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August 2011 Archive for Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

Kevin Van Trump has over 20 years of experience in the grain and livestock industry.

The Aftermath: Pro Farmer Tour and Hurricane Irene

Aug 29, 2011

 Looks like "Irene" found the big city lights of New York City simply too overwhelming and faded off into the sunset.  For all of our sakes, Irene was downgraded to a "tropical storm," and the stock exchanges and all financial exchanges were open as scheduled, airlines are back up and running, transportation is starting to move, and we seem to have avoided another potential "black swan" type event.

The weather will be watched closely during the coming days as well, due to thoughts that the recent tropical storms may quickly alter weather models and current patterns across the midwest. For the most part, outside of hurricane Irene, the weather has been fairly mild this weekend. From what I am hearing, there could be some improvements in several of the key winter wheat planting areas during the next couple of weeks as rains is expected to fall in parts of Colorado, Kansas, Nebraska, Central and Eastern Oklahoma, and Eastern Texas. With this being the case you may want to consider coverage on a portion of your unpriced or unhedged wheat bushels. Certainly there is a chance that we make a push back to $9 in the Chicago wheat contract and beyond $11 in the Minneapolis contract, beyond that I am a little concerned.  Therefore, looking at ways to help control your downside will become important as we progress.

With the Pro Farmer crop tour behind us now, the trade is now left to digest thoughts regarding their 147.9 national corn yield, and a 41.8 soybean yield.  Regardless of how you feel about the Pro Farmer final estimates, one thing we need to think about, is the simple fact that if the USDA were to use the Pro Farmer numbers for just Iowa and Illinois we end up right around a 146 national corn yield average. Those two states in and of themselves are obviously going to be instrumental as we progress further into harvest, so make sure you start paying close attention to the numbers in these areas.     

With continued thoughts that the US corn carryout could actually fall below 500 million bushels on lower yield estimates and fewer harvested acres, the trade seems more than content adding length and pushing "new crop" corn prices towards new all-time highs. The "outsides" appear to be providing us with a little boost this morning, and soybeans seem to be leading the charge.  As November soybeans quickly approach $14.50, I urge those of you who are not at least 50-60% sold to think about pulling the trigger.  As I have been mentioning, there is certainly the chance we make the run to...

 

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

 

 
 

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My Explanation of the "Blow-Off Top" in Grain Prices

Aug 26, 2011

If you aren't yet getting my daily report, I spent the last couple days discussing the various "fundamental" reasons about why I thought grain and soy prices could continue higher, however, one thing I didn't mention was a simple "trading" tendency that still has yet to occur, and leads me to believe a push to higher ground may still be in the cards. There is no "guarantee" of this taking place, but in all of my years, most all "Big Bull" commodity markets tend to end with some type of "blow-off-top."  Simply meaning they take one last deep breath and explode beyond most anyone's previous expectations. Just look back at all of the big bull markets of the past - Crude Oil, Silver, Cotton, Gold as of late, all have contained massive "blow-off-tops." I consider this a period where everyone sits in disbelief and doubt as we continue higher and higher. During these periods the "Bears" simply are not willing to short the market, and there is a type of frenzied, or should I say panic buying in the air.  This tendency generally happens in commodities rather than stocks, because of the "fear" or thoughts associated with lack of supply. Stocks on the other hand tend to have what I call "blow-off-bottoms." Stocks seem to have more methodical type gains, and "fear" is more centered around thoughts of a market type crash. This is when traders panic and frenzied type "selling" takes place.  In both markets the final massive push however is driven by "fear" and fear alone.  In commodities, it is the "fear" of running out, or the fear that  not enough "supply" is available.  For stocks it is the "fear" of a market crash.  With this being the case, and if this theory is correct, then we still need to see a "blow-off-top" in the corn and or soybean markets.  Up to this point it seems that each new high is met with some type of new hurdle, and a slight set-back occurs, followed by yet another new high.  Sure, we have taken some hard hits along the way, and the markets have certainly tumbled, but we have continued to bounce back without the help of any extreme "blow-off-top."  I am not sure when this "blow-off-top" takes place, and or how high prices will go. Just make sure you recognize this phenomena when it occurs, and do not have your blinders on or mistake it for some type of free "magic carpet ride."  This price action will be your "sign" to get off the bus in an immediate hurry! 

Understand, each and every day that we work higher I become increasingly more nervous, as once again it seems that ever sailor on board is only looking over the bullish side of the ship.  Each and every time this has happened during our current bull run, the markets have somehow found a way to break. Yes, we have rallied back, but the breaks were painful for many in the process. We all know we have once again reached this critical tipping point.  Almost every trader, or advisor I know is leaning over the "bullish" side of the ship. The question now becomes if we can keep this big ship on plane, or we end up throwing a few men overboard. Just remember, high frequency traders and fund mangers can quickly rock the boat in one direction or another when the "outside" markets start being questioned.  In case you hadn't noticed the "outside" markets are once again being questioned, so make sure you have your life preserve on hand and secured.  I am NOT bearish!  I just want you to know that a 10% correction could be seen at any point right now, especially with everyone one on one side of the boat.       

Longer-term, as producers we also have to be prepared....

 

For more thoughts on why and when these markets are going to experience a "blow-off top" and how it will affect Corn, Soybeans and wheat Prices, Sign-up to receive my FREE Full report.  Sign-up today and you will also receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 

 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

 

How the Crop Tour Will Affect Your Prices

Aug 23, 2011

I know by now you have already heard the crop condition ratings from yesterday afternoon.  I will say I was somewhat surprised to see corn, soybeans and wheat ratings all lowered, considering producers in several areas are actually starting to feel a little better about their crop as of late. I did have a few side wagers, and will have to eat some crow as I was thinking the ratings would remain closer to "unchanged" this week.  You have to believe dropping conditions like this will eventually force the USDA's hand to lower yields in both corn and soybeans.  With these thoughts the markets will be looking to add premium in order to adjust to these new numbers.

I had some questions from subscribers regarding the Pro Farmer "Crop Tour" and their schedule. From what I have heard they have two large groups of scouts. One group in the east with some 60+ scouts, and one group in the West with 40+ scouts. Yesterday they completed tours in Ohio, South Dakota and parts of Nebraska. Today, they will be moving toward Indiana and Nebraska. On Wednesday, they will be working into Illinois and Western Iowa. They will wrap up on Thursday as they finish Iowa and complete Minnesota. Then on Friday, they will release their total corn and soybean crop estimates. Keep in mind, as a whole they generally tend to deliver a total corn yield number that is "HIGHER" than the USDA's final yield number. Over the past ten years, on average they have been 5-6 bushels higher that the USDA's final number. From what I have heard, they tend to estimate a little on the high side in the states of Minnesota, South Dakota and Illinois, and a little on the low side for Nebraska, Iowa, Indiana and Ohio. In any regards, I think they do a fantastic job, and commend all of those who put in their time and hard work out in the fields...Thanks for your efforts!

 

* Pro Farmer projected Ohio corn yields at 156.26 bushels per acre.  3 year year average is 158.03 bushels per acre. Pod counts for soybeans were reported as higher.  

 

 

* South Dakota corn yields were projected at 141.10 bushels per acre.  The 3 year average is 146.06 bushels per acre. Pod counts for soybeans were also slightly higher than the 3 year average.

 

On a side note, make sure you keep your eyes on the numbers in Illinois and Iowa in particular, as the trade seems very concerned that the current USDA estimates for Illinois to be 13 bushels (170 bpa) above last year's yield, and for Iowa to be 12 bushels (177 bpa) above last year's yield is simply unrealistic.

For more insider updates on the crop tours and what they mean to corn, beans and wheat prices, Sign-up to receive my FREE Full report.  Sign-up today and you will also receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 

 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

 

My Thoughts on Corn Yields and Cash Sales

Aug 21, 2011
Last week, the grains and soy seem to be holding their own despite the financial uncertainty in the global economic markets.  Russian wheat prices are quickly moving higher. US soybean production is reaching a "critical" stage still with limited rainfall in many key growing regions. US corn yields are being carefully evaluated and predictions being finalized as we get closer and closer to harvest. I continue to look for the breaks to be supported until more factual evidence is know about the crop.  
 
If you are looking for a specific number, I have heard of several "Big Boys" talking about being buyers of December corn on a setback to $7.05, therefore this area may prove to provide some additional support.  As far as upside, I continue to hear most bull's looking for a move beyond $7.50, and possibly approaching $8.00 before enough premium has been added to accommodate the lower yields.  Soybean could push through $14.00, and eventually look to test the $16.00 range if limited continues.     
 
I certainly don't want to rain on anyone's parade, or be the guy that announces this phase of the party might be winding down, but I have had the opportunity to speak with several producers the past couple of days who currently have "crop scouts" in the fields, and they are telling me that their corn might not be nearly as bad as they once had anticipated. I am not saying this is the case for everyone, but this is coming from a fairly large sampling of clients in several key states. From what I am being told, "blanks" in the ears have allowed the kernels to gain a little more depth, and several are now talking about much better test weights than they were thinking a couple of weeks ago. 
 
Random ear weight samples in some high producing areas are now much higher than they were as well.  Random ear weights, calculated with the cob and with moisture on the highest hybrids seem to be running about 9.0, and the lowest hybrids around 7.2.  Many producers figure they will gain weight at the same speed they are loosing moisture, at least until they reach black layer, therefore you have to believe there may end being more bushels in certain areas than we have counted on. Don't get me wrong, there are still going to be fields in Illinois, Iowa, Nebraska, Indiana, etc... that still only produces 90 to 110 bushels, and our national yield numbers should certainly not go higher from here, I am just thinking the bottom end is starting to stabilize and firm back up a bit. In fact, many of those producers who took the extra precautions and side dressed like crazy, sprayed the fungicide at just the right time, simply may not end up being as bad as they had anticipated.  
 
Just in the past few days, several producers I have spoken with have bumped their estimates back up during the past week, very few have gone lower. I do not want to waver back and forth, but I am now starting to think the USDA....
 
With the extreme volatility affecting the markets and grain prices, you need someone to help you position your operation to make wise cash sales and set-up proper hedges. Sign-up to receive my FREE Full report in which you will receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 
 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

 

 

 

 

Should You Be Thinking About Making Some Cash Sales?

Aug 18, 2011

 I have many producers asking me about when to make those last minute sales, as they need to make room for this year's crop. I know this may sound strange, but I really didn't like the way the market responded to the FSA data from earlier this week.  If you have read my my report recently, I have been making the case that the trade seems to be getting tired as they are having a tougher time pushing this market up the hill.  With this being said, and basis still remaining remarkably strong, I would suggest making your final "old crop" sales at this time.

 Many of you may want to get with your advisors and discuss some type of "limited" risk re-ownership strategy to replace your old crop bushels that were in the bin, with bullish type positions on the board. 

 

 

 

 

 

 

 

 

With the extreme volatility affecting the markets and grain prices, you need someone to help you position your operation to make wise cash sales and set-up proper hedges. Sign-up to receive my FREE Full report in which you will receive my personal cash sale recommendations as well as gain access to my full Marketing Strategy.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 
 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

As for the my thoughts on the recent setbacks in the struggling "Outside" markets, it seems the "Bears" really only have only one real strong suit, and that is the fact that both "end users" and "importers" seem unwilling and content on NOT chasing the current US grain and soy rallies. The problem is this could absolutely kill the basis as we move forward, so be prepared.  This is also why I have been urging you to make your necessary sales. Most end users and importers seem as if they are going to "roll-the-bones" and patiently wait for traditional harvest pressures before they commit to new purchases. It simply seems to me that there are cheaper global alternatives available compared to US corn (Ukraine corn at a $25 discount), there are cheaper alternatives available on the market compared to US wheat (Russian and Ukraine wheat), and their are cheaper alternatives compared to US soy (South American soy). This could all change as we move forward, but currently at these extremes many "Bears" are already claiming we have began the rationing process, with the basis moving lower its tough to argue their point.  The Sep vs Dec corn spread has collapsed by more than $0.60 cents in the past few weeks, and now there is some talk that the USDA may once again.....

I will also be getting selling another batch of my "new crop" corn as well.  Remember, this is based on your "current" production forecast.  For many of you who have some production setbacks, your previous sold level may now actually have be bumped up, so be cautious selling much more until you get a better handle on your actual production. To know where I am sold so far for old and new crop, subscribe to take my report, it has all the necessary information. 

Let the Bulls Run!!

Aug 11, 2011

  Let the Bulls Run!!!  The USDA blows away the trade by estimating  a 153 corn yield, and a 41.4 soybean yield.  Total corn production is now estimated below 13 billion, and new crop soybean ending stocks fall to an extremely tight 155.

I have found at times it is often very tough to communicate thoughts or direct feelings into words on paper. Sometimes I may come across as being "bearish" when I am actually "bullish" longer-term.  What I have been trying to communicate as of late might be better explained by painting a more vivid picture.  

I want you to envision a group of fund traders all trying desperately to push a large rail-car up a steep mountain. The mountain represents "price." The higher prices climb the steeper the mountain becomes and the more difficult the rail-car is to move.  At our current price level, I have to believe we are at least 3/4 of the way up the mountain, if not more.  We have over 325,000 active participants (the funds) trying to push the rail-car as hard as they can up the mountain side.  The grade of the mountain is getting steeper, and the rail-car seems to be getting heavier with each push. As we move the car higher up the mountain, "demand" seems to be providing less and less help.  

We are however getting a nice boost from "yield," who as of late has actually helped us gain some additional ground.  However, all around the mountain traders are watching other rail-cars fall off the tracks and flatten those that were pushing that particular rail-car (i.e. crude oil, stock market).  What I am trying to say is that we need all the man-power we can muster just to push the rail-car up this last increasingly steep part of the mountain.  If for some reason a few of our 325,000 plus "pushers" decided they have had enough (get scared) and walk away, we might actually loose some footing and at least temporarily, give back some ground.  I have to believe once the rail-car is secured and comes to stop on solid footing, it will assure "pushers" that the rail-car is not going to tumble completely down the mountain. Once that plays out it wouldn't surprise me to see us end up with 400,000 or maybe even 500,000 plus "pushers" (fund traders) that take us right back towards the top of the price mountain.  The magic question seems to be, "How far will we make it before the terrain simply becomes too steep?"  I personally believe we have reached a level where footing could become an issue at any given moment.  We desperately need all hands on deck, but with the "outside" markets in shambles, I am just not sure we will receive the extra man-power. 

Remember, the re-survey was only for the Dakotas, Minnesota and Montana.  We will not see what type of total damage was caused by the Missouri and Mississippi river flooding until early fall, nor will we know what type of total crop abandonment and acreage loss due to extreme drought like conditions has occurred either.  These are certainly more "bullish" cards that have been loaded into the deck, along with the potential for extreme wind and hail damage, and thoughts of any type of early freeze.  I have to believe the fear of these being dealt on to the table are still several weeks away, so we will need to sit patiently by and wait for some type of extended profit taking or setback to position ourselves for the next round of "bullish" cards.

I want to help you position your operation to make cash sales and hedges that benefit your operation and keep you ahead of the game, go ahead and sign-up to receive my FREE Full report.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 
 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

Front Running Tomorrow's Highly Anticipated USDA Report

Aug 10, 2011

 All eyes will be focused on tomorrow's USDA report. I have included some details, ranges and trade guesstimates that you can use as a cheat sheet for tomorrow's data. With the "outside" markets continuing to search for direction, the USDA report, though huge, could actually be overshadowed by a more powerful wave of outside influences. With crude oil being hammered like it has as of late, and heavy fund liquidation taking place the past few weeks, I am worried that a few of the big boys might simply be hanging around the grain and soy markets on hopes of an extremely "bullish" USDA report. Once they get the numbers and the markets surge higher, we might see them try and bank the profits in order to balance their books and offset some losses. If the numbers for some reason come out "bearish" I would suspect they will be dumping the trade in mass. I simply believe many fund mangers have stuck around the grain and soy markets because of the good "story," and the opportunity of getting bailed out. I just can't help but think they will try and offset some of these recent losses by banking profits in the grains as we head into the weekend. There are just so many moving parts right now, nobody wants to be over exposed. Therefore, I have to believe even the most bullish of numbers could be capped by the end of the week.

 

With this in mind, I continue to urge those of you who are not to a comfortable level with your new crop sales to take advantage of any rally.

Longer-term, and fundamentally speaking, I agree this corn crop is just not here. But who cares? We can sit here all day and prove point after point that the yield is not going to be here, but if the global economies continue to melt-dwon its all for not. There are several other factors that make me believe the timing may just be right.

To start with, I personally doubt China steps in to buy corn in any big form or fashion until after their corn harvest is completed. If you figure their harvest is still a couple of months away, and it will take another couple of months to complete, I would have to guess China is good on corn for another six to eight months. The only way they are buyers from here is if we break substantially lower.

The ethanol plants are watching margins slip further and further as crude oil has fallen more than $30 in the past 60 trading days. If the margins don't improve, ethanol plants will more than likely throttle back in the coming weeks. They will certainly start to ease their basis as they now believe new crop bushels will be harvested much earlier than anticipated and therefore they will be able to more easily bridge the gap between old crop and new crop corn supplies.

If the global economies continue to struggle higher protein livestock demand will certainly waver. Livestock feeders are already searching for any viable alternative to corn, and ample supplies of "Black Sea" wheat are now flooding the marketplace leaving me to believe if corn prices push higher even a greater percentage will be searching for alternatives.

Understand, we are not talking about a corn market that is trading at $4.00 right now, where everybody and there brother would be willing to take the risk. Instead we are talking about a corn market that is trading close to "all-time" highs in the wake of massive global economic uncertainty.

Yes, I am extremely bullish corn longer-term. I am just concerned about the current "timing" of the trade. I have producers all over the country calling me and trimming back yields each and every day. I am starting to question if we will even see a 150 yield. They are all saying the same thing, "the kernels are small." Yes, they have good population, but the kernels are small and the depth just isn't there. The ears are tipped back, their are numerous blanks, they are skinny, etc...

Those who are predicting that a couple of good rains will add 15 bushels back to the crop are simply wrong. Maybe a week or two ago that would have been the case. Today, that possibility is all but an afterthought. I have producers who generally have 200 bushel corn telling me the ears are just 10 rows round. Not a single producer is thinking that the "top-end" number is still intact. Most are off 10-15%. If you take a a terrific year and assume a 164 yield, reduce it by 10-15% and you are looking at a total somewhere between 139.4 and 147.6. A yield number in this range simply is unmanageable, and price will somehow have to ration demand.

Throw on top of all this the extensive wind damage, recent hail storms, tornadoes, lost acres from the Missouri and Mississippi rivers, abandoned acres from drought, abandoned acres caused by the extremely wet spring and late snow melt...the list goes on and on.

Even greater reason to be bullish longer-term is because seed corn is now looking like it could be in a real pinch come next year as well. Sure farmers want to increase corn acres, but will they be able to???

As I have been trying to preach for the past several weeks, as in life "timing is everything..." I certainly have no crystal ball, but at these price levels banking a portion of your profits seems only sensible on a rally, not only for producers but for traders as well. With so many moving parts and unpredictable circumstances now affecting our prices, yield and domestic production will only play a select role in determining our overall direction. Will the big boy's be looking to add aggressively in these troubled waters, or will they be looking to secure the ship and lighten the load even more??? My guess is they are looking to take a little off the table until some type of "outside" stabilization is guaranteed.

I simply feel that the next large run higher might be the last one until post harvest. There will be some highly anticipated USDA reports that will reveal some key numbers in the fall, and these may give us another bounce higher, but between now and then the market may become tired. Look for the next rally to get yourself in position!

The soybean market continues to build more of a "bearish" case as the heat and moisture levels seem as if they will improve moving forward in several areas. Throw on top of this thoughts that the world soybean stocks will jump higher in the coming weeks and the bean market may soon find it tougher and tougher to sustain a rally. With crush rates in Brazil and Argentina slowing the past couple of months, along with less Chinese buying, South America is sitting on a glut of soybeans right now. Yes, there is some fear that the US will produce fewer bushels, but if the resurvey finds more soybean acres all bets are off. A slowing global economy, what has been less Chinese interest, and massive South American supplies are all weighing on the trade. It will take a yield estimate from the USDA well below 43 bushels per acre to get the trade excited. On the flip, side the resurvey could go in either direction. If the USDA finds more soybean acres the analyst will be quick to pencil in higher ending stocks and prices will quickly fall. If fewer acres are actually found to be planted then the ending stocks will be lowered to extremely dangerous levels and price premium could certainly be added. I personally believe the USDA however will lower yields just a touch and raise acres. Also keep in mind that the hot dry conditions will help raise the oil and give us heavier numbers, therefore producing slightly larger than anticipated yields in many areas. Remember, it is the "oil" in the plant that provides the yield. The only real "bullish" news in the marketplace right now is that China imported 5.35 million metric tons of soybeans in July, and their crush margins have improved dramatically. If China starts ramping back up demand the markets will react positively, just keep in mind there will still be large quantities of global beans to chew through regardless...

Wheat in my opinion continues to be a sleeping dog. The funds are leaning heavily on the CBOT contract, and getting "flat" could certainly cause a knee-jerk type bounce to the upside. You have to believe before long the trade will start to look at Soft wheat planting intentions, and how the drought like conditions will affect total acres. You also have to feel that at some point the increase in soft wheat feedings will start to be acknowledged and this market will come back into favor. The trade is also excited to see that US wheat prices are getting awful close to the prices now being seen offered in the "Black Sea" region. You have to figure if corn yields are reduced even lower, wheat demand is only going to rise. I am already hearing about more and more starting to book wheat for feed as it is. As we sit, there is no real supply-demand type story for wheat, but with so many moving parts I see no reason to play around with being "short." There are just too many variables that could flush the funds, and cause massive "buy" paper to hit this market. I think you have on two ways to play this market, either by being cautiously long with some type of limited risk type strategy, or be on the sideline spectating!

Bottom-line, I like being bullish corn and wheat heading into the report. Soybeans could be pulled higher in the wake, but I am not excited about the story right now. After the numbers are released...

 

 

 

Tomorrow's USDA Supply and Demand Report is shaping up to be one of the most important crop reports of the year.  I want to help you position your operation to make cash sales and hedges that benefit your operation and keep you ahead of the game, go ahead and sign-up to receive my FREE Full report.  Remember, the markets don't react to fundamental news like they use to, in the FULL report, I bring you the inside scoop on what the Big Money players (Hedge Funds/Managed Money) are watching and how to take advantage of it!  Simply follow the link below.  You can also click the button below to follow my Team and I on Twitter and get daily updates on what is happening in the grain and livestock markets. 
 
 

 Send My Free Report

 

       

Follow FarmDirection on Twitter

 

Word of the Day: Downgrade

Aug 08, 2011

 down-grade [doun-greyd1. A downward slope 2. To assign to a lower status. To minimize the importance of. In a decline toward an inferior state or position. 3. To reduce in importance, esteem, or value...

 

The word of the day is obviously "downgrade."  We were warned, and now that it has happened everyone seems shocked. The problem I see is now that the US Fed has essentially been downgraded because they hold "AA+" US debt, what happens to the other countries?  What now happens to the ECB who holds billions in euros from "junk" rated Greece and Ireland, shouldn’t they be downgraded as well? How about the Bank of Japan, shouldn’t they be downgraded?  How is France not downgraded from "AAA" with billions tied up in worthless European debt?  As you can see, the problem could certainly start to spiral from here.  Will the other ratings agencies be pressured to downgrade the US as well?

Another question one should ask is who rates the "Ratings Agencies?"  With massive errors now being pointed out in how the downgrade was computed, who is around to keep the rating agencies in-line?  I am of the opinion they have no experience "rating" a country or an economy of this size and magnitude. Therefore their numbers are simply arbitrary, and can be viewed and positioned in a number of ways depending on your angle of interest. Bottom-Line they are extremely subjective! 

In the end however, I am hoping this ever confusing madness will prompt investor and global traders to rely more on their own due diligence rather than simply the opinion of some "Ratings Agency."  Do you really believe the ability of the US to repay debt has changed one bit from last week to today??? Absolutely Not!

As I mentioned above, a bigger concern is that additional downgrades could be coming down the pipe for other countries as well, or the "Credit Rating" agencies will simply start loosing all credibility, which they may have already done.  In any event, the short-term outcome this morning doesn’t look pretty, and the "outside" markets will weigh heavily on commodities across the board. 

I also want you understand that if more pressure is put on the "Agencies" to downgrade France, it will leave Germany as the only real solid backer in the European debt debacle.  From what I am hearing this could be a real pinch, especially since Germany is already starting to seriously balk on the entire European bailout plan.  As of right now, they seem to be increasingly less willing to risk everything they have worked hard for in order to bailout an almost certainly insolvent European World (can’t say I don’t blame them).  

It was once believed that iif Germany backed out, China would come to the rescue. That doesn't seem to be the case right now, as insiders are reporting that China is getting cold feet as well, especially after seeing that the European Central Banks themselves not real eager or willing to take on the risk. 

The "DOWNGRADES" are certainly a major concern, and no one knows for sure how it will all turn out.  Remember, this is new waters for the US.  Don’t completely freak out though.  Standard & Poor’s has downgraded other big nations in the past.  In fact, they cut Japan’s ratings three times between 2001 and 2002.  Ironically, just the opposite of what one would have thought actually happened, their bond yields fell, and their cost of borrowing actually declined.  Canada was downgraded in 1992 with virtually no reaction from the markets at all.  Unfortunately in 1994, when they were downgraded again things didn’t go as well.  

I am just letting you know, this is uncharted waters for the US to be in this position, and NO ONE is certain how the markets will react during the corse of the next several weeks.  

How the markets will react seems to be a matter of who you ask. Some of the big boys are talking that the the pension funds and global funds around the world with requirements and commitments to their investors to hold "AAA" rated assets will be forced at some point to liquidate their "AA+" US Treasury holdings for safer "AAA" investments.  Heavy liquidation could ultimately cause bond yields to push higher and interest rates to start climbing.  

Others are taking the stance that the bigger players already knew the downgrade was coming and therefore, a large portion of the news has already been priced into the markets, and was, in fact, the cause of last weeks heavy selloff.  I am personally more inclined to find myself in this camp, rather than to think a massive multi-day blood bath is in order.  Certainly it could be rocky out of the gates, but I believe over time the US is still strong than most others, and bargain shopping will ultimately prevail. 

I am actually hoping something "good" comes of it all.  In playing sports, I was always taught to never blame the umpire or the officials if we were to loose the game.  My folks always told me, it was not the coaches fault (he wasn’t on the field playing the game...I was).  In fact, any play he called was designed to go for a touchdown if every single player on the offense side of the ball did his job perfectly.  Right now, I feel like I am at a little league game listening to a bunch of whining parents complain about a bad call from the officials.  This time around though it’s a bunch of whining politicians and top Washington brass bitching about the bad "call."  This is exactly what is wrong with this country these days.  Everyone wants to point fingers and place blame on someone else for their own inadequencies.  Sure the downgrade seems like a bad call by Standard & Poor's, but maybe it will send a wake up call to those who are actually "playing" the game.  My belief is that if the "players" where doing their job properly the outcome of the game would not be left in control of the "officials."  I was taught to never let others control your destiny or your fate.  Work your hardest, be honest, and leave the field with your head held high, knowing that you have given it everything you had.  If it wasn’t good enough, you simply tipped your hat, and vowed to come back next time even stronger.  Those in charge of our country have to stop looking for ways to "cook the books" and ways to blame others.  Acknowledge the problems at hand and make the necessary adjustments.  Yes, doing the right thing can sometimes be painful and involve great sacrifice, but in the end, I have found it is truly the only road to victory! 

As for how the Agricultural markets will respond... 

 

 

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