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March 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.

One Last Thought Before Tomorrow's Report

Mar 30, 2011
What to do tomorrow???
 
I have spoken with many of you on the phone.  One last thought as we head into the report.  Remember, where there is volatility there is opportunity.  Tomorrow's volatility will create huge opportunity for some...while others will squander it.  
 
A couple of thoughts - If we break hard to the down side you may want to consider selling "put" premium into the break.  I know it may be scary at the time, but if the market is called significantly lower the put premiums will be inflated dramatically.  A thought is to sell the puts at a level of insurance.  In other words, if your insurance covers you at $5.50 you may want to consider selling the Dec $5.50 put and collecting what could be $0.75 or more.  You have to agree that if you need your insurance then the crop is in trouble and higher prices are coming our way.  Meaning your put would expire worthless and you would collect the premium and hopefully cover the cost of your insurance.  If we continue to break you would essentially be long from $4.75, which is maybe not a bad play considering your insurance is much higher.   
 
The other idea to start kicking around is if we move significantly higher.  In this case you may want to consider selling the higher up call premiums in very small doses as HTA type sales.  Some of you who aren't 20% sold as of yet should definitely use the rallies, if we get them, to make a few sales.  Some of you may want to consider trucking some beans into Illinois.  I have heard that producers from Wisconsin are making the trip, because in some areas the basis is even in both corn and beans with no line at all to unload... 
 
I truly believe after we get past this report (it may take a couple of days), the bulls will be back in charge.  These markets have liquidated the past few weeks as the big boys have tried desperately to reduce their size heading into this report.  Let them get past these hard to digest numbers, and watch what they do with any type of weather scare or crop concerns. 
 
 
--- Here is what you will be looking for tomorrow ----
 
Corn planted acres expected to be around 91.85 million.  The USDA number released at their "Outlook Forum" was 92 million.  The low end of the range is around 91 million with the high end of the range around 92.5 million.  Last year we planted 88.192 million corn acres.
Corn stocks were expected to be around 6.690 billion bushels.  Low end guess was at 6.552, while the high end of the guess was at 6.880 
 
Soybean planted acres expected to be around 76.85 million.  The USDA number released at their "Outlook Forum" was 78 million.  The low end of the range is around 74.5 million with the high end of the range around 78.5 million.  Last year we planted 77.404 million acres.
Soybean stocks were expected to be around 1.299 billion bushels. Low end guess was at 1.266, while the high-end guess was at 1.366
 
Wheat planted acres expected to be around 57.3 million acres.  The USDA number released at their "Outlook Forum" was 57 million.  The low end of the range is around 56 million with the high end of the range around 58.5 million.  Last year we planted 53.603 million acres.  Spring wheat seedings are expected to be around 13.72 million.  

Wheat stock expected to be around 1.399 billion bushels.  Low end guess is around 1.275, while the high end guess is around 1.488.  Last March we were at 1.356, this past December we were at 1.928 

Previewing Next Thursday's USDA Report

Mar 25, 2011

 

With the USDA coming out and announcing one of their largest corn sales ever, we sell off???  Just as I had told you in Friday mornings report before the open, the big boys were playing the rumors and bailing out and taking profits home when the news was announced.  With so many longs looking to sell and take profits the market was simply overwhelmed and pressured lower. 

The announcement of 1 million metric tons of "old crop" and 250 million "new crop" is supposedly one of the top ten sales announcements ever.  Most in the trade believe in all likelihood it was China. Some however, think it may actually be Japan.  

The hand on the sale was tipped Thursday when commercials started bidding up the barge rates and the basis really started to move.  Certainly if it is China you have to feel the news is supportive longer-term, but if that is all they bought, some will view it as bearish, with most in the trade looking for a bigger number. 

Regardless, I am telling you now if it is China longer-term this is bullish the market.  This means China is in the corn importing game, and from what I can gather will be in the game for as far as I can see.  This may be the beginning of China becoming a large global corn buyer and these markets forever changing.  

As I have stated, no one is for sure if China is the buyer.  Some insiders believe even if it is China, they may just be taking out insurance policies against fear of volatile weather or problems that may arise with their own crop.  In any event, I believe this means their supplies are getting tighter and tighter.  Sure it may not happen this year, but eventually China will face an extreme weather crisis and corn will be like gold.  

Traders understand this fear and will be buying the breaks accordingly.  You have to believe once sales to China are actually confirmed, a hypothetical floor will placed beneath the market giving support and strength to this bull-move.  

Volatility could be extreme in the coming weeks however as traders play the upcoming USDA acreage estimates and US weather concerns.  Use the hype and the rallies to get yourself in a comfortable cash position.  In other words, don't hold out and make zero cash sales in your new crop, only to get cash strapped later on and forced to make a sale when the market is setting back.   

I would like to see you get to about 20% sold in the new crop at $6.00 or better, even though I am long-term bullish. these markets are simply too volatile.  Money-flow by the funds is king, at any time a "black swan" type event could arise and drastically change the dynamics.  Be smart and take advantage of the higher prices.  As I mentioned at my marketing rally in Kansas City last week, every looser in Vegas thinks he could have done better...winners walk away when they are on top. 
 
 

If you are not getting my free report make sure you get singed up by following the link below. 

*** We had a great time at our 1st annual Marketing Rally in Kansas City this past week. It was a great exchange of information and many helpful thoughts.  DVD's of the event are available, call the office for details if you are interested 

 

 


 

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Japanese Food, Milk and Water Contaminated

Mar 21, 2011

 I just wanted to update you guys on what’s on deck for this week in the Ag markets.  Traders will continue to monitor "money flow" based on emotions rather than supply and demand factors.  The markets will eagerly be awaiting any news and confirmation of Chinese corn buying and additional information pertaining to quality concerns for Brazilian beans.  There is also some talk that the Argentine truck drivers strike could have some affects on the trade if it continues for any length of time.  Completely unpredictable global events including a potential nuclear disaster in Japan and the military air strikes on Libya will keep most of the big boys on edge.  With both positive and negatives coming out of Japan, the market sill remains extremely nervous.  The word out of Japan is that two of the six nuclear reactors in question have seen their situation improve.  However, problems at one reactor has now escalated, and we are hearing more reports of nuclear contaminated milk, some food varieties and even water.  Some of the world's largest banks now believe it will take Japan close to 5 years to rebuild.  I wanted to share a little more insight into how this nuclear radiation is affecting their food and water supply...

 

Radioactive Food, Milk and Water Now Showing Up In Japan

Japanese officials are now reporting that levels of radioactive iodine in milk has been found in four locations that ranged from about 20% over the acceptable limit to more than 17 times that limit. Testing at one location also found levels of cesium about 5% over the acceptable limit.  Tests at 10 locations found iodine levels in spinach that ranged from 5% over acceptable limits to more than 27 times that ceiling.  At seven sites, levels of cesium grew from just above 4% to nearly four times the limit.  What we need to realize is the iodine and cesium are both byproducts of the nuclear reactor problems.  From what I am told iodine 131 has a radioactive half-life of just around eight days, so hopefully that problem can be rectified.  On the other hand the cesium-137's half-life is thought to be about 30 years.  That could be a big problem.  If you recall, after the nuclear plant disaster in Chernobyl in the Soviet Union, tons of food had to be destroyed when radioactive debris spread throughout parts of the country.  The Fukushima area is northeast of Tokyo, and contains Japan's fourth-largest amount of farmland and ranks among its top producer of fruits, vegetables and rice.  Ibaraki, which is just south of Fukushima, supplies Tokyo with a significant amount of their fruits and vegetables and is Japan's third-largest pork producer.  We need to keep our eye on this situation in order to see just how much of Japan's production will need to be destroyed and later replaced. 

 

f you are not getting my free report make sure you get singed up by following the link below. 

 *** We had a great time at our 1st annual Marketing Rally in Kansas City this past week. It was a great exchange of information and many helpful thoughts.  DVD's of the event are available, call the office for details if you are interested 

816-322-5300.          

 

   

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Managed Money Sits This Hand Out

Mar 11, 2011

 I wanted to make a quick comment for those who don’t subscribe to my Daily Market Commentary.  I am certain this week’s break in price have left many of you scratching your head.

 
As I reported earlier in the week in my Daily Market Report, expect significant breaks, breaks of major magnitude in the grain markets should be anticipated.  
 
Trading professionally and being smoked on hundreds of occasions has taught me a few things through the years.  One is that you need to make sure you have your life jacket on, secured and prepared to start swimming just as soon as you see everyone leaning over the same side of the boat.  
 
As I mentioned both Monday and Tuesday in my report, the moods of the market were starting to change.  Many traders had gotten themselves overextended to the long side and the market was starting to break.  Margin calls were starting to hit and traders seemed a little less certain about being extremely bullish.
 
Fundamentally nothing had changed.  Last week everyone was wildly bullish and adding positions like crazy.  The buying frenzy started to dry up, and the market began giving back its recent gains.  With no new buyers coming in, the market was left with new shorts entering the trade and those who were long and looking to take profits (they would also be sellers who were looking to close their long positions).  With more sellers then buyers the market could only go one direction…lower.
 
Another important lesson I have learned is that timing is everything.  You can be dead right the markets, but slightly off in your timing and it ends up costing you a fortune.  You could see this one coming like a freight train down the tracks.  The bulls were over extended and living large, not wanting to take on any more length and the shorts were starting to control the board.  The problem was Thursday’s USDA report and the Saudi "Day of Rage" was on the same track heading our direction.  The Margin call gods started to reign in their money and the bulls quickly found themselves with a tough decision.  Do we hold our ground and wait for a bullish report by the USDA?  Do we wait for end-users to step in and start buying?  Surely a weather scare of some sort will help us out?
 
You see professional commodity traders have a much different mind set about trading on margin then do stock traders.  Commodity traders know that the markets can quickly turn around on a dime, prices swing their direction and all of a sudden they are off margin call.  Suddenly though commodity traders become much less assured about their positions when there is the chance that the markets won’t cover their calls and they are going to have to come out of their pocket and send in more money to stay in the game.  
 
Lets just say it’s like going to the boat.  You take $1,000 of cash with you and tell yourself that is all you have to loose.  The pit boss gives you your chips and you start gambling.  You get up early and now have $5,000 dollars ($4,000 of the casinos money) life is great you and your friends are having a blast.  You realize how easy it is, recognize you are on fire and start raising your bets.  The night progresses and you start to give some back.  All of a sudden you look down and are under $1,000.  Now you are gambling with your own money.  Needless to say things aren’t as much funny and the atmosphere at the table has become much more serious.  No more high-fiving with your friends, this is starting to get serious.  You just gave back over $4,000.  It wasn't that big of a deal though because you feel like it wasn’t really your money anyway, but this $1,000 is and there is no way you are going to let them steal it.  
 
Rather than walking away and regrouping, you allow it to become personal, bottom line: your pissed.  You start to press and begin to play scared.  Which brings me to another valuable lesson I have learned through the years…"Scared Money Never Wins".  If you are gambling or playing in these markets with money you cannot afford to lose, I promise you will never win.  
 
I am sure you know how the story ends.  The casino ends up taking that final $1,000 and now you have to decide just how personal you want it to become.  Do you get out that checkbook and take another run at it or do you just throw in the towel and walk away?
 
This morning waking up to the announcement of a Tsunami in Japan may have prompted many of the bulls to simply throw in the towel.  The trade had beaten them both emotionally and monetarily.  They had gotten themselves overextended by holding too many positions, they couldn’t withstand the drawdown and rather than risking it all and getting out the checkbook they have decided to walk away from the table.  
 
Will and when they return seems to be the magic question.  The funds liquidate in massive proportions due to a multitude of reasons: the thought that the Chinese economy may be slowing; fear that the recent Tsunami in Japan will bring their economy to a screeching halt and demand for commodities like crude oil, copper, steel, etc, will all falter; fear that the political unrest in the Middle-East will cause oil prices to skyrocket in turn also slowing down the world economies; fear that a record crop in Brazil could devastate US grain and soy exports….
 
The list goes on and on, the bottom line is that the bulls made a grave miscalculation and tried to jump in the market too early.  I have to believe they thought the end-users would step in and support the prices.  The problem is they didn’t realize just how many bulls were in the game and just how overextended everyone had become.
 
Do I think we come back form this?  Yes, I do.  I think ending stocks are too tight.  If you remember the 2008 break came after the US crop was in the bin, before it was even planted.  I think in typical fund fashion the move to the downside will be overdone just like the move to the upside had gotten overdone.
 
I told a guy on the phone today, this market right now is like going out deep-sea fishing…you are not really sure what the hell is going to end up on the other end of the line.  You really have no idea of how far or how fast they are going to take your line once they hit it.  The markets right now seem to be identical.  I don’t think anyone can tell you how far or how deep this set-back will be.  
 
I do know this much, the waves are massive, and the storm is settling in, make sure you have your life jacket on and are prepared to swim just in case.  If this doesn’t sound like your cup of tea, then this isn’t the boat you want to be on.  Let the waters calm down and wait until you see more fisherman heading back out.  You might miss out on the big one, but you will stay warm and dry spectating from the shoreline.   
 
Look for bargains on the break, I think it is still too early to count this rally out!
 

If you are not getting my free report make sure you get singed up by following the link below.  I will also be hosting a Special 1-Day Marketing Seminar in Kansas City on Saturday March 19th. If you are interested in attending please call our office for specific details and to reserve a seat (816) 322-5300.

 

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You Have To Believe China Has A Significant Corn Problem

Mar 08, 2011

 This weekend Chinese officials came out with news that they have ample supplies of wheat, supposedly 40 million metric tons more than we had thought.  I think we need to dive a little deeper into their rhetoric.  Look at it like this: they claim they have 100 million tons of wheat on hand, more than one year's worth of supplies.  Yet they follow that comment up with their overall grain reserves at around 40% of their annual national consumption.  You have to believe this insinuates they have much lower inventories in crops other than wheat.  Remember, China typically includes corn, wheat, rice and soybeans into their "grain" comments.  To even further confirm my thoughts you now have several senior grain executives in China calling for curbs to be placed on corn exports and all industrial use of the corn crop.  They continue to stress that corn should no longer be used for ethanol and should now only be used for animal feed.  Those in charge are also desperately trying to make a shift to more corn acres.  For me it all ads up to one thing...China knows they are short corn in a big kind of way.  I am sure they will try and plant their way out of it, but if they encounter any type of weather problems they could be in a huge pinch.  You have to believe they tipped their hand last year when they were forced to import corn from the US for the first time in several years.  Now they can't get farmers to sell their stored inventory and inflation is surging higher, all adding up to big problems for China if any type of production glitch occurs.   

 

If you are not getting my free report make sure you get singed up by following the link below.  I will also be hosting a Special 1-Day Marketing Seminar in Kansas City on Saturday March 19th. If you are interested in attending please call our office for specific details and to reserve a seat (816) 322-5300.

 

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Soybean Demand Returning

Mar 03, 2011

 Demand Could Return For US "Old-Crop" Soybeans

I continue to tell clients to to be careful buying into the thoughts of massive bean cancellations by China as we move ahead.  Some wire services are talking about China canceling an extremely large amount of US beans and in turn going to South America.  I wouldn't buy into that just yet.  From what I am being told we have about 500,000 tons of beans currently loading in the Pacific Northwest heading out to China, and another 1,500,000 tons loading in the Gulf.  That basically means half of the remaining beans that are scheduled to be sold to China are already being loaded. Considering that beans from the US are running about 30 days ahead of those form Brazil I highly doubt China is gearing up to cancel a massive amount anytime soon.  If they continue to pencil as well as they have and China finds our quality to be better or need beans in a hurry, China may actually consider buying more "old crop" soy...Just a thought.  Be careful jumping on the bandwagon thinking old crop beans are done. 
 
South American Soybean Quality May Be Less Than Ideal
I continue to hear more moisture problems coming out of South America.  Most of the locals are reporting abnormally heavy rainfall.  They are not only experiencing delays in harvest, but are also experiencing some quality issues stemming from an extremely high moisture content (upwards to 30%).  As you guys know harvesting beans with that much moisture can certainly create quality concerns and more expenses, hopefully prompting some interest back to the high quality US Bean crop.  As long as the South American beans are left in fields filled with saturated soil there is a  much greater likely hood of increased losses.  As I reported last week producers are receiving less and less for their crop as elevators and end users continue to reduce the premiums being paid in order to justify the additional drying charges and poorer quality.  You have to wonder at what point do the South American farmers tire of receiving this reduced rate.  In addition, you have to wonder how the Chinese and European crushers will react to the poorer quality.

 
If you are not getting my free report make sure you get singed up by following the link below.  I will also be hosting a Special 1-Day Marketing Seminar in Kansas City on Saturday March 19th. If you are interested in attending please call our office for specific details and to reserve a seat (816) 322-5300.
 

 

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European Hogs Numbers Could Suffer Losses

Mar 01, 2011

 

If you haven't heard about it yet, I am sure you will as the deadly disease known as "African Swine Fever" or "ASF" reaches European borders.  I am told German officials are already issuing strong warnings and precautions that should be taken now that African Swine Fever is quickly approaching.  From what I know, the disease has been detected in domestic pigs located in the country of Georgia, Kazakhstan, Ukraine and Kaliningrad.  Scientist have tracked this most recent outbreak back to remote areas of Russia and Poland.  This disease is quickly gaining the attention of organizations around the globe.  The problem is the disease can wipe out an entire hog operation in less than a couple of weeks.  There is currently no known vaccine or cure for ASF.  Some of the more severe strains can kill 100% of the pigs it infects with just 7 days.  Another scary thought is that they have now found that the disease is being transmitted by blood sucking ticks, mosquitoes and horse flies, this is causing it to become virtually unstoppable.  Some other things they have recently discovered, is that those pigs that do overcome the disease are then long-term carriers and contribute to spreading it further into the herd.  The disease can also survive without a host.  Local authorities who have had experience with the disease say it can also be spread by the cross contamination of objects, such as farm equipment, clothes and livestock feed.  I can almost promise you if this disease makes its way into Germany or a couple of the other top hog producing European nations, traders will become very concerned about the ability of the world to meet its growing hog demand.  I have yet to hear of any cases here at home, but I will keep you posted if anything comes up.  
 
If you are not getting my free report make sure you get singed up by following the link below.  I will also be hosting a Special 1-Day Marketing Seminar in Kansas City on Saturday March 19th. If you are interested in attending please call our office for specific details and to reserve a seat (816) 322-5300.
 

 

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