. I do want to make a correction to a statement made yesterday, when I said the Philippines had made a recent US purchase of meal, and they "most generally" tend to buy form Brazil. I should have  pointed out that the Philippines have in fact already purchased 730,000MT during the current marketing year. The correct verbiage therefore is the Philippines will pay up for US supplies when "quality" becomes a major concern in Argentina, which is exactly the case right now. I should also note there is some talk that South Korea (who generally buys ARG or India meal) is also looking for around 140,000 MTs of US meal, so be on your toes.
 
A little of the edge was taken off yesterday when the Buenos Aries Exchange came out and said the recent "freeze/frost" damage had done little if any damage to the countries late planted soybeans. Who knows if this is correct or not, but it certainly caused the market to pause.  There was also more talk that China is gearing up to release large government soybean reserves into their domestic marketplace which could obviously cool "old crop" demand and eventually weaken the red hot bull spreads. I will argue that while these small speed bumps may cause the spec's to slow down to some degree, in the end I think we still have more racing to higher ground in front of us. If your a spec look for the setbacks as buying opportunities especially against the Sept or Dec corn as our target of a 3:1 price ratio is still in play. By all means DO NOT TRY AND PICK A TOP IN THIS MARKET!!! 
 
Corn bulls where happy to see the USDA announcing a sale yesterday of 420,000MT corn to "unknown" for 2012/13 and 262,500MT corn sold to "China," broken down as 90,000MT for 2011/12 and 172,500MT for 2012/13. Basically since Monday the USDA has announced 1,285,500MT of US corn being sold to "unknown," who we are assuming is China...570,000MT old crop and 715,500 new. Personally, I am thinking we will soon see another 1 million metric tons plus of new crop sales announced here int he near future. The question remains, will this be enough to spark a more sustainable rally?  From my perspective, "I doubt it."
 
Old crop corn certainly seems to be trapped at the low end of the range. Be careful thinking higher prices are a "sure thing." I have learned painfully time and time again that "the market is always right." We can argue until we are blue in the face that we should be significantly higher, the conspiracy theorist in each of us will want to argue that the USDA is wrong and the bushels are missing, or that China has purchased more than the USDA is telling us, etc, etc... but the point of the matter is we are trending lower. The funds have been exiting their long positions by the groves and we are once again approaching critical "support" at the $5.90 area in the JUL12 corn contract. Several analyst believe we will make a strong bounce back towards $7.00, but I urge you to be careful betting the farm on this theory. Remember, in order to be a so called "market whisperer" your first lesson is to always "listen" carefully to the markets. 
 
Cash prices are firm across the board and the Chinese are buying record amounts, our ending stocks are tight, yet prices continue to break. Something is obviously NOT right! You can try and fight it all day long, but in the end I personally doubt you will be any richer. I can't tell you the last time I won betting against the market.  Meaning, if you believe whole heartedly that we should be trading higher, but we continue to slide and make lower lows and lower highs then you are missing something, don't argue it, don't fight it, just recognize you are missing something. As I am sure you have seen the past few session my corn rating has been throttled back to "neutral." I would have thought the market would have jumped on the Chinese buying, or the continuing firm basis, but nothing... Because the market is NOT reacting as I would have anticipated I have to move to the sideline. Oh, one other point, the CME announced they were cutting corn margin requirements on hedge positions by $500 to $1,250. Speculators’ margins were cut by $575 to $1,688. This is also NOT what the exchange generally does in big bull markets. Point being, we are not in one.  
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing.  You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -      


 

Will the Chinese Rumors Be Confirmed?

Apr 20, 2012

   

Corn traders continue to try and figure out just how much corn, especially "old crop" US supplies, China has purchased as of late. We have all heard the rumors of Sino grain snooping around in the market for huge US quantitates, must talking about 500k-700k... but when will we see the confirmation? Certainly not in yesterday's USDA export sales data. One source I have over in China went as far as to say he believes China recently bought two million tons US corn, 0.5 by Cofco  and 1.5 by SinoGrain. On the flip side several seasoned traders are questioning WHY China would be in buying large quantities of old crop US corn in the first place with new crop supplies just 12-15 weeks away and some $0.75 cents cheaper. Another big concern is that the purchases made recently were "optional origin," and with Argentine corn trading at some $15-$20 per ton DISCOUNT to US corn, it would only make sense that a large portion of the purchases could would swing to Argentina and NOT 100% going to the US. In any regards I have to believe something has been bought, just too much "buzz" in the market to be nothing at all.  Bottom-line I wouldn't be short down here at the low end of the range. Yes, we may be in the long-term process of making lower highs and lower lows, but huge Chinese purchases could certainly change the balance sheets. 
 
The basis continues to remain strong. In fact we are hearing many reports from producers who are seeing the ethanol processors, in an attempt to draw corn away from export terminals, bid up for supplies. Some areas out East are reported to be bidding  $0.40 to $0.45 cents over for old crop bushels. The basis all over the country is being helped in fact by the early plantings which are keeping the producers in the fields and not selling or hauling grain. I continue to urge producers to make the sale and take advantage of the strength in the basis then look for ways you can re-own the board with some limited risk type plays. If you do not want to re-own the board then I would continue to wait for higher prices.  
 
Chinese "drought" news is also grabbing the headlines. Yesterday there was all kinds of talk circulating about "Heilongjang," a major bean producing area in the far northeast of China experiencing some extremely dry conditions. The problem is a couple of reliable weather services here at home are scratching their head because the data shows precipitation in March was actually well above average. Some even indicating nearby areas are running at a slight surplus for the past 90 days. I would be apprehensive buying into a bullish type Chinese weather story at this juncture. 
 
South American production estimates seemed to be gaining some recent attention as well. From what we heard, the Argentine government lowered their corn estimate to 20.3 MMT from 21.7.  The USDA currently has their Argentine corn crop estimated at 21.5MMT, so this confirms thoughts that the USDA is too high. They also lowered their soybeans estimates from 44MMT down to 42.9MMT. The Buenos Aires Exchange chose to leave their Argentine soy production numbers unchanged at 44MMT, and also left their corn production numbers unchanged at 20.8MMT, this is still lower than the current USDA estimates. While we are talking about production I should also note that Oil World earlier this week cut their EU rapeseed estimates to just 18.5MMT which is a new five-year low.
 
Wheat is starting to attract a little more of my attention as of late, and as I mentioned the past few days there are some global developments that are making me think wheat may soon become more bullish than corn. More talk of global production type setbacks and increasing demand may eventually be a formula for higher prices. I am not getting overly excited, but I do see some potential light at the end of the tunnel. Therefore I will continue to patiently wait for higher prices before marketing any additional bushels.  
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing.  You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -     


 

What the Technicals Are Signaling in Corn

Apr 19, 2012

  

Corn, as I am sure you are aware, has gotten dangerously close to breaking through most all major "technical" support levels as of late, and we need to perk up pay close attention. The "bears" will soon be banging their drum if the May contract can once again close below the March lows of $6.03. As you can see from the chart below many analyst view this as a critical support area that we needed to hold in order to avoid more serious "technical" based liquidation or net short origination. Overnight we posted a strong technical bounce, on positive news form the outside markets, more Chinese buying rumors and some new talk in the market about a severe Chinese drought starting to take hold in a couple of areas. As you can see from the chart, yesterday's low of $5.99^4 in the May corn contract is now near-term support and will be carefully monitored, while a trade below $584^4 (the one year low) could signal much more serious liquidation and certainly be cause for concern. 
 
All of a sudden the question becomes, will the 30 day $0.75 cent price break in old crop corn be an interim "low" as we bounce back out of this hole or will it be the start of heavy fund liquidation? The July contract is facing a similar dilemma and will have its eye on the $5.90 mark as critical support, while the December contract is hoping that support at $5.20 will be able to hold.
 
Scott Irwin and Darrel Good, well respected sources from the University of Illinois Department of Agricultural and Consumer Economics issued a very good report that goes hand in hand with my recent arguments that the USDA could easily RAISE their current 164 bushel per acre national corn yield estimates in the May or June report. Remember back in 2010, after the record fast planting pace the USDA pushed the yield from just below 161 up to 163.5. I am telling you now I could see a very similar adjustment made this year.  Here is the final conclusion from Good and Irwin, with a link to the entire report, it is well worth the read: "Corn planting in 2012 will reach the 50 percent completion date earlier than any other year since 1960 in Illinois and perhaps in Indiana as well. While Iowa is not likely to set a record early date, it is likely that Iowa will reach 50 percent complete well before its trend date. While some records will be set in 2012 it is important to keep in mind that other years have seen corn planting almost as early. The main market implication is that a smaller than average percentage of the U.S. corn crop is likely to be planted late (after May 20) and incur the yield penalty associated with late planting. As indicated in our post of March 23 a smaller than average portion of the crop planted late supports the expectation for the 2012 corn yield to be about two bushels above trend, if there are no other offsetting factors later in the season."  2012 Corn Crop To Be The Earliest Ever Planted?
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing.  You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -    


Monday In the Grains

Apr 16, 2012

Tomorrow's USDA crop condition reports for wheat and planting progress for corn will garner a large amount of attention.  Talk in the trade is the USDA will show close to 20% of the US corn acres already in the ground, some thinking the data may show estimates as high as 25% planted at this juncture. That would be a substantial jump form the 7% reported just last week and the 7% average most generally reported for this time of the year. This quick pace to planting would certainly give the "bears" something to cheer about.   

The Goldman Roll is now behind us and the market will need to decide if the front month (May) is as attractive today as it was a couple of weeks ago. I continue to stay long the CK vs. CN from around even money, with hopes it can move to a $0.20 cent plus premium. I am keeping a close eye on it as the board seems a little uncertain about near-term strength in global demand (worry that Chinese corn demand may start to shift to Brazil). I would have thought last week's larger than expected old crop export sales and Chinese buying rumors would have done more to excite the trade. Remember, regardless of what we might think, the markets are always right.
 
Producers that still need to move "old crop" corn may start to soon see the window of opportunity fading. In my opinion, the smartest play would be to aggressively move old crop cash bushels now while the basis is still strengthening. You can also use the recent break in prices on the board to build some re-ownership strategies that will cover you through the summer months should we move higher. I am not a huge fan of the July vs Dec bull spreads, as I believe there are better opportunities with less overall risk out there. My thoughts are you should get with your advisor and look for some type of bull call spread or outright call options that can provide you with some additional upside returns but maintain limited downside exposure. Just at a quick glance you can pick up good old fashioned $7 July corn calls for less than $0.08 cents right now (I'll try and provide some more ideas in our "marketing update " this afternoon). My fear is that with an early planted crop the basis may start to fall apart while you are waiting on that magic $7 number. Yes, there is a chance we may eventually see the July corn contract reach a $7 price tag, but if the basis falls apart in the process, then net-net you really didn't gain anything. My guess is we may still have another $0.15 to $0.20 cents of downside movement as the "old crop" contracts test the mid-Jan and late-March technical lows. Moving the bushels now, taking advantage of the strengthening basis, and re-owning the board on the break sounds like the winning combination from my perspective. Also keep in mind, if price do move higher there is a very strong possibility the "volatility" on the board could make a big jump and drastically increase your cost of "re-ownership." 
 
New crop corn, still seems to be anyone's guess. The trade is entirely hinging its bets on upcoming US weather conditions, as prices are being forecast anywhere between $4.20 and $8.20 just depending on who you ask or who you are following. Most all seem to be in agreement that with close to 96 million corn acres going in the ground, and if we can achieve a 164 type national yield, we will be swimming in a "sea of corn." On the flip side, with the USDA yield forecast being highly questioned and very extremely abnormal US winter weather conditions, nothing can be entirely ruled out as of yet. Be patient even though we may continue to see more downside pressure early this week on improved growing conditions and a record fast planting pace in this afternoon's report.        
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing.  You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -   


Consider This Before New Crop Corn Sales

Apr 12, 2012

   

Grain and soy markets are firm this morning on more talk that China’s Sinograin was in looking for 2-4 cargos of US corn (some thinking old crop while others thinking new crop interest). There is also talk that China has been in buying several cargos of US new crop beans this week off the PNW, and rumors that they have also been in buying cargos for July, Aug and Sept deliveries as well. I am also hearing some talk that US wheat exports are being underestimated and that both Argentine and Brazil are slowly fading from the equation. Net-net US grain and soy exports could end up being stronger than the USDA is currently estimating. This mornings old crop export sales numbers for corn were incredible strong at 959,100 metric tons. 
 
Corn producers may have gotten a little nervous after several large analyst and firms have come out in the past couple of days with sizable new crop corn SELL signals. In fact, I have heard a couple of sources who are pulling the trigger on about 50% of their estimated production at the current Dec price levels of around $5.45. Let's take a quick moment and consider this move. Remember we are trying to become master chess players...not simply chess pieces!
 
  • With many analyst throwing around a 1.6 to 1.7 bushel carry there is a ton of comparisons being made to 2009 when corn prices traded sub $4.20. I personally respect the comparisons and believe in studying our history, but I think during the past few years the landscape has dramatically changed. 
  • Bio-fuel production is certainly more important than it was in 2009, as we are seeing countries around the globe become receptive to ethanol and biodiesel as a viable fuel alternative. Both Argentina and Brazil are investing millions in corn based ethanol production facilities to help supplement sugar based ethanol. While here in the US corn being used for ethanol has jumped by almost 1.3 billion bushels from the end of 2008 to the end of 2011. 
  • Chinese corn demand is currently much stronger than it was in 2009. In fact, the USDA is currently estimating Chinese corn imports will reach about 5 million tons, some analyst think this number could be doubled before it is all said and done. It is certainly realistic to believe China could import 7-8 million. 
  • Global DDGS demand is also much stronger than in 2009. Just consider the fact DDGS imports into China jumped from a mere 7,000 metric tons for all of 2008 to over 3 million in 2010. Also consider US DDGS exports jumped from 1.7 million metric tons in 2007 to 8.2 million metric tons in 2010.
  • The cash basis in corn is incredible strong, both here in the US and abroad. Bushels of corn today are simply not as readily available as they were in 2009. The domestic Chinese market is reporting prices at around $10 per bushel, while commercials here have been reportedly paying record high basis levels to acquire bushels this entire winter and now into spring. 
  • Farmers were not nearly as cash flush in 2009, nor did they have the storage capacity they have today. Point being, farmers will not have their hands forced as quickly as they have in the past. Being able to store corn and hold back supplies could keep the situation extremely tight for some time. 
  • Farm values have also sharply increased, meaning the cost of production has definitely been on the rise since 2009. 
  • Farm insurance guarantees for this season are set a $5.68 for many producers. In 2009, insurance guarantees were at about $4.00 a bushel (which at the time was the second highest prices ever offered). I am just not sure producers are going to be extremely eager to book a large number of bushels below the guaranteed insurance level. 
 
With over 30% of our new crop production priced at levels well above $6.00, I see NO reason to get overly aggressive on pulling the trigger on any large sales at this stage of the game. Certainly we have downside risk, when don't we? But I think there are still a few hurdles this market will need to clear before a massive crop can be guaranteed. 
 
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing.  You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -  


 

Focus Turning Back to the Outside Markets?

Apr 11, 2012

   

With the April USDA report behind us the funds will start to consider the May 10th report, where the USDA will first start to incorporate their March "Prospective Plantings" acreage estimates into their 2012-2013 WASDE supply and demand prospects. Keep in mind, we will not see the true soybean or corn planted acreage numbers until the June 29th "Quarterly Stocks & Planted Acreage" report. With some fundamental "dead-time" ahead, I have to imagine the funds will  once again start reacting more to the "outside" market headlines.
 
Europe has once again become the topic of major concern and there is starting to be greater fear in the marketplace in regards to Spain and Italy, who will both be watched closely in the weeks and months ahead. I am afraid any further defecting from their budgetary reduction goals and we could see another significant debt problem in the EU similar to that of Greece. As for today the Spanish and Italian bond yield have backed off some, and the macro traders seems to breathing a slight sigh of relief. The US stock market is making a little bounce after trading lower for six consecutive days but is still in danger of blowing through major short-term "technical" support. The poor US jobs data and continuing debt crisis in Europe seems to be starting to weighing on the minds of some of the bigger players, and seems to be causing them to think twice before adding more "risk." Because the funds are record long soybeans and holding significant long positions in corn we do need to spend some time addressing the potential "risk-off" or negative money-flow trade action that could occur despite the "fundamental" bullish crop data that is circulating.
 
Since "Operation Twist" expires in June, and the Presidential race will start to heat up shortly thereafter, I have to believe the Fed is going to pull the trigger then something will need to be done within the next 60-90 days. My hunch is it will be some type of "sterilized' move dealing with mortgage backed securities. The Fed is not only concerned about the US stock market, but is also deeply concerned about the US job situation and the US housing sector. With some reports circulating that a new wave of foreclosures are just around the next corner, I am thinking the Fed may try their hand at helping to reduce this threat by making some type of move in the housing sector. If I am wrong and nothing transpires, we may start to see more aggressive "risk-off" type action across most all of the commodity markets. Keep in mind with soybean prices at these levels (above $14) and the funds already record long, we weed aggressive "buy paper" entering the trade each and every day in order to keep prices moving higher. The question is will the funds want to add more "risk" in this environment or will they be looking to peel some off as falling global growth becomes more of a reality.
 
It also doesn't help much when you have the IMF reporting that commodity-exporting countries should prepare for "lower prices" given weaker global economic activity and lower demand. They also reported that weaker global growth suggested that commodity prices are highly unlikely to continue increasing at the pace they have as of late. As you can see, statements like this make me fearful that commodity investors COULD start looking for alternative type investments in other sectors. 
 
Soybeans continue to be the regarded as the best "bullish" bet on the Ag board, but we have to be aware of the "outside" market influences that could arise and adversely affect the trade in the coming weeks. Fundamentally the USDA made no bones about a more bullish soybean outlook, they made substantial cuts in South American production and raised their US domestic crush estimates and US soybean export estimates. I thought it was interesting to see the USDA left Chinese soy imports at just 55 million metric tons, but chose to raise the US export number only slightly (15 million bushels) on such aggressive South American reductions. I know many in the trade were hoping to see a more substantial push higher in exports, especially with the reduction in South America, but I am thinking the USDA had this number too high to begin with. Think about it this way, in order to achieve the USDA’s current soybean export estimate of 1.290 billion bushels, we will need export sales need to average right around 8.5 million bushels a week through the remainder of the year. Last year we were lucky to average just over 3.0 million bushels from this point forward. Yes, South America was sitting on large supplies last year that hurt our overall sales, but we have to consider they have not been completely taken out of the export game as of yet this year, and I am certain they will remain highly competitive during the next couple of months. The takeaway is, yes, we can achieve the current USDA export estimates, but we need some fairly good sales numbers during the April-August time period, and I am thinking those could actually be a little tougher to muster than many in the trade are thinking. It makes sense to believe the US exports should be significantly higher on the massive reduction in South America, but when you look deeper inside the numbers you can see what the USDA is thinking, and I really don't disagree.
 
Funds continuing to hold "record" long positions in soy, however this makes the market extremely vulnerable to "risk-off" type trade activity associated with outside macro market influences. If the funds become more nervous about the debt situation in Europe, the job situation here in the US, or the real-estate situation in China, there is a fear that the funds could liquidate some length across the entire commodity sector. Not that the fundamental picture for soybeans will have changed, but rather the "funds" will be wanting to lighten up some of their overall exposure to "risk" and move more capital back into cash. If this scenario plays out we could see the soybean market temporarily take several steps backwards. As I mentioned in yesterday's "Special Afternoon" report, I doubt there is any more than $0.50 to $0.75 cents of downside risk in new crop soybeans, but I have seen the power of "money-flow" push these markets well beyond my most realistic expectations. If the talking-heads start to really evoke some massive "risk-off" type fear heavy fund liquidation could certainly push the Nov contract back down to $12.50 in the blink of an eye. In my opinion this would be a perfect opportunity to unload some of the aggressive hedges you may have put in place much too early, liquidate some of the call premium you may have sold up above or simply lift some of the puts that you have had in place for a floor. If you are a producer I would NOT be a seller of any additional "new crop" soy on the breaks. The "balance sheet" simply remains too tight and demand too strong. The "money-flow" may get nervous and cause you to think twice about your devotion, but remain patient and let the macro market fears pass, allowing the trade to once again focus on the "fundamental" severity of the situation and overall lack of supply.
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing, especially after last Friday's USDA Report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -      
     


 

Put Your "Risk Manager" Hat On

Apr 09, 2012

   

Corn continues to have many unanswered questions, and I believe this theme will continue for sometime. With new crop bushels currently trading below insurance levels and a good portion of our estimated production either priced or hedged well above $6.25 I believe the best decision right now is to do nothing at all. Below are few question I would like to see some additional data on before we make any major "risk management" type decisions or adjustments to our 2012/13 marketing. Keep in mind prices right now reflect a lot of "opinion" and very limited "facts." 
 
  • More Corn Acres: Will corn acres move higher like Informa believes (96 or maybe even 97 million acres)? If history is correct, and "early planting" brings on more corn acres then we could be in for a monstrous crop.  
  • Fewer Corn Acres: Will corn acres move lower (maybe 93 or 94 million) as the current $14 soybean prices steal more and more acres?
  • Above Trend Line Yield: Will the early planting, near perfect field conditions, big dollars that have been spent on field prep this fall and winter, improved triple-stack traits produce a national yield in excess of 164 bushels per acre?
  • Below Trend Line Yield: Will the addition of several million more acres from the Dakotas and plantings in "less-than-perfect" fields drag down the national average? Will extreme winds, hail, freezes, heat waves or other weather related issues adversely affect this years crop?
  • Ending Stocks: Ending stocks will be 1.8 billion plus if we have somewhat ideal growing conditions and a limited increase in demand.  On the flip side a significant bump in "exports" and just a slightly below average trend-line yield and we are talking about a 1.0 to 1.2 billion carryout. In the event of a weather related issue we could see ending stock estimates change in the blink of an eye by almost 1 billion bushels. There are just so many unknowns right now.
  • Chinese Demand: Who knows what is behind this "smoking gun." I don't even want to begin to speculate, but with $10 corn in China I have to believe there is something obviously wrong. My hunch is they are extremely short "supply" and without a perfect growing season this year they will need to be big buyers of corn regardless of price. 
  • Feed Usage: Once again a highly debatable subject, but my thoughts are with "limited" expansion in the cattle herd there is really not much significant room for major demand type increases. Sure we could see 100 million added here or there, but I am not holding my breath. 
  • Ethanol Usage: Here is another real "wild card" with so many moving parts,  especially now that E-15 is being thrown in the mix.  Originally thoughts we that a 2.7 conversion rate should be bumped up to 2.8 or higher, which ultimately would reduce the number of bushels used to produce ethanol.  Now we have the EPA approving E-15 and fuel prices continuing to be the topic of extremely heated political debates and voter frustration. How quickly will E-15 get into the marketplace is a big question? How big will consumer demand be? Will Brazil import as much ethanol as last year? Will Argentine look to import US ethanol? 
 
Soybeans continue to see strong cash bids as well. The export market is carrying the trade right now as everyone speculates on massive US exports from June forward in order to compensate for the heavy South American losses. Obviously tomorrow's numbers will have a huge impact on US soy balance sheets. In fact there are several respected sources who believe the USDA is currently 100 million too high when estimating THIS years ending stocks.  Instead of a 275 ending stocks number some are talking about a 175 million ending stocks number. The key questions are how high will the USDA bump "old crop" soy exports and how much higher will they push the crush? Right now the USDA has soybean exports estimated at 1.275 billion, there is some talk that we could see a push beyond 1.30 billion in tomorrows report.  There is also some talk circulating that the current "crush" estimate of 1.615 billion could push up towards 1.65 billion. Any or all of these combinations would be bullish the soybean market.   
 
Soybean producers should NOT be waiting around to price 2012 bushels. The time to reduce some of your risk is now.  I strongly urge you to get at least 50% locked in. Yes, I think prices can go higher, but just remember we are not speculators, but rather "risk managers."  With the funds holding all-time long positions in soybeans and extremely volatile "outside" markets this is not the time or place to gamble with your entire crop. Make some substantial sales and lock in your profits.  I am also looking very hard at making some small 2013 hedges as well, and I would suggest you do the same.  Yes, the market is concerned about the current production problems in South America, but as the US starts to find more bean acres and South American producers lock in prices for more acres next year the trade will quickly start talking about an extra 30-40 million more tons of beans being produced. I am telling you now a 275-280 world crop number for 2013 will NOT equate to $14 or $15 soybeans, so make sure you are taking some advantage of the run higher and reducing some risk on down the road.   

A Few Thoughts On New Crop Corn

Apr 02, 2012

   

Corn seems to be a bird of different colors. With little to no slowdown being noted in ethanol production, feed usage or overall exports and thoughts that cash-flush farmers will continue to hold a majority of last years production back until we see higher prices has left "old crop" supplies extremely tight. I guess the biggest question is, are "end-users" comfortable with the corn supplies that are thought to currently be available. Most importantly is China comfortable with their domestic corn situation and what maybe a "limited" supply now available form the US. My thought is, NO China is not comfortable with the situation and we have seen proof as they have been buyers of some 600,000 metric tons of "old crop" US corn as of late. Remember we do NOT listen to what China says, but rather simply pay very close attention to what they do.
 
Corn supplies are extremely tight here in the US as well, especially out in the Eastern corn-belt. Keep in mind this is where things started to heat up last year right before the big price run to higher ground. Getting bushels to this area seems to be a major concern moving forward and I anticipate the basis will continue to heat up as the commercials are forced to bid up for supplies. With this in mind I have to believe "old crop" prices should remain fairly well supported. I am NOT advocating any "bull-spreads" at this time, and in fact tend to believe we may be a little overdone, but I do believe "old crop" corn still has some upside potential. Especially if the USDA balance sheet shrinks some more, like many now anticipate, in the April 10th USDA report. The trade seems to feel like the "feed/residual" number is going to push higher, and ultimately put more pressure on the ending stocks.
 
New Crop Corn in my opinion is just NOT as "bearish" as many analyst want to make it out to be. Certainly there is downside risk as we stare down the barrel at almost 96 million acres, but you still have to question our overall yield. With an extra 1.4 million plus corn acres now coming from the Dakota’s and an additional amount out of the Delta and Southeast, I just have to question the 164 plus bushel yield estimates that are flying around in the trade. Traders now realize a 157-158 yield number is needed to ensure adequate pipeline supplies, so the debate now begins, will the national US average yield come in north of 158 or south of this number...which would ultimately push us to much higher prices? I am also thinking Fridays USDA planted acreage estimate for new crop corn is the highest it will be. My gut is telling me we buck traditional history and actually see soybeans steal a few more acres form corn in the coming weeks. Net-net, I am thinking planted corn acres may actually shrink a touch and the ending stock estimate maybe about as high as it is going to be. Until the market is convinced US corn yields are going to be above 158, I see downside risk in new crop corn limited to just $0.30 or $0.40 cents, while upside price movement holds much more potential. Because of the near-term "risk-to-reward" ratio I am also upping my bullish rating for corn.
 
Weather is obviously going to become a much bigger factor in the weeks ahead. Corn being planted "early" is not that big of a deal, but corn being planted early in these types of warm soil conditions could be a huge deal. Keep in mind many producers will roll corn acres in the ground early to ensure planting, but generally the soil temps are much cooler and the corn will not emerge for a few weeks, getting them past most late freezes. That is not the case this time around. Producers are finding that the soil temps are so warm the corn is emerging in 5-6 days. In fact there are several areas where producers are reporting that corn is already over one-foot tall. The problem now is any major freeze during April could be a complete game-changer. There are also several key growing regions in the US that are well behind annual rainfall amounts. Point being if the heat were to continue escalating at the current pace the corn crop could be in big trouble later in the growing season. My gut tells me China and the rest of the world are not comfortable with this scenario, because of this I would anticipate some additional weather premium needs to be added to new crop prices very shortly. Once again just another reason I believe we need to become even more bullish corn.
 
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather.  I know as a producer, you may have questions as to how this pertains to your farm and your marketing, especially after last Friday's USDA Report. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow."  Just click here -     
    


 
 
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