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May 2013 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.

Should you be pricing corn on these rallies?

May 31, 2013

Corn acreage, with the continued delays, is obviously being highly debated. Several sources are thinking we could ultimately shave 1.5 to 4.5 million acres. My best guess is we lose 500,000 to 1 million down South, and 1 to 2 million towards the North. For argument sake instead of 89.5 million harvest acres assume we harvest 87.5 million acres. If we harvest a 155 type yield total production is still over 13.5 billion bushels. Meaning ending stocks more than likely double from the 750 million range today to the 1.5 billion bushel range. Keep in mind the USDA still has some fairly lofty "demand" estimates factored into the equation.  If these numbers don't prove accurate we could be looking at even larger ending stocks. Below are a few of the numbers being questioned by the bears:   

 

  • Exports: USDA is basically thinking US exports will double, jumping from just below 750 million to 1.3 billion plus during this coming crop year. Even though China is off to a much more aggressive start than many in the trade were anticipating, its hard for me to imagine exports reaching even 1.2 billion. Keep in mind once China approves the phyto-sanitary risks associated with various varieties of South American corn, trade channels should more aggressively open up and US exporters will face even stiffer competition.  Do realize in the past 10-years, primary foreign corn production has increased by almost 65%, while during the same time period, US production has increased by only 40%. Even  ore worrisome is the fact exports in the foreign nations have expanded by nearly 190% compared to a contraction of more than 30% here in the US. I sure hope the USDA is right, and exports can significantly rebound higher, I am just not willing to bet any money on it right now. 
  • Ethanol: USDA has currently bumped corn used for ethanol to 4.8 billion bushels. Even though margins in the industry remain strong there are some questions as to if we will us this many bushels, once again maybe 100-200  million bushels too high. Just yesterday ethanol production for the week was reported at 863,000 barrels per day, down from last weeks 875,000. The problem is at this pace we will still NOT meet the current crop years USDA estimate of 4.6 billion bushels (meaning 4.8 could be a little stretch). Stocks however were reported at 16.047 million barrels and continue to slide, so I ma not ruling the 4.8 number out entirely, just concerned. I should also point out that ethanol imports were reported this week at 27,000 barrels per day compared to ZERO the past few weeks. With the South American harvest wrapping up I am wondering if ethanol imports will soon start to pick back up?
  • Feed: USDA seems to be thinking corn used for feed will jumping from 4.4 billion bushels to 5.325 billion. This is a little tough for me to swallow as I still believe the cattle herd here in the US is contracting. My thoughts are the USDA is assuming corn prices will get cheap enough that no one will be seeking out feed alternatives to high-priced corn.

Moral of the Corn Story: From a card-counters perspective there are still more "bearish" cards in the corn deck right now than there are "bullish" cards. Yes, there are still some significant bullish "wild-cards" left that we always need to be aware of, and US weather remains a major one. We can sit here all day and debate the balance sheet but until Mother Nature plays here final card there is still a great deal of "unknown" left in the deck. As well, China always remains a wild-card, and is something we will be forced to remain cognizant of during the next 20 years. Bottom-line, until the US corn market makes it through pollination, perma-bulls will be enticed to make more wagers despite the negative card-count. Producers should use this momentum (during the next 60-dyas) to try and get another 20-30% priced based on the outlook and condition of your crop. Taking advantage of these "fear related" rallies should be an important part of your marketing plan. 

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Wheat bulls have a reason to be nervous..

May 30, 2013

 Wheat bulls are worried about what type of implications will come from the recent USDA announcement that a non-approved strain of genetically engineered wheat has been discovered in an Oregon field. As of right now the USDA is saying the wheat is the same strain as a genetically modified wheat that was tested by seed giant Monsanto a decade ago...but never approved. Word is Monsanto stopped testing that product in Oregon and several other states in 2005.

The thing to remember here is the fact there is NO genetically engineered wheat approved for US farming. Meaning the recent discovery could bring into question the integrity of US wheat exports, ultimately giving global importers more reasons and pressure from consumers to use alternative suppliers. I should point out the discovery has already prompted Japan to suspend imports of western-white wheat and feed wheat. Bloomberg reporting that Japan’s Ministry of Agriculture, Forestry and Fisheries canceled its plan to buy 24,926 tons of western-white wheat from U.S. in an import tender today. Now the fear becomes will other overseas buyers soon follow suit???

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Record Acres and Yields for Soybeans?

May 30, 2013

Soy traders don't seem worried about the record number of acres going in the ground, but seem extremely nervous about the potential "yield drag" that could be associated with late planted beans. Personally I believe its still too early to be counting on significant yield drags, especially with today's stronger varieties. Still,  several in the trade will tell you beans planted after the end-of-May will actually start to experience a reduction in yield. Others believe mid-June is a more accurate yield reducing line-in-the-sand. Regardless, the bulls seem to have the trade spooked, and the current record yield estimate of 44.5 bushels per acre by the USDA is now being thrown under the bus. The trade is simply electing to believe its too late and too wet to get a record national yield out of this crop. I personally think the bulls are getting out over the tips of their ski's a bit.  What some might be missing is that there is very little factual evidence to back up this major yield reductions this early. It sounds good in theory, but I just don't see conclusive evidence. Not to mention the new "hybrids," and how they will perform in these conditions is still somewhat of an unknown. Don't get me wrong, "yields" will ultimately be the determining factor for price, I am just thinking it might still be a little early to be shaving bushels. 

One thing is for certain, the trade is definitely more worried and concerned about a potential "yield drag" than they are about "additional bean acres" going in the ground. 
The reason why is somewhat simple: Even if we add 1.8 million more bean acres, a slight 1-bushel per acre drop in overall yield will basically offset all of those gains. Therefor on paper "yield losses" obviously looks very scary. 
Lets play it out a little further: The USDA is currently assuming we will "harvest" 76.2 million soybean acres.  For argument sake let's say that number jumps higher by 1.5 million acres (could be conservative), giving us 77.7 million total harvested bean acres. Let's further assume we see just a 1-bushel per acre increase over last years devastating yield of 39.6. This would give us 77.7 million harvested acres at a yield of 40.6 bushels, or in other words a total production number of 3.155 billion bushels. This is still some 145 million bushels more than last years total production. 
Lets not forget about South America: Brazil looks as if they will harvest at least an additional 650 million bushels (66.5MMT's last year vs 83.5MMT's this year); Argentina looks as if they will harvest an additional 430 million bushels (40.10MMT's last year vs. 51.0MMT's this year); Paraguay is also harvesting a record bean crop and will have an additional 155 million bushels (4.35MMT's last year vs. 8.35MMT's this year)... 
Bottom-line: Production setbacks experienced last year in South America was one of the main driving force for higher rices. With the South American crop essentially home-free, and very little chance for any type of repeat production  problems, you have to believe the overall environment and landscape have drastically changed. Yes, the trade is currently scared in regards to US yields. I can understand to some degree considering the current delays and extended rainfall in the forecast. But when you start to put all of the puzzle pieces together I see a vividly bearish longer-term soybean picture. Moral of the story, be careful being too close to the trees to ultimately see the forest. Certainly prices can push higher considering the tightness in the old-crop and the upcoming roll by the funds, but in the end I have to believe traditional Supply & Demand wins out. 
***I have heard several Ag professionals frequently comparing this year to 1993 when floods reduced corn acres by 2.2 million and beans gained 2.3 million. As of late though I have been hearing some very smart and seasoned Soy traders thinking this could be a repeat of 2009, when soybean prices peaked the first week in June at $12.91, then by the first week in October prices had fallen all the way back down to $8.79...
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Unwinding Spreads and Weather Bring Volatility

May 28, 2013

Money-flow in the grain and soy markets continues to produce extreme volatility. With "month-end" approaching this Friday, I suspect even more extreme swings, especially in the spread markets. Remember, many of the funds will start rolling out of the JUL13 contracts during the next 2-3 week window. With many looking to start rolling to new-crop contracts, traditional logic often associated with "spread" trading is out the window. Moral of the story, spreads could end up being more dangerous than flat-price during the next 10-15 days of trading. Proceed with extreme caution! We are also continuing to see more money-flowing out of commodities and into US equities, possibly more signs of longer-term commodity headwinds. Weather bulls here in the US continue to talk about an extended rainfall forecast that will further delay planting. With just 50% of the soybean crop planted (my guess) the trade seems more concerned than ever about the optimistic record USDA yield estimate and the total number of acres that will ultimately get in the ground. On a global scales, weather seems to be less of a concern as rains across the east coast of Australia, parts of the Black Sea region and China have helped ease supply concerns.  Get my daily report with more detailed information by clicking the link below.  

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Wheat Bulls: Does Opportunity Continue?

May 25, 2013

Wheat export sales (better than expected) and continued talk that China is in buying US SRW wheat seems to be disappointing many of the longer-term bears. Thoughts are "short covering" this week has also helped fuel the recent rally. As of right now new-crop export commitments are running well ahead of last year’s pace, but I am still deeply concerned about how competitive we can be beyond July. Most wheat insiders believe there is simply no way we can compete with cheap Black Sea supplies once their harvest is complete and bushels are moved to the ports. Several sources thinking it will take sub-$6.00 wheat to stay anywhere close to competitive?  Will the US crop get the much needed moisture it needs or will we stay dry, as the extended forecast indicates? For my full report, with more detailed information, click below, I will send it out each morning.

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Soy-Sanity continues to be the theme of the Ag markets

May 24, 2013

If its not headlines about port-worker strikes in South America (first in Argentina, now possibly Brazil), then its rumblings about China's government cracking down on the "financing game" being played by Chinese importers. Normally I would be telling you this Chinese rhetoric should prompt some additional cancellations, but this time around there were rumors circulating that the "letter of credits" are getting called in early, forcing some in China to price and take delivery of beans much sooner then anticipated. Lets also not forget the rumors that some big Chinese hedgers were supposedly caught short Maybe this is all over hyped nonsense...maybe not???

Regardless the market is extremely nervous as seen by yesterdays $0.59 cent range in the JUL13 soybean market. Some analyst believe it could be the "blow-off-top" technicians have been waiting for. If this is true and traders playing the bull-spreads start to get spooked by the recent price action, heavy liquidation could cause the new-crop to rally even higher, possibly even testing the major resistance I keep talking about up around $12.60 in the NOV13 contract. With this in mind, producers who need to make catch-up sales in new-crop beans should be thinking about pulling the trigger on another round just north of $12.55.  

To read my entire report click the link below.

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Corn Rally: Time to Take Off More Risk?

May 23, 2013

Corn bulls were very excited to hear reports that 540,000 metric tons of US corn had been sold to the Chinese and an "unknown." I am not certain, but this has to be one of the top-15 largest single day corn sales ever announced by the USDA. On the heels of yesterday's rally and the strong basis across most of the US I decided it was time to "SELL OUT" of all old-crop corn.  Yes, I may end up being a little early and miss some of the remaining flat-price appreciation, but with most processors being forced to pay between $7.00 and $7.50 a bushel I am worried that the basis could start to eroded and never come back. I believe at best you have a 30-day window for this type of basis: Central MO +$0.95 over, NW IA +$0.59 over, Cedar Rapids IA +$0.70 over, Linden IN +$0.67 over, Decatur IL +$0.60 over, etc...

Q. Kevin, only a few marketing days ago your headline read "HOLD OLD CROP CORN"... what changed???

A. Made that comment on Wed May 15th. We had just rallied $0.30 cents on Monday and at that time the market was testing the $6.60 level... actually looked like we could push through it. Then all of a sudden by this Tuesday we are $0.30 cents lower and testing $6.30.  The market seems extremely "uncertain" right now, in return this is making me "uncertain." I have found the best thing to do when you are uncertain about overall short-term market direction is to simply move out of the way. When an animal isn't responding like you think it should, it could quickly become dangerous. Right now, I am not really liking the way this market is reacting and I believe the safest place to watch it play out is from the shore. From my perspective, bank the $7.00 plus corn profits and let someone else try and tame this wild ride.

If you want to get the rest of my detailed thoughts on how volatile these markets have been, click below to get my report.

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Soy shipments stalled by dock strikes...

May 23, 2013

Argentina's multi-day wage strike by port-workers has now delayed countless cargo ships coming in and out of the country. Keep in mind Argentina is worlds #1 supplier of both soybean oil and meal. Supposedly more negotiations will take place today that are aimed at ending the work stoppage. Who knows if and for how long they will be able to come to an agreement. Remember, double digit inflation is ripping through their country and workers are continually demanding higher wages in order to keep up with the rising cost of living. From what is being reported at least 50 ships are stalled in the greater Rosario area with another 50 affected on the high-seas. Bottom-line, with the world begging for more soy, any signs of delay is prompting more bullish optimism.

Even crazier is the fact that Argentine's President Cristina Fernandez de Kirchner, in an attempt to try and calm down the public rage over inflation, made promises yesterday in a speech to boost social spending by 70% annually. Now how in the world will that solve the problem?  The only way the government can get their hands on more money to give to the poor is to increase "taxes" on those working.  Makes you wonder if the port-workers will every end up being satisfied?

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Will today's corn rally hold?

May 22, 2013

Corn technicians are closely watching the $5.11 support area, which held in place after early threats yesterday. I suspect the trade will take a couple of runs at the barrier before ultimately deciding on its true direction. From my perspective, with old-crop tightness, we may actually get stuck in a range between $4.90 and $5.50 until the end of June USDA Stocks Report. As for old-crop, I suspect prices will have a hard time sustaining any momentum over $6.60. From a producers perspective, if your still holding old-crop bushels, and the basis remains strong in your area, you have to look to sell more bushels on rallies beyond this level. Regardless of how tight cash supplies are, if spec's continue to unwind bull-spreads on the board it will be tough for old-crop flat prices to gain much upside traction. As we have learned the last several years, swimming upstream against "money-flow" is never any easy feat. 

Even though we made huge leaps in planting progress this past week, recent rainfall events may keep many planters sidelined for the next several days. With preventive plant dates quickly approaching many producers may be forced to make a tough decision about those final few acres. 

Example: Kevin, a little update on things in north-central North Dakota. It has been raining for two days straight now, many areas have received up to 5 inches of rain. It looks as if it will be a week or more till we can get back in the fields, and thats with good sun and strong winds. Friday is the end plant date for canola and corn. Seems as if we will be planting well into June or else electing to go with "prevent plant." Just wanted to keep everyone updated. 

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Is it possible for this Soybean market to continue higher?

May 22, 2013

 Soybean technicians are keeping a close eye on the July contract as it approaches the $15.00 level, an area we have not been able to breach since late last summer. I suspect if the stars align and we get the "technical bulls" on the bandwagon with a breakout to the upside, along with "fundamental bulls" on the bandwagon as balance sheets look almost impossible to solve, we might just have ourselves a runaway train to higher ground in old-crop soy. This is obviously good news for producers holding old-crop bushels, and also good news for producers who are behind on their new-crop sales, as tightness in old-crop artificially keeps new-crop prices elevated.

With very limited soy supplies here in the US, the trade may continue to be apprehensive in breaking new-crop prices, at least until the upcoming crop looks more like a "sure thing." I am sure many bears will continue to talk about $9.50 soybeans, just remember $11.50 soybeans will have to happen first, and that's a number we haven't seen since this time last year. From a technical perspective I am looking for NOV13 beans to remain in a near-term range from $11.80 to $12.50. Producers holding old-crop bushels need to be paying close attention to the basis, I am hearing it is breaking in several locations as many processors are rolling bids out to August. UN officials saying the H7N9 bird-flu virus in China appears to have been brought under control, primarily due to restrictions at bird markets. Initial estimates show the virus to this point has cost the Chinese economy some $6.5 billion in losses. If you’re a bear speculating in this market, my best advice is, "don't get caught out over the tips of your skis." There could eventually be a big run to the downside, the last thing you want to do is break a leg early and miss the best part of the slope.   

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Why should I get more new crop corn sold when I have 85% revenue protection?

May 21, 2013

I think you have to understand the insurance guarantees you "revenue." It does not guarantee you profits. Consider the following example:

Farmer Ted has an APH of 150 bushels per acre. He takes out the max 85% coverage. At first glance you might think Farmer Ted therefore has 127.5 bushels (150 x85%) guaranteed at the Spring Price guarantee of $5.65. If he priced his remaining estimated bushels then he should be covered. Not so fast. Consider what happens in the situation below:

Farmer Ted produces a crop equal to 180 bushels per acre. Prices fall to $4.50 and Farmer Ted files a claim to get his 127.5 bushels adjusted to the Spring Price Guarantee of $5.65. Unfortunately his claim is denied. The 127.5 bushel guarantee at $5.65 is equal to $720.37 per acre. Since Farmer Ted produced 180 bushels multiplied times the $4.20 sales price he generated $756.00 per acre. Hence "Claim Denied" and no payment received.

For my full report CLICK HERE.  

Moral of the story, make sure you are talking things over with your insurance provider. I certainly don't have all of the answers, but I am very fearful many of you are thinking your insurance is going to guarantee a floor on 80-85% of your production. This is somewhat true, but I believe you have to dive a little deeper and look at the entire picture. Guaranteed "revenue" per acre is a more accurate way to look at it. Remember there are several variables and moving parts that will influence or generate a payment. Yields at or above your APH could negate any type of claim or insurance payment. Just make sure you are constantly running the numbers and understand all of the specific nuances of your policy.

 

What's the next wild card for corn in the US?

May 20, 2013

There is no doubt farmers have been burning the midnight oil this past week. In fact Iowa planted 56% of their crop and as a whole corn planting here in the US is 71% complete vs. just 28% last week. This brings up a very interesting point: With close to 50% of the US crop ALL going in the ground (late) during the same 7-10 day planting window (May 10-20th), I am of the opinion, the price of poker for "pollination" just escalated dramatically. Meaning the mid-to-late-July time period will now be mission-critical for the US corn crop. Any type of extreme heat or dryness could put an abnormally LARGE portion of our crop at risk.

Lets also not forget, as our good friend Chip Flory over at Pro Farmer points out, "the corn plant reaches physiological maturity about 56 days after pollination. That means the crop could still be trying to add yield when days are getting too short to gather all the energy needed." Right now I have to believe the market is currently trading a 153-158 type yield number. With over 95 million corn acres almost certain to go in the ground this type of yield does very little to excite the longer-term bulls. However, if we were to see the extend Jun-Jul-Aug forecast show more heat and less moisture, a sub-150 yield could start to become more of a reality and the bulls might once again start to run. Lets also keep in mind I am starting to hear a few more producers talking about switching to shorter varieties (some 82-day varieties even being discussed), the question is how dramatically will the shorter varieties affect overall yields?  With these cards still in the deck, I currently feel that most producers should sit tight with between 40-60% priced or hedged.

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South America Grain to US: Impacts which Crop?

May 20, 2013

South American supplies will NOT be able to help overall shortages in both US corn and soybeans. I have had several subscribers ask me about Brazilian corn and soybean imports and how they will effect the US market. Here's what I have been hearing and I how I see it playing out: 

 

*  Brazilian soybean crop is late: Both on the planting side and harvesting side, therefore soybean exports will run beyond their normal time frame. 

*  Soybean quantity is much greater than last year: meaning they have more soybeans to export this year compared to last. This will also extend the overall length of their soy export program. 

*  Traditional soy export season extended 3-4 months: exports traditionally ending in early September, will more than likely extend thru late-Nov or early-Dec. 

*  US exporters concerned: with Brazilian exports extending well beyond their  traditional time frame and Brazil's 2014 soybean crop set to come out of the ground just a few weeks later, US export window is shrinking.

*  Logistical infrastructure in Brazil limits exports: because of limitations, both soybeans and corn can not be exported in large doses at the same time. Therefore  the trade is curious in regards to just how much of either will be available to US importers. 

*  Second crop corn in Brazil will start to be harvested next month: but still with so many soybeans to export the trade is starting to think Brazil's corn exports could be pushed to the back burner.  

*  Corn exports in Brazil pushed back well into the early part of 2014: To what degree and magnitude remains the question. Traditionally corn export out of Brazil would pickup as soybean exports wind down. This year that won't happen until late in 2013, hence corn exports will be extended.  

Summary: I see no real way for Brazilian corn AND soybean imports to have a major impact on US old-crop prices during the coming few months.  

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With extreme tight old crop supplies, will South American imports get us by?

May 20, 2013

South American supplies will NOT be able to help overall shortages in both US corn and soybeans. I have had several subscribers ask me about Brazilian corn and soybean imports and how they will effect the US market. Here's what I have been hearing and I how I see it playing out: 

 

  • Brazilian soybean crop is late: Both on the planting side and harvesting side, therefore soybean exports will run beyond their normal time frame. 
  • Soybean quantity is much greater than last year: meaning they have more soybeans to export this year compared to last. This will also extend the overall length of their soy export program. 
  • Traditional soy export season extended 3-4 months: exports traditionally ending in early September, will more than likely extend thru late-Nov or early-Dec. 
  • US exporters concerned: with Brazilian exports extending well beyond their  traditional time frame and Brazil's 2014 soybean crop set to come out of the ground just a few weeks later, US export window is shrinking.
  • Logistical infrastructure in Brazil limits exports: because of limitations, both soybeans and corn can not be exported in large doses at the same time. Therefore  the trade is curious in regards to just how much of either will be available to US importers. 
  • Second crop corn in Brazil will start to be harvested next month: but still with so many soybeans to export the trade is starting to think Brazil's corn exports could be pushed to the back burner.  
  • Corn exports in Brazil pushed back well into the early part of 2014: To what degree and magnitude remains the question. Traditionally corn export out of Brazil would pickup as soybean exports wind down. This year that won't happen until late in 2013, hence corn exports will be extended.  
  • Summary: I see no real way for Brazilian corn AND soybean imports to have a major impact on US old-crop prices during the coming few months. Yes, a few extra cargoes here and there will help to some degree, and provide some short-term bearish headlines, but I doubt it does much to solve the extremely tight US inventory problem.    CLICK HERE to get more of my insights!!!!

Record Planting for Corn?

May 17, 2013
Informa's numbers released today had corn at 96.827 vs. 97.2 mil acres that the USDA has currently.  Beans were estimated at 78.286 vs. 77.1 mil acres and spring wheat at 12.401 vs 12.7 mil acres.   The markets reaction was mixed with old crop beans leading the way, up over .20 at the close.  Early on there was some talk that corn acreage to the north would be lost due to major Red River flooding. From what I have heard that story never ended up having much follow through. In fact the Dakota's have been rolling and most of Minnesota seems to be planted. As I pointed out yesterday, there will definitely be some corn acres lost in the Delta, the question is how much? That brings us to another major short-term focal point in the trade, Monday's USDA planting progress numbers. There are several sources in the trade now talking about a jump to 60-70% planted vs. just 28% last week. The top end certainly sounds a little aggressive, but if you look at past history it is certainly a possibility. Especially if you believe Iowa and Illinois planted a new one week record. As a nation we planted our most corn ever in a single week back in early May of 1992 when the crop went from 28% to 71% planted between the first and second week of May. Regardless of what the numbers actually say, I am telling you now a mother-load of corn has been planted across the US this week. I continue to hear analyst close to the source thinking Illinois could get to 60-65% planted, Iowa to 65-70% planted, and Nebraska to 75-80% planted by weekend. Moral of the story, 95-96 million corn acres are going to get planted. The question is do yields continue to move lower on lack of moisture in June or extreme heat in July?
 
 

Risk Management: The Game has Changed.....

May 16, 2013

For many of the farmers I speak with out in the field, they have very little if any new-crop sold. For those in that position, I believe they have little choice but to get caught up sooner, rather than later, despite my theory that we could see a major unforeseen rally in the next 60-90 days. The problem is "IF" the rally doesn't come to fruition or fully develop, the downside could be too extreme for most producer to handle on 80-100% of their crop, especially, if the following couple of years produced similar results.

As you know, I firmly believe in the fact "risk management" is everything for today's farmer. Losing a finger toe is one thing, but with todays price swings, not properly managing your "risk" could quickly result in losing an entire arm or leg. I have come to the conclusion modern day farming has become very similar to playing in a poker tournament. Take the "World Series of Poker" for example, there is a huge prize purse available for those that can hang in there and make it to the final table...the key however is you have to keep yourself in the game. Look at what happened to farmers in the 80's or even those who were knocked out of the game in the early 2000's, they missed the big crop paydays and the massive land appreciation run, that has occurred the past few years. Very similar to US home builders who got out over the tips of their skis and where knocked out of the housing market, now they are missing the wave back to the upside.

Bottom-line, regardless of opinions or predictions about short-term or long-term market direction, the goal as a producer has to be to keep yourself on the surf board. The problem is as the price waves get larger and larger many producers lose site of their objective, misjudge or solely focus on the current wave they are riding, ultimately underestimate the power of the tides...and more importantly how quickly those tides can change. With this being the case, I prefer to focus on managing "risk" rather than trying to predict the unpredictable. When the waters present themselves with an opportunity for profit, while at the same time reducing my overall exposure and risk of getting knocked off the surf board, I like to take take advantage of that situation. In poker terms, I pulled a few chips off the table and have moved one step closer to the final table. Bottom-line, Yes, make sales now if you haven't done so. Lock in profits and reduce your risk of getting knocked out of the game!

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Should we start worrying about global supplies?

May 15, 2013

Goldman Sachs pointed out yesterday that the strong correlation between the US stock market and commodities, that has taken place for the past decade, looks to have come to a screeching halt. If you recall, back in Oct 2007, the last time US stock market was soaring to new highs, commodity prices where exploding as well. Today we have the US stock market posting NEW all-time highs every other day, while commodity prices continue to weaken. From what I heard Goldman remains "neutral" on commodities, sighting micro-economic drivers such as rising energy supplies and metal inventories beginning to reassert themselves. Thinking we may be in a cycle of excess capacity and slow growth...essentially meaning lack of returns in commodities. In my opinion we are seeing the exact same thing happening in global agriculture. Higher prices have encouraged an increase in supply, while weak global growth may trigger a period of excess rather than a period of short supply. Certainly this is a view from 10,000 feet, but often times as producers we get ourselves too deep in the forest to see the trees. Just make certain you are seeing the entire macro view and  perspective, not just looking out your own backdoor! CLICK HERE for my full report and details on what I see moving the markets next week...   

Creating a Bullish Story for Beans?

May 14, 2013
Soybean traders are considering the fact the top US production states of Iowa and Illinois have less than 1% planted, where generally they are approaching 20-30% by this time frame. The cash market continues to remain extremely strong, with the basis in many areas well over +$1.10 as crushers continue having a tough time sourcing new supplies. Traders will be keeping their eye on the upcoming NOPA Crush numbers which will also help give the trade a better idea about available old-crop soy supplies. Reducing a little more new-crop soybean risk on the rallies continues to be a primary objective. I am still keeping my eye on the $12.25 area as a place to possibly make another round of new-crop cash soybean sales or an area to reduce more risk.  With everyone focused on getting corn in the ground, do we create a bullish story for soybeans?  

I'm questioning both the USDA yield estimate and old crop Corn.

May 14, 2013

 Corn traders will now start to aggressively question the USDA's 158 bushel yield estimate. I have to assume the USDA was thinking we would be at or around 60% planted by May 15th. With this clearly not being the case... The question is what now happens to the new-crop yield number?

Even though the May Corn has gained handsomely on the July, and the bull-spreads have paid good dividends the past several months,  I am not so certain I like the thought of staying bull-spread the old-crop. With the fund roll being something to consider moving forward you have to ask yourself if they are really going to be eager to roll into a old-crop vs. new-crop spread. As of late the funds have not been too keen on playing old vs. new crop game and with new-crop yields in question and a possible game changing type report at the end of June I am just not sure the risk-to-reward makes a lot of sense. Yes, old-crop corn supplies are tight, but as with many things in life, overstaying your welcome can often be a costly mistake. From my perspective, producers with old-crop bushels should be moving bushels on any and all rallies or additional strength in the basis. Producers should have good coverage in place and risk reduced on new-crop bushels. A rally of some sort into the June 28th USDA Grain Stocks and Acreage report might be your next selling opportunity. Keep in mind there is also a USDA Supply & Demand report out on June 12th. 

If you are interested in reading more click the link below.

Corn bulls are happy to hear.....

May 13, 2013

 Corn bulls were happy to hear that the USDA lowered yield estimates -5.6 bushels, from 163.6 down to 158 bushels per acre. Most in the trade however only view this as a "starting point," considering the early USDA estimates last year were off by close to 40 bushels per acre. Point is the USDA does their best to predict yields, but we can't put a lot of stock into these early numbers with an entire growing season ahead of us and an extremely volatile weather pattern in the mix.  Numbers more concerning in my mind have to deal with "demand." As our good friend Tregg Cronin pointed out, "The most important statistic from the USDA report: Supply up 3.03 billion bushels, while demand is up only 1.785 billion bushels." Keep in mind most in the industry believe the "demand" numbers might be way too  optimistic. The 16% jump in corn usage is clearly being based on lower priced corn being available to increase feed and residual (estimated up 950 million bushels), increase exports (estimated to improve by 550 million bushels), and increase ethanol usage (estimated to increase by 250 million bushels). In other words without prices moving lower demand will more than likely not increase as projected. Global production is also keeping a lid on prices. Do you realize this will be the fourth straight year of record foreign corn production (up an estimated 23.5 million tons), with large crops in South America, Europe and the Black Sea region. In fact global coarse grain supplies for 2013/14 are projected at a record 1.407.6 billion tons, up a whopping 113.8 million tons! If correct the USDA's current global stocks estimate of 154.6 million tons would be a new 13-year high. Even though the crop is a long ways from being out of the ground and harvested its tough to debate these numbers. Weather obviously remains the wild-card, and as a producer you have to ask yourself how much are you willing to bet on a 4th consecutive year of extremely disappointing yields?  In my opinion this is your answer to how much you should have "unpriced" or "unhedged" at this juncture.

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How High can Corn be Monday?

May 11, 2013

After the USDA report Friday, the trade will now be eagerly awaiting Mondays crop condition and planting progress report. Several sources in the industry continue to talk about an extensive jump from just 12% of our corn planted last week to 40-45% this week. Remember, it is now estimated that most farmers can plant close to 50-60% of their crop in a week. Data shows the top 5-corn producing states at one point in time jumped 50-65% in one week (Iowa jumped 63% in one week last year). Not saying its a guarantee, but it wouldn't surprise me to see a significant jump to the upside. We have heard all week long that the planters have been rolling across the midwest.  In 1992 we planted 34 mil acres one week and jumped by 43%.

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My break down of the USDA numbers...

May 10, 2013

Corn stock moved higher: Old-crop from 749 million bushels in April to 759 million; New-crop from 2.177 billion bushels in the Feb Ag Forum down to 2.004 billion.  

  • Ethanol bumped higher to 4.6 billion vs. April estimate at 4.55 ; 13/14 estimated at 4.85 vs 4.675 at Feb Ag Forum 
  • Feed for corn left unchanged 4.400 billion bushels; 13/14 corn feed estimated at 5.325 billion vs. 5.40 billion in Feb Ag Forum 
  • Exports lowered 50 million bushels to 750 million vs April estimate at 800 million; 13/14 lowered to 1.3 billion vs. 1.5 billion at Feb Ag Forum 
  • Imports unchanged at April estimates of 125 million. 13/14 at 25 million. 
  • Acreage left unchanged at 97.3 million acres in March Intentions. Looking for acreage to be reduced in June report or later. Harvested acres still 89.5M
  • Yield moved lower to 158 estimated at 163.6 bushels per acre at Feb Ag Forum
  • Total Production for 13/14 lowered to 14.140 from the 14.530 billion estimate. 
  • South American production: Brazil from 74 million metric tons to 76; Argentina production left unchanged at 26.5 million metric tons to 
  • Global stocks actually moved slightly higher in old crop from 125.290 in April to 125.43; New-crop 13/14 raised higher to 154.63 (This is a big number).
 

Soybean stocks moved lower: Old-crop from 125 million bushels in April to 125 in May; New-crop from 250 million bushels in the Feb Ag Forum to 265.

  • Crush left unchanged vs the 1.635 estimate in April. Exports also left unchanged at 1.350 billion. Hard to believe???  Imports also left unchanged at 20 million bushels. Even though it seems like more are heading are way.  
  • Acreage estimate unchanged at 77.1 million estimated in March Intentions 
  • Total Production for 13/14 moved slightly lower to 3.390 from the 3.405 billion last estimated 
  • Chinese 12/13 demand moved lower from 61 million metric tons to 59 million metric tons (reduced from earlier estimates of 63 million). 13/14 Chinese demand pushed to 69MMT's
  • South American production: Brazil from 83.5 million metric tons to 83.5; Argentina 51.5 million metric tons to 51.0
  • Global stocks moved slightly lower in old crop 62.46 vs. 62.63 in April; New-crop 13/14 raised higher to 74.96. 
 

Wheat stocks left unchanged at 731 million bushels; New-crop pushed higher from 639 million to 670  million.

  • HRW crop lowered from 1.004 billion last year to 768 million 
  • SRW crop raised from 420 million last year to 501 million. 
  • All US wheat lowered from 2.269 billion last year down to 2.057
  • Exports unchanged at 1.025 billion 
  • Feed lowered to 360 million vs 375 million last month
  • Global stocks moved lower in old crop from 182.260 in April down to 180.16; New-crop raised higher to 186.38.
If you are interested in reading more click the link below.

 

What You Need To Know About "Preventive Plant"

May 09, 2013

 I continue to hear a lot of information and talk floating around regarding "Preventive Plant." Since crop insurance isn't exactly in my strong suit, I often refer to various industry experts for the most up to date and accurate play. Below is a simple, yet concise, explanation of Preventive Plant insurance and how it works. 

Prevented planting coverage due to floods, hurricanes, or excess rain that occurs during the insurance period and prevents other producers from planting acreage with similar characteristics, is provided for most crops. Because conditions vary significantly between geographic areas, loss determinations are based on each producer’s circumstances. Producers must first contact their crop insurance agent to report a prevented planting loss.
 
Federal Multi Peril Crop Insurance policies cover prevented planting as follows:
  • You must have been prevented from planting by an insured cause. Generally this is conditions being too wet. 
  • The condition must be common to the area. In other words, if everyone else got their crop planted and you turn in a prevented planting claim, that claim may be denied.
  • In order to be eligible for a prevented planting payment, the area that was prevented from being planted must be at least the lesser of 20 acres or 20% of the insurable crop acres in the unit. The acreage that was prevented from being planted does not need to be contiguous.
  • Your prevented planting indemnity will be 60% of your guarantee. For example, if your Actual Production History is 130 bu./acre and you elected 75% coverage and chose the revenue product, Crop Revenue Coverage, your guarantee would be:130 X 75% = 97.5 X $4.04 = $393.90. Your prevented planting indemnity would be $393.90 X 60% = $236.34. If you plant a second crop after the late planting period, you will receive only 35% of the prevented planting indemnity and you must insure the second crop and pay the full premium on the second crop.
  • You can not have a prevented planting claim until after the final planting date for the crop. Additionally, you can not plant any crop including a cover crop during the late planting period which is 25 days after the final planting date for corn & soybeans. If you plant any crop during the late planting period, you do not have a prevented planting claim.
  • You must submit a notice of loss on a prevented planting claim within 72 hours of the time that you determined that you will not be able to plant the crop, but no later than 72hours after the end of the late planting period.
The Group Risk Plans of Insurance, GRP &GRIP do not cover prevented planting.
 
You can plant corn or soybeans after the final planting date. If corn or soybeans are planted after the final planting date, the production guarantee or amount of insurance is reduced by 1% per day for each day planted after the final planting date up to a maximum of 25 days.

Final Plant Dates by State *Make sure you check with your agent. Specific dates by crop, state and county could total over 18,000.  In addition a given county could have multiple dates depending on the types and or practices.
  • Iowa - Corn:5-31 / Soybeans: 6-15
  • Illinois - Corn: 5-31 & 6-5 / Soybeans: 6-15 & 6-20
  • Indiana - Corn: 6-5 / Soybeans: 6-20
  • Kansas - Corn: 5-20 & 5-31 / Soybeans: 6-25 & 6-30
  • Michigan - Corn: 6-5 / Soybeans: 6-15
  • Minnesota - Corn: 5-31 / Soybeans: 6-10
  • Missouri - Corn: 5-25 through 6-5 / Soybeans: 6-20 & 6-25
  • North Dakota - Corn: 5-25 & 5-31 / Soybeans: 6-10
  • Nebraska - Corn: 5-25 & 5-31 / Soybeans: 6-15
  • Ohio - Corn: 5-25 & 5-31 / Soybeans: 6-15
  • Pennsylvania - Corn: 6-10 / Soybeans: 6-10 & 6-20
  • South Dakota - Corn: 5-25 & 5-31 / Soybeans – 6-10
  • Wisconsin - Corn: 5-25 & 5-31 / Soybeans: 6-10 & 6-15
 
Don't forget that the USDA releases the "Crop Production" and "WASDE" reports tomorrow(5/10/2013) at 11AM CST.  If you follow the link below I will have my guys send you my break down.  Thanks

Why I'm starting to get more bullish corn?

May 09, 2013

 As for new-crop corn I am actually starting to become a little more "bullish." Certainly not yet to the point of irrational exuberance, but yes I am thinking about sharpening my bull horns. I know a move more towards the bullish side of the fence may sound strange,  especially considering all of the bearish rhetoric, but as I talk to more producers I am starting to become more concerned about our overall "yield potential."  Yes, I know its early, and that the USDA generally doesn't give much credence or yield reduction to a late planted crop, but from where I sit today a sub-150 type yield is certainly not out of the question.  Especially if you buy into the belief or fact that the corn plant often establishes its pace or "potential" somewhere between "emergence" and "V5-stage."  


Keep in mind, for many of the big producing regions, not much nitrogen is on the fields, the corn is yelling "feed me" and there is now some serious weed competition. Also keep in mind most guys are scared to put down "Atrazine" simply because they can't follow it up with beans. I could go on and on, but the point is, overall "yield potential" might be much more adversely effected than many in the trade are estimating.  I am not saying yields are determined at this stage of the game, but I am saying our " yield potential" could certainly be in jeopardy.  That is why I am recommending that producers stay somewhere between 40-60% priced or hedged in new-crop.  I know there is a lot of bearish rhetoric blowing in the wind right now, but I think our best mover is to just hunker down and see how this plays out. 

Keep in mind we still have some very big bullish "wild-cards" in the deck in the form of June moisture, July heat, US harvest conditions and Chinese production (Bloomberg reporting this morning that corn output in China may drop as wet, cold weather in their northeast regions delay planting). NO need to get over aggressive on the down stroke!   

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How could Corn basis fall apart?

May 08, 2013

Not only is South America Corn cheaper, but there continues to be talk of US companies like Tyson importing supplies. There is also talk circulating that US ethanol plants may be considering "extended" annual shut downs in the Aug/Sept time frame as corn becomes tougher and tougher to source. With exports continuing to disappoint and the possibility of corn used for ethanol soon heading south for a brief period of time, we may find it tough to generate many bullish demand side headlines. Several in the corn trade now concerned about new-crop exports as Brazil will be harvesting a massive second crop, but more than likely won’t begin shipping much out of the country until early September, right when we begin to harvest and sell cash supplies out of the field. Moral of the story, US producers could be looking at a much weaker "basis" come harvest time. Production estimates for corn obviously remain up in the air and anyone’s guess, but let’s consider a few scenarios: First and foremost we have to believe corn planted acres are moving lower. Right now I am thinking harvested corn acres here in the US will be between 88-89 million. I also have to believe the yield is heading lower on the late planting, wet conditions and shallow roots. Therefore rather than using the most recent USDA yield estimate of 163.6, let’s start by using a yield estimate of 160 bushels per acre. Corn producers who have little to any new-crop bushels priced or hedged have to realize you are essentially betting on sub-140 yields or harvested acreage falling well below 88 million. Any variation of the two could certainly push prices higher. We are still a long ways from the finish line so anything is possible and I will never say never. 

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Will Corn Stocks Rise in USDA Report ?

May 07, 2013

USDA weekly crop progress and condition report showed planting at near record slow pace and wheat conditions continuing to deteriorate. Corn planting now the second slowest in the last 34 years (lowest since 1984's 10% planted),  Regardless of the delays you have to believe the corn planters will continue to roll until at least Memorial Day for most producers. The question now becomes how much yield drag the USDA will factor in from their early estimate of 163.6 bushels per acre. Remember, the USDA generally doesn't make a lot of new-crop production adjustments in the May report. A slight adjustment to yields has been known to occur, but rarely do they adjust planted acreage. Point is even with record slow planting, a 2-3 bushel reduction in yield still puts the crop close to 14.5 billion bushels. In addition the trade also seems to be thinking the USDA's current "demand" estimate for new-crop corn is overly optimistic, meaning ending stocks could still end up over 2.0 billion bushels, so click here now to get my full report.

Producers holding old crop soybeans should....

May 07, 2013

 Soy bulls continue to talk about tight old-crop US supplies, while the bears point to South American soy heading our direction. From what I continue to hear, soy supplies from Paraguay are scheduled to reach US shores in Norfolk, Virginia some time this week. Rumor is one cargo, then two more to follow. The trade is also keeping their eye out for supplies eventually coming from both Argentina and Brazil. 

The biggest question mark however remains soymeal... particularly if and when South American supplies will land here in the US. As it stands right now there is nothing reportedly headed our direction. Eventually you have to believe South American soymeal imports will solve our problem, but how long it takes for that to happen remains a serious question. I suspect as long as they continue to focus on shipping soybeans the meal will take a backseat.
 
Lets keep in mind logistical constraints in Brazil are obviously starting to break loose as they reportedly exported a NEW record 8.2 million metric tons of beans during April. This also includes a NEW record of 6.55 million tons of soybeans shipped to China for the month. My gut tells me soy prices, at least for the interim, will remain supported on extremely tight old-crop supply. I also believe this Friday's USDA report has a chance to once again be bullish the old-crop as the USDA has no real choice but to increase exports and crush. 
 
Producers still holding old crop bushels may want to simply hold and see what Friday's USDA report unveils. As far as new-crop, taking into account our current landscape, I still believe prudent risk management is to have at least 50-60% of your estimated production priced at profitable levels north of $12.00.  

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Crop Progress Report

May 06, 2013

The trade was expecting 15% planted and the crop progress report showed 12%. This is a new record for the least amount of corn planted by May 5th.  The question now is will producers go ahead and begin mudding it in risking sidewall compaction or will they continue to wait for better field conditions. With the crop getting later and later there is already starting to be talk of extreme heat risk during pollination and the potential damage of an early freeze to the late developing crop.  Below are some specifics form the previous USDA corn planting progress reports. 

 

 

    • 2013, May 6th - 12% planted (IA 8%,   IL  7%,  IN 8%,  MN   2%, NE 14%)
    • 2012, May 6th - 71% planted (IA 64%, IL 89%, IN 84%, MN 73%, NE 74%)
    • 2011, May 8th - 40% planted (IA 34%, IL 69%, IN 4%, MN 28%, NE 57%)
    • 2010, May 9th - 81% planted (IA 93%, IL 94%, IN 81%, MN 94%, NE 78%)
    • 2009, May 10th - 48% planted (IA 81%, IL 10%, IN 11%, MN 81%, NE 78%)
    • 2008, May 4th - 27% planted (IA 18%, IL 28%, IN 36%, MN 8%, NE 31%)
    • 2007, May 6th - 53% planted (IA 53%, IL 72%, IN 42%, MN 70%, NE 40%)
    • 2006, May 7th - 70% planted (IA 81%, IL 85%, IN 52%, MN 56%, NE 67%)
    • 2005, May 8th - 79% planted (IA 90%, IL 94%, IN 76%, MN 78%, NE 74%)
    • 2004, May 4th - 27% planted (IA 94%, IL 95%, IN 87%, MN 90%, NE 85%) 
    • 2003, May 4th - 55% planted (IA 56%, IL 68%, IN 50%, MN 80%, NE 33%)
    • 2002, May 5th - 42% planted (IA 53%, IL 30%, IN 10%, MN 56%, NE 55%)
    • 2001, May 6th - 58% planted (IA 56%, IL 91%, IN 90%, MN 7%, NE 50%) 
    • 2000, May 7th - 78% planted (IA 95%, IL 91%, IN 66%, MN 93%, NE 79%)
    • 1999, May 9th - 55% planted (IA 68%, IL 58%, IN 57%, MN 79%, NE 27%)
    • 1998, May 3rd - 39% planted (IA 38%, IL 30%, IN 10%, MN 81%, NE 43%)
    • 1997, May 4th - 50% planted (IA 53%, IL 77%, IN 60%, MN 59%, NE 30%)
    • 1996, May 4th - 41% planted (IA 54%, IL 49%, IN 8%, MN 32%, NE 60%)
    • 1995, May 7th - 20% planted (IA 10%, IL 16%, IN 17%, MN 33%, NE 5%)

 

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CORN Market: Another Limit Move Monday??

May 04, 2013

Cold temps, abnormal snow fall, and more moisture (flooding in many areas) continues to rally the corn market. The fear is obviously Sunday night and the extended forecast being wetter. That coupled with the likelihood of the USDA showing the slowest start to the US corn crop in modern history, has the bears nervous and the bulls optimistic about further price appreciation. I wanted to share an interesting read I received from the National Oceanic and Atmospheric Association (NOAA). From what I can gather, it was written Jim Lee and it’s titled Snow in May?

 
According to data from the State Climatologist office snow has fallen in May 59 of the last 125 years, in Iowa, or in other words 47% of the time, but interestingly it has only occurred in five of the last 20 years. Most of these events have been characterized by isolated flurries with trace amounts at only a couple of reporting stations. this most recently occurred in 2011 when a race of snow was reported May 1 at Forest City and May 4 at Lansing. The last measurable May snow reported in Iowa fell on May 1-2, back in 2005. Events also occurred on May1, 1997 and on May 5-6, 1989. I should point out that snowfall events producing multiple inches of accumulation are exceedingly rare in Iowa in May, having occurred in only ten years according to the research of this author. In fact no station has reported an inch or more of accumulated snowfall in Iowa in May since 1967.
Here is a list of the five events producing the highest May snowfall accumulations on record in Iowa:
 
1882 - Snow fell on May 12 (across southeastern Iowa, with about an inch at Iowa City) and then again on May 23. On the latter date about the southeastern quarter of Iowa received snowfall, with around half an inch at Des Moines and up to 4-6" at Washington. 
 
1907 - Spring was very cold and backward at least partially due to the large eruption of the volcano Ksudach in eastern Russia. Snow fell across all of Iowa (and the Midwest) on May 3, with amounts ranging up to 1.2" at Des Moines and 1.5" at Atlantic and Corning. Another statewide snow fell on May 15 that was light in most areas but amounted to 5" at Rock Rapids.
 
1945 - Snow fell across the northwestern half of Iowa on May 9-10 with most of the area reporting measurable snowfall. Amounts ranged up to an amazing 8" at Denison.
 
1947 - One of the most remarkable weather events in Iowa history occurred when snow fell across most of the state on May 28, with measurable snow across the north and west ranging up to an incredible 10" at Le Mars. This is the latest spring snowfall on record in Iowa and also the highest amount ever recorded in the month of May.
 
1967 - Snow fell across about the southern half of Iowa on May 3, with amounts ranging up to an amazing 8" at Glenwood.
Bottom-line, this is truly a "weather" market! 
 
Saturday morning is showing substantial rains from central Illinois down through parts of Indiana, Kentucky, Tennessee, Alabama and Florida.  
  

All time highs in the stock market today, now what?

May 03, 2013

The stock market seems to be trapped in a period where "all news" is "good news." Granted today's employment numbers were better than expected and the market just hit all time highs this morning. Global easing programs and safety nets continue to be put in place. For me I am starting to become a little more concerned that this period of "euphoria" may start to lose its luster. Why you ask? Consider the following:

The price of a stock is nothing more than its perceived "value." As always people buy "value" NOT "price." Hence when the market crashed and bottomed out (MAR-2009), the perceived "value" of stocks for many of our nations greatest companies appeared excessively cheap. Not only cheap in investors eyes, but as companies trimmed the fat, cut back expenses and started to once again turn big profits, they started buying back their own shares. Therefore it is obvious to see the buying frenzy has not been from individual investors or the "mom-and-pops," but rather from the funds and managed money players who were forced to put money at work in the marketplace because of no other real alternatives (Fed dropping the bottom out of rates), and the corporations who have been aggressively buying back their own stock because perceived "value" has been extremely affordable. 

Like any other market, "supply" and "demand" is major price determinant. Greater demand (or buying by the corporations) means less supply in the marketplace and therefore higher prices. Same song and dance for stocks. Corporations buying back their own shares takes supply out of the marketplace. Funds aggressively buying shares because the perceived value is cheap also takes shares out of the marketplace. Simple economics...less supply, plus strong demand, equals higher prices. My fear moving forward is that perceived "value" is fading. I am starting to hear more and more talk from fund managers saying the "easy-money" is gone. Finding "real" value is becoming tougher and tougher. Think about it like this, If the market was truly "strong" and standing on its own two-feet, not moving higher on Fed assistance, or decreasing supply, then IPO's would be sailing higher...but they are not. Instead nobody wants to go public after seeing what happened to Facebook, Zynga and Groupon. New issues aren't in the business of buying back their own shares, they are in the game of issuing new shares in order to generate capital. Point is what happens when US corporations stop buying back their own shares and taking available "supply" out of the marketplace? Unless their buying can be replaced by the "mom-and-pops" we may start to slide. As always money-flow remains king. I am not sure if we are there as of yet, but when the corporations start to turn off their buy-back machines we need to be looking for the exit signs.

EXAMPLE: In case you haven't heard, Apple is jumping on the buy-back bandwagon. Just last week they announced a $60 billion share buyback plan, the largest ever in corporate history, representing about 15% of all their outstanding shares. On the outside you have to believe they are hopping that by eliminating shares, demand will increase and prices will in turn move higher. I am afraid there is a lot more to it than just that. As you probably know, Apple is sitting on close to $150 billion in cash. The problem is about two-thirds of their cash is is held overseas. Meaning Apple would have to pay fortunes in US income tax if it were to use that money here at home. In "playing the game," Apple has decided to simply borrow the money from bankers here at home to fund their massive stock buy-back program. It's a no brainer! Assume Apple goes out and borrows the money at an interest rate of 3% (which is not unrealistic), then uses the money to buy-back its own stock at the current price of between $400 and $450 a share. Keep in mind for each share Apple buys-back they ultimately reduce their annual dividend payment by $12.20 a share. Assuming they are going to buy-back 140-150 million shares, they will be saving close to $1.8 billion in annual dividend payments. Wow, thats convenient. If you figure up the the annual interest they will be paying on $60 billion, at 3% it comes to right around $1.8 billion. Sounds like a perfect wash right??? Wrong! Even better, Apple understand, like other US corporations that interest is tax-deductible...dividends are NOT!

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What now in Corn, should we lift hedges, buyback sales?

May 02, 2013

 Corn bulls were happy to see ethanol production at 857,000 barrels per day (largest since last July), and were also happy to see strong blender demand pushing ethanol stocks lower as well.  I should point out there were ZERO ethanol imports reported last week. Understand, even though al of this is good news, ethanol demand is going to need to keep this type of pace the remainder of the marketing year to reach the USDA's current estimate of 4.55 billion bushels used. With consumer demand at the pump continuing to fall the amount of corn we will use for ethanol continues to be questioned. US corn exports are also being questioned moving forward. With an extra 5-10 million metric tons of corn being harvested in South America and Argentine shipments running some $35 per ton cheaper then US suppliers, the outlook for increasing US corn exports look bleak. Point is "DEMAND" has still not given us a reason to get overly excited about sustained price appreciation. Yes, US new-crop "supply" looks as it will be moving lower on fewer acres going in the ground and a decrease in yield potential associated with a late planted crop. Keep in mind planting progress reported this coming Monday shouldn't be much more than 12-18% vs the average of just under 50% by this time of year. Bottom-line this could be the slowest planting pace on record up to this point. Farmers are obviously going to do everything in their power to get as much corn in the ground as possible, but we are already starting to hear from several producers who are trimming back their corn acres. the numbers haven't been drastic but certainly making some adjustments. My guess is the current USDA estimate of 97.3 million acres is eventually going to be closer to 93-95 million acres, with a crop somewhere between 13.0 and 14.0 billion bushels. The problem is with demand closer to 12.0 to 12.5 billion bushels I still see ending stocks being excessively burdensome...not tight. Next Fridays USDA report will more than likely confirm similar thoughts, therefore I believe producers should still be using the rallies to reduce risk, NOT to re-own!!!

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Weather and exports remains the theme in the Ag markets..

May 02, 2013

 Weather remains the theme in the Ag markets. A slightly drier extended forecast for the cornbelt caused a few of the weather bulls to pause yesterday. Basically the GFS model removed some of the rainfall in the Midwest starting next week, now it looks a little wetter. With falling temps, more rain and snow now hitting the ground across many parts of the Midwest (13' inches of snow in parts of MN, winter weather advisory in IA) the trade should remain hesitant today in reducing any additional weather related premium.  

USDA weekly export sales data this morning seen as strong for new-crop corn, beans and wheat. Cancelations and negative sales reported for old-crop beans for the second weak in a row... Chinese soy demand slowing??? 

 

  • Corn sales reported as 329,300 for old crop and 656,000 for new crop.. Trade was looking for a combined total of between 800,000 and 1.0 million. Last weeks sales totaled just 335,900: Old-crop sales reported at 314,700 tons, new-crop sales at 21,200.
  • Soybean sales reported as NEGATIVE -109,800 for old crop and +1,341,1000 for new crop. Trade was looking for a combined total of between 600,000 and 900,000. Last weeks sales totaled just at 422,200. Old-crop sales were a NEGATIVE -206,300, new-crop sales were 628,500.
  • Wheat sales reported as 219,200 for old crop and 497,300 for new crop. Trade was looking for a combined total of between 300,000 and 500,000. Last weeks sales totaled 306,400. Old-crop sales at 71,700, new-crop sales at 234,700.

 

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It's not how you start...but rather how you finish!

May 01, 2013

 Corn bull's, staring down the barrel of the slowest planting pace ever on record, they seem to be already discounting 1.0 to 2.0 billion bushels of US corn production on the reduction of yields and fewer corn acres going in the ground. I have heard many estimates floating around the past few days, and the consensus is we are definitely going to producer fewer bushels than the 14.63 billion projected by the USDA in the February Ag Forum. I am currently hearing estimates ranging from 12.5 to 14.2 billion bushels as being more realistic. Before you get overly bulled up just keep in mind it is still "EARLY." Keep in mind these are all wild guesses at this juncture, as the "June Moisture" and "July Heat" will be the key ingredients in the overall recipe for total US corn production.  Remember, we have had some very big crops that went into the ground late. The forecast for next week and beyond will remain the key to the equation. If it stays wet and cool look for the trade to become even more nervous and add more premium, a warmer drier outlook and the premium gets sucked out even quicker then it was added. 

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