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August 2010 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.

Where Corn Prices Are Headed

Aug 31, 2010

Corn Price Direction In The Coming Months

There seems to be more debate and concern regarding this years total estimated corn yields than we have seen in many years past. Certainly the concern is warranted stemming from a global wheat problem, strange weather during the growing season, and record demand projected in the coming months.

Iowa Could Be In Trouble
From our perspective it looks as if Iowa is going to be the "swing-state". Currently the USDA has their yields estimated at 179 bushels per acre. From everything I am hearing, this number could be off significantly. With Iowa being the largest corn producer in the US for the past fifteen years, how this number comes in is certain to effect our total yields. If Iowa shapes up like we are projecting and we continue to see problems in this state, I think we will certainly see total yields fall into the 160-163 range as a whole. 

I have been receiving many interesting updates from our sources out in the field and I wanted to pass along the information so you could better understand what exactly is happening. 

Many of our Iowa boys are singing a similar tune, and many are now trying to figure out just what has happened out in the field. The season started off like gang busters, but in many major growing regions it has taken a turn for the worst. We are starting to hear a tail of two stories as producers in the northwest part of the state are reporting the possibilities of another record setting crop, while those in other areas seem to be less fortunate. Many areas have been battling the big rains and now have growth and fertility problems.

The Scouts Out In The Fields
We have talked with many scouts out on foot and in planes, the story seems to be the same, "The crop in central, north central and eastern Iowa looks horrible and will not even come close to the current USDA estimates."  Below is a better synopsis of what seems to be really happening out in the fields.  I truly believe once the smoke settles and dust clears the USDA will be forced to drastically adjust in these areas. If everything else plays out as we currently project, price action in this market could get very wild in the coming months as traders jokey for position.  

There is no debating the fact that the corn crop is about six weeks ahead of last year. Let me pre-qualify the next few statements by once again proclaiming that I am a professional trader and marketing expert, not a professional farmer or agronomist. I leave the farming to my clients and i take care of what I know, hedging and marketing.  Anyway, from what I am being told a huge portion of the corn will be forming a black layer in the next several days. As I have always been told, the plant is supposed to remain alive and healthy until at least a few days after the black layer forms. Then the dry down phase should begin. This year though we have been hearing reports of plant declines starting almost right after the yellowing began.  It is now very easy to see form the road and by plane corn plants that are already dead. Reports are that the ears are already spongy and the kernels are shrinking up.  

What The Experts Are Now Saying
We have seen reports from a couple of Iowa's top agronomists that they have been chasing several different diseases across many top producing areas throughout the summer. They have told many that they had never seen so many problems over as many acres as they have this year. 

From what we are hearing, and the one I wanted to make you more aware of is Goss’s wilt. From what we have been told this bacterial type disease could become a real game changer for many producers in the immediate future. Reports show that up until 2008 Goss’s wilt had been refined to only parts of Nebraska and Colorado. The disease is now being seen from Colorado to Ohio and looks to be gaining steam. We are hearing that the bacteria has the potential to and is already rotting stalks and cobs in eastern Iowa. Many of the big players are becoming more and more concerned.  

Much of the infestation consists of stalk lesions rather than the brilliant colored leaf spotting. The causal bacteria will rot the stalks and possibly cobs. The best thing will be for conditions to turn dry and warm as the stalks and shanks could turn leathery rather than soft and rotten. For this reason a lot of the guys are suggesting that you harvest the corn before it gets below 22% in many areas that may be in danger.          

Is "SDS" Disease As Bad As Some Reports Claim?
Just to touch briefly on beans and the SDS problem, yes it is real, and it may actually be a bit worse than we had anticipated. Yields are certain to be affected, and will depend on how many and how early the leaves detach. Keep in mind from what we are hearing on our end, when corn is planted on those fields next year the plants will be prone to a similar style of root infection. 

Summary Of The Situation
In a nutshell we are hearing that a larger amount of the corn is nearing black layer earlier than in years past. Regardless, the plants should continue to stay green until after the black layer forms. This season there are tons of reports showing signs of premature death and wilt. We have heard those  that received an application of the Defender G are doing the best and seem to have remained green and healthy. 

* Field scouts are reporting that the crop is extremely yellow, much more so than in 1993, when we had much more rain than this year. Keep in mind that yellowing helps cover up some of the disease infestation. 

*There is now starting to be a record level of six or eight major root, stalk, and leaf diseases that are affecting or will be affecting grain fill and plant health through the fall. 

*Large areas of Goss’s wilt killed plants are getting very easy to spot and the disease is spreading. 

*Leaf diseases and Fusarium root rots have affected a huge percentage of the corn. 

* Now over half of the acres are being affected by SDS.

How Prices Will Be Influenced In The Weeks Ahead

This should give you a better idea of why we think the Iowa yield numbers will be revised, and why we could ultimately see the entire US number trimmed a little more than we had anticipated. 

Keep in mind as we try and predict future price direction that I am not the only one with this information or insight, and in fact I am certain many of the big players have already been long this market for some time on similar information and news. This means this information in some degree is already priced into the market, and could be part of the very reason corn has traded significantly higher the past several sessions. 

Having traded professionally for so many years I have learned many valuable lessons in regard to trading strictly off the fundamental news. More times than not they have all been fairly significant financial lessons. Trust me when I say, most fundamental news is already priced into the market by the time you get it in your hands. I simply want you to be aware of what is happening and why so many are concerned about the yields coming in well short of the USDA's latest estimate. 

The bottom line, right now in the markets we simply have more traders betting on lower yields.  The bookies are trying to adjust the lines as more traders place their bets on lower yields and hence prices are moving higher. Can this price action continue? Will more and more traders continue to place bets on an upcoming corn shortage? Time will certainly tell. 

We believe in the coming weeks you will see some players take their bets off the table as farmers move into harvest and operators in some states will be certain to start reporting record yields (this will make some very nervous about their bet). Others may take their bets off the board as they become more nervous about their other bets in the "outside markets" such as in Crude Oil and the US equities (as we get past the traditionally poor October economic data this should change). Once we get through that period traders will have money in hand and will be looking to place new bets on the slightest sign of increased demand or tight ending stocks, this is when I believe you could see a huge run higher. Make certain sure you have some type of re-ownership plan or marketing game plan in place if we start to run, this could be a terrific opportunity for significant profits. 

Continue to look for opportunities to get long on profit taking and significant harvest pressure selling. Producers need to adjust hedges accordingly and have a game plane for participating in this market after you have made your cash sales. Give us a call or send us and e-mail if you need help designing a plan of this nature or would like more information about how we can help (816) 322-9800.  

**For those of you have not signed up to receive our daily trade wire report, simple follow the link to our site and sign-up. There is no cost or obligation. It is a great little report. Quick and easy to read, jammed packed with all kinds of good news and info from the trading floor and around the globe. Free Ag Hedge Daily Trade Report 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques

 

 

 

How We Are Trading The Cattle Market During The Next Few Weeks

Aug 28, 2010

I am hearing that we there was another big move of cattle out of the feedlots this week. I am sure there are several ways to look at this, but one could certainly reason through it all the packers have accumulated some significant inventory. If this is true you can almost certainly guarantee production schedules will be trimmed back in the coming weeks ahead. Unless we see beef prices continue to climb on the board the demand for cattle from the packer should be somewhat limited near term. With limited end-user demand you have to believe cash cattle prices will start to weaken.  

If you look at the current data it looks as if demand in August will certainly equal that of July, and if we are doing our math correctly, moving forward wholesale beef demand in September will be materially higher than in August. We are assuming that demand should fall back as summer comes to an end forcing  the cash cattle market down into the $95-96 range. If for some reason demand continues to stay very strong, you have to believe cash cattle prices will stay in the $98-$100 level with packers continuing to have ample inventory. 

With this in mind we will continue to recommend selling the Oct $100 calls, preferable only on days when the market is trading higher in order to increase our premium valuations. On the flip side we will be looking to get long live cattle from $96 in the October contract and around $97.50 in the December contract. 

* As you can see from the chart below Cattle has reached some tough resistance at the $100 level. We anticipate a slight pull-back and a consolidation period before this market makes another run higher. 

 kvtcattle

 

**For those of you have not signed up to receive our daily trade wire report, simple follow the link to our site and sign-up. There is no cost or obligation. It is a great little report. Quick and easy to read, jammed packed with all kinds of good news and info from the trading floor and around the globe. Free Ag Hedge Daily Trade Report 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques

 

Will Soybeans Continue to Trade Above $10?

Aug 26, 2010

I recently wrote in my daily trade wire that I am going to continue to stick by my guns for now and look for lower prices in the weeks ahead as farmers start to report record pod counts and higher prices start to encourage more acres here in the US and in South America.

If you remember back a few months ago many analysts were expecting fewer acres in Brazil and Argentina next year, we are now hearing reports that prices have recovered enough that fertilizer sales are really starting to rebound, and the amount of fertilizer now sold projects out to an actual 5% increase in soybean planting. Take into account that the USDA has forecast the global soybean carryout for 2010-11 to be over a staggering 64mmt, and that number assumed a cut of 4.5mmt from Argentina and a cut 4mmt from Brazil.

If our reports are accurate and more bean acres are actually planted, we could be looking at a carryout of over 73mmt. If the global economy doesn't rebound and continues to build strength in demand there will simply be too many beans in the marketplace to allow prices to stay at these levels. Certainly things can change though as we move ahead, but as we sit here today I think prices will break into harvest before eventually moving higher on stronger demand and improving economic forecasts. 

 

**For those of you have not signed up to receive our daily trade wire report, simple follow the link to our site and sign-up. There is no cost or obligation. It is a great little report. Quick and easy to read, jammed packed with all kinds of good news and info from the trading floor and around the globe. Free Ag Hedge Daily Trade Report 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques

 

 

Why the "Outside Markets" are so important for predicting grain and livestock prices

Aug 24, 2010

I know some of you don't like to read about them, but the outside markets such as the US Stock market and Crude Oil have a very big impact on today's grain and livestock prices. As large hedge and index fund traders begin to control market direction it is absolutely essential to understand and know what is happening in the outside markets, and more importantly how their movements will ultimately affect the future of your crop and livestock prices. 

 
The outside markets were certainly the big news today with the U.S. Stock market and Crude Oil getting hit fairly hard to the downside on fears of further global slowdowns.  Today's report on existing-home sales really rocked the boat by coming in much worse than anticipated.  In Europe overnight the equity markets posted steep losses, along with Japan's Nikkei and other Asian markets falling into the red.  
 
Moving forward traders will first be looking at Wednesday's "Durable-Goods Orders", then to Friday's second release of U.S. second-quarter gross-domestic-product data, with many fearing a sharp downward revision could be in order.  If these markets continue to struggle during the next few sessions you will see the funds start to lighten their load in other areas. If this happens you will more than likely see the grains and livestock markets fall back as well. 
 
September and October have seasonally been a tough period for the stock market, and certainly times when we have seen some of our biggest drops in prices. If you look at past performance and data you will notice that most every significant crash (1929, 1987, 2008) has occurred during this seasonal time period. 
 
After news today of very poor new home sales numbers you have to start wondering where we are headed. From my perspective it looks as if the housing market is going to continue to place a severe drag on the U.S. economy. If you look back in time the US housing market has actually led us out of all of the last major recessions. This time, it continues to stifle and kill any and all recoveries. Home sales have basically collapsed after a federal tax credit for buyers expired in April.  Traders and analyst are now worried that if foreclosures continue to mount and depress home prices any further we could eventually throw the economy back into a major recession.  
 
With 14.6 million Americans now out of work, homeowners are struggling to hold onto their properties. I have read in reports that one in seven mortgages were delinquent or in foreclosure during the first quarter, the highest on record dating back to 1979. Foreclosures probably will top 1 million this year. Shadow inventory, or the number of homes repossessed or in default that eventually will be offered for sale, stood at 7.3 million in the first quarter. As those properties hit the market, prices will come under pressure and buyers will wait for better deals. 
 
In all other recoveries new-home sales have improved an average of eight months before the beginning of economic growth, and single-family housing starts have improved seven months before recovery. After today's news of falling new homes sales the big boys are certainly getting nervous about the current odds of mounting a complete recovery. Without the strength of the housing market many traders are worried about the overall validity, depth and strength of the current economic recovery.  
 
With economic concerns again moving to the forefront of traders minds as we head into harvest I believe we may see prices continue to break without any major bearish revisions in crop production and or export demand. If this continues to play out I think we will start to see strong buying opportunities on breaks in the corn market.  As I continue to preach, these outside markets now play a critical role in determining overall price direction. Certainly, I think demand will continue to stay strong, but as the large funds lose equity in the outside markets it would not surprise me to see them lighten their positions in the grains and livestock markets. For those who think they may have missed the move, I think you are going to get another opportunity in the coming weeks. 
 
While I’m quite comfortable with the idea that U.S. corn yields have already peaked, one never quite knows where soybean yields will come in until the combines roll. This year’s reports of widespread SDS in parts of the Midwest makes the call even trickier this year. However, soybeans appear to be a bit more risky into harvest as without a major decrease in U.S. production, projected carryout will likely at least double this year’s figure even though I strongly believe that as usual, the USDA will have once again underestimated demand and that figure will decrease later in the marketing year. 
 
To summarize: I think all producers need to make certain they have a re-ownership program in place especially for those producing Corn. The program should provide you with the opportunity to participate in upside market moves even after you have sold your cash crop. We have designed several detailed strategies with very limited risk for many of our clients. You are more than welcome to give us a call today if you would like to learn more about how we can design a re-ownership program for your operation for just a few cents per bushel (816) 322-9800. 
 
These re-ownership programs are critical for increasing profits during these types of market conditions. We all know and understand that the Corn market could explode higher at any time, trying to predict a top is simply too difficult and can become too cash intensive for most operators. The re-ownership programs we design allow you to make cash sales when needed, and give you continued upside participation if the market where to take off after you made your sales. 
 
For producers you need to make certain you have your floor in place and a re-ownership program ready to implement once you start making more cash sales. Producers can look to build a floor by Selling $5.00 calls and Purchasing $4.00 puts at a 2:1 ratio.  Looking to lift these hedges when you make a cash sale and roll into your re-ownership position. 
 
To all of our spec and fund followers the chance to establish new long-term bullish corn positions may present itself in the coming weeks as we approach early harvest and falling market prices. look for the outside markets to continue to apply pressure to the downside ahead of key economic data, but look for lower yield estimates to add some support to corn. More than likely beans and wheat will not get this type of yield support and we may see continued pressure in these markets. Once the outside markets begin to stabilize, we will more than likely be off to the races once again in the corn market. 
 
**For those of you have not signed up to receive our daily trade report, simple follow the link to our site and sign-up. There is no cost or obligation. It is a great little report. Quick and easy to read, jammed packed with all kinds of good news and info from the trading floor and around the globe. Free Ag Hedge Daily Trade Report 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques

 

Weekly Soybean & Corn Market Update

Aug 20, 2010

Each week professional grain trader Kevin Van Trump provides clients with his personal insight and commentary regarding recent agricultural news and information that may be effecting current prices and future market direction. 

 
The inability of the market to attract aggressive buying, following the strong weekly export sales numbers and additional reports of lower-than-expected yields, had a few of the big boys a little concerned yesterday. Friday at the close though the market shrugged off concerns and posted another nice gain.   
 
I am sure you have already heard that yesterday's export sales numbers released by the USDA were very good. I just want to give you some additional insight, so you will better understand just how "good" they actually were.  To begin with corn, wheat and soybean export sales combined were 6.53M tonnes setting an all-time record, and blowing away the previous high set in December 1994 by more than 805k tonnes. Cumulative old crop and new crop corn export sales reached 2.89M tonnes, the third highest amount since 1990. Cumulative corn sales fell just short of the 16 year-old record set in December 1994 of 3.28M tonnes.  As you can see these numbers were huge. 
 
Another interesting report that many of you may want to look at will be released by our friends over at Pro Farmer today at 1:30pm just after the close.  The word I am hearing is that during their recent midwest crop tour they found the Iowa corn crop to be smaller than last year. Rumors around the market are that they are projecting Iowa's average to be about 169 bu/acre, down significantly from last years mark of 180. On the flip side rumors are that they found Iowa’s soybean pod count to be significantly higher, but they fear "Sudden Death Syndrome" may do some significant damage before it is all said and done. Because it is still very early in the game I personally don't know how much weight this report will have on long term market direction. 
 
As I had predicted earlier this week, the Soybean market has really struggled  as of late. On top of concerns that we may see much higher than anticipated yields here in the US we are now hearing talk that China could start to slow import demand. The China National Grains and Oils Information Centre indicated that the countries top soybean producing region (Heilongjiang) is expecting a bumper harvest this season with yields near 10% above last year. I have heard this region produces about 40% of the countries total soybean production. In general I think we will continue to see soybean prices move lower in comparison to Corn. 
 
With an early harvest coming down the pipe, a struggling US economy, lower crude oil prices and a higher dollar, hedge and index fund managers may continue taking profits off the board during the coming sessions. Don't fall asleep at the wheel because these recent pull-backs may be short lived. In the end continued strong export demand, and extremely tight stocks will continue to drive Corn prices.  For now most big players will be looking to take advantage of the pull-backs to add to their long positions. I think we may get several more opportunities to get properly positioned in this market as we move into harvest and farmer sell pressure begins to battle the bulls, but after that all bets are off.  This market could go higher very quickly on any major bullish news.
 
Unfortunately I look for Soybeans to continue falling back, eventually finding support in the mid $9 range. I believe after that we will trade sideways to lower as the market awaits confirmation on continued export demand. If demand starts to gain steam we will be back to higher levels very quickly. 
 
Trade Update
Make sure you don't let profits lip away in a couple of our most recent trades. 
 
#1. The long (5) Dec corn / short (2) Nov Bean trade we initiated on Wednesday 8/18/10 is now up $5,175 per unit in just three days. We are scaling out of a few of these positions now. I think we could get some more out of this trade, but when a market rewards you this quickly my experience is to lock in profits. You can move up your stops if you want to stay in longer.
I just don't want to see you give it all back. 
 
#2 The US Bond position we initiated on Aug 9th is now up  $4,300 per unit.  If you want to lock in some profits you may want to consider Buying a 134 Put and Selling a 136 Call in the Sept contract.  This gives you a nice little insurance policy on the trade for less than $200. 
 
**For those of you have not signed up to receive our daily trade report, simple follow the link to our site and sign-up. There is no cost or obligation. It is a great little report. Quick and easy to read, jammed packed with all kinds of good news and info from the trading floor and around the globe. Free Ag Hedge Daily Trade Report 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques

 

2011 Dec Corn Could Be The Diamond In The Rough

Aug 19, 2010

The corn market is obviously going to stay somewhat supported by the Russian drought problem, as their issues are expected to only further increase export demand.  As I have reported in our past few daily newsletters wheat feeding should drop dramatically with corn picking up most of the balance. From a trade perspective you have to start looking at the December 2011 Corn which in our opinion appears extremely cheap compared to the July 2011 Wheat and November 2011 Beans.  If you assume corn will lose some acres to beans and wheat because of their recent price rally, and you believe the global demand is going to continue to increase then Dec 2011 Corn should look very attractive at these price levels compared to the other markets. You also have to think we may see several operations double crop wheat and beans next year. 

 
If you would like some specific trade recommendations, low cost spreads or option strategies for this market please give our Ag Hedge offices a call at (816) 322-9800 and we will design a strategy that is right for you and your operation. 
 
I hope some of you had a chance to look at yesterdays trade recommendation to buy (5) Dec corn and Sell (2) Nov Beans. The trade is close to reaching our profit objective in just two short days. 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

Why Many Traders Feel Corn Could Go Higher & Beans Lower

Aug 18, 2010

SOYBEANS: Hot weather during the pod-setting stage and now uncertainty about the extent of "sudden death syndrome" in soybean fields across Iowa have some traders a little nervous and have propped prices up in the past few sessions. Reports are floating around that an Iowa State plant pathologist thinks that over 50% of the Iowa fields may be affected with the soil fungus which can potentially cause yield loss from 20% to 60% in infected areas. Obviously this has traders on the edge of their seat, and we will continue to monitor the situation as it develops. Certainly there are reasons for concern about yield, but from our perspective the ending stock levels are certain to grow. To give you an idea, if we were to see ending stocks dip back to the 160 million bushel level seen last year, we would need to see average yield slip to near 41.5 bushels per acre from the 44 bushel level the USDA has forecast. We just don't see this as a feasible possibility. Yes, disease issues in Iowa, if they spread, could produce some short term bullish momentum. But the outlook for expanding US and world ending stocks even with the higher demand will ultimately hold this market back. As long as funds keep buying and fears about lower yields take center stage prices may continue to push higher. We are advising all of our clients to have their hedges in place and be prepared for a significant price pull break as we get close to harvest. 

 
CORN: Traders are now hearing the first reports from a private crop survey group out in the field that is for the time being confirming the USDA's record corn yield forecast. Early indications in Nebraska are coming in near last year's record levels according to tour members. For now traders seem content, but if average corn yields begin to fall or China begins importing US corn again, the ending stocks outlook could get extremely tight. Remember our stocks usage ratio has only been under 10% just twice since 1973 and if yields drop to 164 from 165 bushels per acre, this will be considered the second tightest stocks/usage set-up since that time. Personally we believe the yields will start to fall in the coming months, and we will see a seriously tight situation developing. Given the potential jump in wheat acres and soybean acres next year corn may be setting up for an explosive move. 
 
One of the main reasons we have continued to rally is that traders are starting to realize U.S. corn exports could easily exceed the U.S. Department of Agriculture estimates. World feed markets will have less wheat and barley production from Russia and Europe as a result of the extreme droughts, and that will make U.S. corn attractive to importers as a cheaper alternative feed source. Even after Friday’s 100mb increase, this year’s U.S. corn export projection is just 2.050 bil. bu. If Russian winter wheat crop sowings, which are normally completed by the end of September, are reduced by dry weather and replaced by spring wheat sowings next year, U.S. corn exports could explode even higher in the months ahead as the feed window opens a few more months wider. We would not be at all surprised to see U.S. corn exports top 2.3-2.4 bil. bu. in subsequent USDA reports. This would be extremely bullish. 
 
Throw in the strong possibility that this year’s heat and wet weather may actually reduce the projected corn yields and you can see why traders are starting to get a little nervous. The bottom line: if yields come in lower than projected corn is heading to $5.00 plus. 
 
Trading Strategies:  From a trade perspective we like buying corn and selling beans. Buy (5) December Corn & Sell (2) November Beans. If you are looking for less exposure you can try a 2:1 ratio. 
 
Hedging Strategy: We currently have a $4.25 floor in place for all of our clients in Corn and a $10.25 floor in beans. Look to roll higher if the market rallies during the next few sessions. Next roll to $4.50 in Corn and $10.75 in Beans. Re-ownership programs can be executed if you need to make cash sales.  
 
If you would like more information about these strategies please feel free to call our Ag Hedge home office at (816) 322-9800  

Call & Check Your Soybean Basis

Aug 17, 2010

Many traders and producers alike believe the soybean futures market may struggle in price compared to corn and wheat this fall, but you may be in for a big surprise as we are starting to see huge moves in the post-harvest soybean basis along the U.S. river system. In fact reports now show that Ohio River basis for Dec-Jan delivery posted at $.18 over January futures yesterday compared to their fall bid of $.19 under November futures, a return on storage of about $.43 (counting $.06 carry to Jan futures) for 6-8 weeks of storage. I have also read that the competing domestic processors in the area are only $.12 under January for Dec-Jan. All of this simply suggests that exporters are worried about getting enough soybeans to cover massive post-harvest sales to China. If you have access to the U.S. river system I suggest you call your local buyer and check these facts and conditions. For the rest of you just be patient and keep your eye on the basis in the coming weeks.

Soybean Prices & Where They Are Headed

Aug 16, 2010

We have received a lot of questions as of late about the direction of the US soybean market. To quickly summarize, traders on the floor are very concerned with China's demand and how long they will remain an aggressive buyer of US soybeans, as well as being nervous about the US weather situation. As we sit right now, assuming the yield comes in at 44bpa where the USDA predicted in last week's Supply Demand Report, ending stocks will increase by 200 million bushels. Traders are worried that for us to hit the record high yields we will need to see some very good weather during the next few weeks. We should know a little more by tomorrow as the crop condition report will be released after today's close. Up until now conditions have remained really close to last year's readings despite talk of too much heat in the south. I know many of you may be anticipating lower yields, but I am not so certain this will happen. As I have mentioned in the past I think beans flourish more than we think in this humid type of South American weather. In addition I believe that we are going to start reaping some of the benefits from the heavy investments made in seed technology and development during these next couple of years. In a nutshell I think anything lost from weather this year will be made up in the form of technological gains in the crop. If my theory proves correct you have to believe bean prices will slide significantly from their current levels. Right now though with too many unknowns and such strong demand the bulls seem to have a stranglehold on the market. The recent hot weather and surge in demand seen on last week's export sales report has kept several of the big sellers out of the market.  I have to believe the recent cool down and weekend rains makes the weather less of a concern for now and we may see some sell paper enter back into the game.  

SUMMARY: It is our belief that the bean market will need a lower yield in order to rationalize these recent higher prices. Certainly demand has been good, but without a yield below the 44 bpa level I think we are simply too expensive. Even though we have continued growing demand the outlook for expanding US and world ending stocks in the end will be tough to overcome. I think through harvest or at least for the next four to six weeks the upside potential seems more limiting than the fear of a major price set-back. Have your hedges in place. A simple formula you may want to consider would be buying puts and selling calls to curtail the expense. 
 
*Basically you can put in a $10 floor for the next 68 days with $0.50 cents of upside potential for even money (no cost).   
 
If you would like more information about this market or the other agricultural markets and our hedging and cash sale strategies please feel free to call us directly at Ag Hedge (816) 322-9800 or you can email me directly at kvt@aghedge.com
 

Cattle Trading Strategy

Aug 12, 2010

 The CATTLE market has many traders scratching their head. In yesterday's trade the outside markets got hammered but cattle stayed steady and  even sparked an impressive late day recovery. The word on the floor is that packers have had to pay up for cash cattle as of late, and there is now some talk of relatively tight feedlot supply and slow non-fed cattle slaughter. News that cash cattle traded $95.00 in the southern plains, up $2.00 on the week, also helped to support the market. Fears of a slowing economy is holding this market back and should remain a major concern in the coming months. Currently demand is holding up better than expected, as long as outside market forces are not too negative we should continue to see descent buying. We believe this market will continue to test new highs but will struggle to maintain ground as more negative global economic news impacts the markets. 

 
We wanted to include a quick note for those trading LEAN HOGS. We are continuing to hear numerous reports of poor breeding this summer from hog producers, suggesting that pork production next spring could be substantially lower than expected. A long string of 90+F days along with poorer than normal quality corn are thought to be behind the problem. We recommend that Producers sit tight on further hedges until more is known about the extent of this issue, speculators may want to begin building longer term bullish positions on any significant pull-backs. 
 
 
Trading Strategy
We believe the cattle market is stuck in a trading range as it desperately attempts to make new highs but is constantly pulled back by fears of a struggling global economy and fears of slowing demand.  To take advantage of this range we will be Selling (1) Oct Live Cattle 98 Call & (1) Oct 92 Put @ 210. Basically this means we believe the Live Cattle Market will trade between $90-$100 during the next 50 days. 
 
 

Where Do We Go From Here...?

Aug 11, 2010

Obviously a slightly higher dollar, lower crude oil and a weakening economic outlook have all pressured the grain markets the past few days. Things should certainly heat back up after we adjust to one of the largest USDA Grain Reports of the year tomorrow. 

 
WHEAT has obviously been the lead story as of late as importers around the globe scramble to replace lost Russian supplies. Governments are doing a good job of assuring the markets and their own populations that supplies are adequate for the time being. US Agriculture Secretary Vilsack commented yesterday that US and world supplies are adequate to replace the lost demand from Russia. The fear now has to be that Russia may pressure other exporters in the Black Sea region to institute a ban on grain exports. This would be aimed primarily at neighboring Kazakhstan, who is expected to export close to 8 million tonnes of wheat this year, making it the world's 6th largest wheat exporter. Russia could make this move in order to help them control wheat price within their borders and keep a lid on inflation. The market will learn a lot more in the coming weeks as there is still a great deal of uncertainty over how big the losses from the Russian drought really are, but if others begin to halt exports rest assured price will once again start to rally. 
 
SOYBEAN traders continue to focus on weather concerns and increasing demand. With beans heading through their critical pod-filling stage many traders are concerned that too much heat could lower yields.  Currently we feel sub-soil moisture levels and rain in the forecast will be enough to carry beans through this critical stage.  
 
CORN traders are a little worried that we may see a slight increase in yield on tomorrow's Crop Production report. There is also some concern that the recent poor economic data from China could trim the potential for gains in export sales during the coming year. Something to think about though is how the loss of feed wheat exports from the Black Sea region could lead to a significant increase in US export sales. 
 
USDA CROP PRODUCTION / SUPPLY DEMAND REPORT:  Below is a summary of what we are hearing as the most recent trade guesses. 
 
Corn: 2010/11 U.S. corn yield is pegged at 164.1bpa with a range from 162-167.4bpa. Last month’s yield was 163.5bpa and last year was 164.7bpa. Corn production is pegged at 13.282 bil. bu. with a range from 13.120-13.524. Last month’s estimate was 13.245 bil. bu. and last year was 13.110 bil. bu. New crop corn carryout is pegged at 1.307 bil. bu. with a range from 970-1.535. Last month’s estimate was 1.373 bil. bu. 2009/10 U.S. corn carryout is pegged at 1.459 bil. bu. with a range from 1.390-1.523. Last month’s estimate was 1.478 bil. bu. and last year was 1.673 bil. bu. 
 
Soybeans: 2010/11 U.S. soybean yield is pegged at 43.2bpa with a range from 42.0-44.0. Last month’s yield was 42.9 and last year was 44.0. Soybean production is pegged at 3.366 bil. bu. with a range from 3.290-3.432. Last month’s estimate was 3.345 bil. bu. and last year was 3.359 bil. bu. New crop soybean carryout is pegged at 334 mil. bu. with a range from 275-404. Last month’s estimate was 360 mil. bu. 2009/10 U.S. Soybean carryout is pegged at 166 mil. bu. with a range from 153-181. Last month’s estimate was 175 mil. bu. and last year was 138 mil. bu.
 
Wheat: Analysts expect the USDA to increase its US all-wheat production estimate tomorrow by about 15 million bushels from 2.216 billion on its July report. This is due improved conditions for spring and durum wheat. 2010/11 U.S. wheat carryout is pegged at 982 mil. bu. with a range from 800-1.132. Last month’s estimate was 1.093 bil. bu.
 
* It should be noted that the July USDA number was mainly a trend yield (statistical) forecast while the August estimate will be the result of a major field survey. 
 
MY THOUGHTS: If history holds true you are more than likely to see the USDA get aggressive with tomorrows corn yields compared to the average trade guess and do just the opposite with soybean yields. This is not to say we will end the season at these levels. In fact it is my belief that we may see just the opposite as we move forward. I think there is a very good chance that we will see corn yields fall from the levels reported in tomorrow's report and beans yields actually climb in the coming months. I think the corn crop may be struggling with the high heat and humidity more than people think, where as soybeans being a much more tropical crop will fair much better in the long run than most believe.  
 
It will certainly be tricky in the months ahead trying to forecast corn yields with such variables from farm to farm and region to region this year. Certainly one has to believe that excessive heat and humidity has taken some type of toll on the overall grain yield, but the extent of the loss is unknown at this point because of the host of interacting factors affecting actual kernel growth. Corn development is well ahead of normal, and these high temperatures will force an early maturity and an early harvest. Had a drought occurred, grain yield reductions might have been more severe than those from excessive heat and humidity. However, just because we have avoided drought in 2010 does not guarantee above trend-line yields. Too much heat and too much humidity can be very tough on corn and I believe we will start to see yields trimmed back during the coming months. 
 
I think the knee jerk reaction of the market on the USDA yield numbers will send the market lower, as yields start to falter and demand continues to strong I believe longer term market direction is higher. How much higher obviously is the magic questions. Prices will obviously hinge on China's continued demand, the severity of Russia's drought, the strength of the US Dollar and how far this years yields will be reduced.  
 
I like having a floor in place, and look short term for the market to move lower. From there we have hedge strategies in place to advantage of the higher moves as the market begins to turn. 
 
I personally think the USDA will shock the bean market a bit by underestimating the soybean yield, and beans may actually pull the other markets higher short term. I think the market will readjust in the coming weeks as more rain and cooler temps start to enter the forecasts. Bean yields will eventually start being raised higher and the market will adjust accordingly. The one wild card right now in the bean market though is gang buster demand. I recently read a report that stated 1 out of every 4 rows of beans in the US is exported to China...an amazing number. China's demand does not look to be slowing down anytime soon and their consumption of meal and oil continue to be on the rise. To make a long story short I think we rally the beans higher after the report.  In the coming weeks I believe we will see them pull back, only to rally again in the future as demand continues to be a significant driving force.
 
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