Oct 1, 2014
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October 2013 Archive for Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

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

Should you be making wheat sales above $7.00???

Oct 31, 2013

Wheat bulls are finding it harder and harder to remain positive as recent headlines start to age and India confirms the fact it is reducing its wheat export price to $260 per ton, a price that many bears argue will quickly boost India's net exports. Remember, India has not been a significant "exporter" of wheat in several years. In fact last year they exported less than 1 million metric tons, now all of a sudden they become the worlds "low-cost" provider. Just as I was afraid of, some folks are backing off their recent production downgrades for the Australian wheat crop. Lanworth yesterday actually raised its estimate for the 2013/14 Aussie crop to just under 25.3 million metric tons. There is also starting to be more talk amongst the bears that the USDA may have their global wheat feeding estimate too high, considering how long wheat has stayed at a major premium to corn this year. On a more positive note there is talk circulating that the USDA's current 2013/14 estimate for Russian wheat might be 2-3 million metric tons too high. There is also some bullish chatter coming from the fact Brazil raised their tariff-free wheat import quota by 600,000 metric tons. The bulls are saying Brazil wouldn’t make this move if they had any hopes of sourcing the wheat from Argentina. Just keep in mind its only 600,000 metric tons and it could be sourced from Canada or other non-US suppliers (bullish yes, but not insanely bullish). Bottom-line, its tough to get overly excited about the wheat market without NEW headlines continuing to stream across the wire. Remember, the bigger the bull...the more frequently it needs to be fed.

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Will corn see a short-term break out??

Oct 28, 2013

Corn continues to trade in a narrow range right around $4.40. In fact the DEC13 corn contract has traded between $4.50 and $4.32 the entire month of October. From a technical perspective, an extended period of consolidation along with the past two sessions forming "inside" days on the chart, leads me to believe some type of short-term breakout is nearing. Unfortunately for the bulls it feels like the DEC13 contract will post a $4.20'ish type print (or lower) before we see the contract trade back in the $4.60's. There is starting to be some talk that even though the basis has been improving in some areas, eventually the final 20-25% of our record US corn crop will have a tough time finding a home on the farm. Basically meaning, even though US producers have invested heavily the past few years in storage, there is still not enough in the northern areas to store it all. Hence the producers might not have much choice but to sell a portion of their final harvested bushels, which could put some pressure on the basis as well as flat-price as harvest gets closer to completion.  My guess is once the wave of producer sell-pressure is digested and the US producer has his remaining bushels securely locked away, we might get that little $0.30 to $0.50 cent short-covering rally I've been talking about. From that point forward the bulls are going to need: 

#1. A serious South American weather story that not only hurts the full-seaon corn but also further limits the number of second-crop corn bushels being harvested. Low prices are already taking their toll on some of the South American corn acres, but that won't be enough to support an extended corn rally, we need a major weather hiccup of some sort, right now that just doesn't look to be setting up.  

#2. We will need some type of unforeseen Chinese demand story to hit the wires. Since they don't appear to have had any major corn production problems, and most sources are thinking the Chinese are going to harvest a new record crop, its hard to imagine a giant jump in imports.  There is some speculation that since the Chinese wheat crop ran into such serious production problems this year, they wont have the ability to as easily substitute wheat for corn. Therefore the Chinese "MIGHT" be forced to import more corn bushels than the world original had penciled in. Only time will tell. This is certainly NOT something you want to bet the farm on.  

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Do soybeans have much life left??

Oct 25, 2013

Soybeans remain the bright spot, with soymeal continuing to take center stage. The  USDA's weekly export sales report of 850,100 metric tons was way above all trade expectations. Keep in mind, soymeal exports generally reach about 50% of the USDA expectation for the entire marketing year by the first part of October. Basically meaning we might end up seeing the USDA bump their meal export estimate higher. As for nearby bean prices, I am a little concerned.....

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Soybean strength continues to surprise!

Oct 24, 2013

My hunch a while back that we would trade in the $12.50 to $13.50 range for a while is still holding true. Yes, longer-term supply looks somewhat bearish, but demand both domestically and abroad simply remains too strong for the number of bushels currently available in the marketplace. Soybean stocks at terminals and elevators here in the US are about 8.5 million bushels below where they stood last year at this time.  That seems to be due to several different factors - the delayed harvest, slow selling by producers, and high demand from end users.  Basis bids remain steady to stronger for both soybeans and meal, and while that remains the theme producers should continue to garner higher cash bids.  Keep in mind there continues to be questions regarding Argentine soy production and how some areas (to the north) are experiencing their worst drought in 50-years. Keep in mind, the trade has been looking for Argentine production to push higher by about 5 million metric tons, from around 48.5 million to around 53.5 million on a big jump in planted soy acreage. The fear is if the rains don't start coming in a major sort of way during the next several weeks all of these intended acres might not get in the ground.  Many traders are also a little surprised to see Russia actually stepping in and buying US soybeans in bigger doses,  generally something that just doesn't happen. Last year Russia only imported just over 80,000 metric tons of soybeans. So far for 2014/15 they have already booked close to 250,000 metric tons.

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Smart Producer Insight....

Oct 18, 2013

A few producers that I consider "very sharp," and who are all located in varying regions of the country seem to be making similar type moves these days  This rarely happens, but when it does I tend to pay attention and take notice...I suggest you consider the same. First of all there seems to be a consensus amongst those who "know their numbers" and understand the overall shift in the markets. They seem to see a darker cloud moving overhead and are fearful in regard to how long it will block the big shinning profits we have all recently enjoyed. They understand that in order to survive the darkness they need to seriously focus on ways to best reduce their "per acre expenses" and limit any possible "production risk." The goal seems to be simple, "If you have to take a loss, make absolutely certain its the smallest loss possible." In other words some of smart producers are not only looking to make changes that help lower their overall expenses but also limit the variables associated with yield. By swapping a bigger portion of their acres from corn to less cost intensive soybeans might be one such solution. The beans are obviously a lot less expensive on a per acre basis and their production risk seems to be much less severe. The fear is that insurance guarantees could be at or below the cost of production for corn next year. If this is the case and you happen to be one of the unfortunate producers located in a small secluded area that gets hit with another drought or some type of extreme heat, causing a significant yield drag, your risk to the downside could be massive. If corn prices are trading between $3.50 and $4.50 and you have a bin busting crop you can survive, but if you come up short of your averages while prices are at rock bottom it could be very painful. Just as pilot tries to burn off fuel in order to limit the losses and or the extent of the damages on a crash, you need to be thinking about ways to start limiting your downside exposure as well. Two areas to focus on are #1. Reduce your per acre expenses by finding cheaper crops for portion of your acres #2. Mitigate your production risk by planting a crop that has the steadiest yields.

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Is chaos the new norm in today's government??

Oct 17, 2013

It might be over, the short-term nature of the agreement in Washington has investors wary of another standoff in just a few months.  As for now the Washington drama officially ended with Obama signing a bill that both the House of Representatives and Senate passed to reopen the US government and extend the country's borrowing limits beyond the current $16.7 trillion level. From what I hear Federal workers who have been on temporary leave are expected to begin returning to work today. For what its worth 87 Republicans joined 198 Democrats in voting for the bill in the House. It was reported that all 144 "no" votes were from Republican side of the fence. Basically all the NEW bill does is fund the government through Jan. 1 and suspends the nation's debt limit through Feb. 7. I suspect the phrase "simply kicking the can further down the road" will be used a lot today.  Bottom-line, it seems that we’ve entered a new world order where more "extreme" political chaos is becoming standard operating procedure.

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Should you be pricing your soybeans?

Oct 14, 2013

Soybeans could face some early weather related headwinds this week with improved rainfall amounts in both Argentina and Brazil over the weekend. On the positive side, reports in the trade are that China continues to buy US beans, an estimated 200,000 to 250,000 metric tons on Friday, but again,  there is no way to officially confirming that with the USDA being shutdown. In fact some in the trade seem to think soybean exports could now be as high as 80% of the current years USDAs forecast. With a lack of USDA data I suspect tomorrows NOPA crush numbers for Sept. will have more weight than usual. From what I have heard trade estimates for the "crush" range from 103 to 111 million bushels, avg. guess just above 106 million (numbers should be out at 11:00am CST). I still think there is some upside potential left in the soy market before year end. Crush margins globally are too strong and nearby supplies are simply too tight. Longer-term is a bird of a completely different color.

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Why soybeans could hit 13.50 again...

Oct 11, 2013

Soybean traders continue to monitor strong demand from US Gulf exporters and US domestic crushers.  Exporters are trying to bid up for bushels in order to fill the vessels that are starting to back up. Remember, Brazil is close to sold-out and Argentine producers have what appears to be a death-grip on their remaining bushels. Elevators here in the US continue to offer unique DP arrangements in an effort to entice more soybean sales from producers. Soybean processors in Indiana and Illinois reportedly have little to no meal available into November.  Crushers are suffering from a lack of both new soybean supplies and rail cars.  Margins are also heating up in China. Reports indicate China sold over 250,000 metric tons of soybeans from its state reserve auction, and demand was up from the previous auction two weeks ago. Since early-August China has auctioned off almost 2 million metric tons from their reserves. Bottom-line, it looks like demand from China could start heating up, especially out in the Nov/Dec timeframe.  From a technical perspective $13.05 in the NOV13 contract still seems to be applying nearby resistance. However as each day passes I am becoming more and more optimistic that we can eventually overcome this hurdle and move into the $13.25-to-$13.50 range. Basis bids continue to look the strongest out West and weaker to the East.  

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Are South America soybean supplies starting to dry up??

Oct 09, 2013

Soybean exports here in the US may soon climb to a NEW record as South American supplies start to dry up. Oil World recently released data that show US exports may advance to 20 million metric tons for the 4th quarter compared with 19.2 million tons during the same time period last year and compared to 14.3 million tons in 2011. The reason for the increase is that Brazil looks as if they have already shipped some 95-97% of their export supplies during the first nine months of their marketing year.  What we need to realize is that business had formerly been that of the US.  Numbers indicate the US has shipped less than 5.9 million tons of soybeans in the six months through September, this compares with 15.2 million tons last year and 10.4 million tons during the same period in 2011. Where as Brazil’s six-month soybean exports jumped to 39.6 million tons compered to 29 million tons a year ago and 27.9 million tons in 2011. The question is how much more will China need to book between now and mid-February?  From mid-Feb forward South America is clearly cheaper and appears to be China's first choice. Several analyst believe China has already secured or booked a large portion of the US soybeans they will need to get them through early-Feb. If your a producer and holding onto your soybeans for higher prices, you are basically betting that China will be coming back into the market in a big sort of way during the next 120-days or that South America is going to experience extreme delays in their early planted soybeans or major production problems due to adverse weather. In my opinion these are bets that certainly have some possibility, I just wouldn't be willing to wager the farmer on either one coming to fruition in a MAJOR way. Meaning, there could be some minor excitement or bullish headlines regarding both bets along the way, but in the end I doubt you will be able to cash in our ticket. 

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Could corn demand start to pick up??

Oct 08, 2013

Corn bulls are hoping to see some confirmation to rumors that private Chinese buyers recently purchased 800,000 to 900,000 tons of US corn, thought to load out in early-2014. If confirmed this would obviously be the first spark to what would surprisingly be a bullish US "demand" headline. With the government still in limbo, weekly crop conditions and harvest updates were not available. Many analyst believe the US corn crop is now 23-26% harvested, last year closer to 70% harvested by this time. Lets also not forget most analyst also believe the US corn crop has grown to some degree on improved moisture levels. A 14.0 billion plus bushel crop is now not out of the question. On the flip side, insiders in Brazil are thinking full-season corn acreage could be 10-20% lower. The question is what will Brazilian producers do with  their second crop acres? Will the elect to go ahead with corn, even though prices are well below the cost of production ($1.50 to $2.00 in many areas)?  

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Next week rains could delay harvest...

Oct 04, 2013

 Soybean harvest looks as if it could be delayed by heavy rains in the eastern part of the belt and possible snow and freezing temps in the western areas. This is keeping the processors hands somewhat tied and driving up the bids for cash meal. With South American suppliers basically throwing their hands in the air, proclaiming they are all out of meal, global buyers are now desperately trying to find supplies. The US seems to be the best source and is now left to fill the void. Several traders are thinking this could be a short-term "game-changer" and be just enough to propel soybean prices back to levels around $13 or perhaps even higher. Another way to look at it is that Brazilian soybean exports so far this year are thought to total around 40.6 million metric tons, just a smidge under the current USDA projections of 41mmt. The problem is there are four months left in their marketing year. Which means either the USDA is underestimating the Brazilian exports or the US is going to be left to fill the void left by the earlier and quicker Brazilian sales. Keep in mind short-term there is also a historical tendency for soybeans to rally from now through mid-October. Producers who are hoping to once again see prices at or above $13 might just get another chance in the days ahead. 

Interesting to see see CitiResearch saying that soybean prices could stay compressed in a low-price environment thru 2015 on supply strength out of the Americas to help benefit those consumers that were plagued with elevated and volatile soybean pricing during 2011-1H’2013. Keep in mind several analyst are now projecting US producers will plant over 80 million acres of soybeans next year (about +3% gain).

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How low will corn go???

Oct 03, 2013

 Corn price have somewhat stabilized around the $4.40 area in the DEC13 contract after losing more than $1.30 per bushel since mid-June. 

Producers continue to ask how much lower can we go? My thoughts are there could eventually be another $0.60 to $0.70 cents of downside, meaning a $3.70 to $3.80 price tag could eventually be placed on new-crop corn. Remember, just as the funds tend to overdue things to the upside the same can be true to the downside. 

A better question might be when will the lows occur? From where I sit today, the lows might not occur until 2014. My thoughts are the overall corn yield will grow to some degree, but not as much as some are projecting. I doubt a 160-plus yield number is in the cards (maybe but I doubt it). Keep in mind there was a ton of corn planted in late-May and early-June that still needs to be harvested. The big "corn-on-corn" producers who didn't get much rain during Jun/Jul/Aug are simply NOT going to be harvesting big yields on these acres. Keep in mind we are still yet to see are 1-2 million reduction in "harvested acres." Basically meaning while the crop may still be getting bigger, I am not sold on the fact it is going to grow significantly. This means the trade could pressure prices a little lower near-term on thoughts of a bigger US crop, but probably NOT significantly lower.  My guess is that we start to find more stable ground down around the $4.10 to $4.20 area. From here I think the sell paper dries up to some extent as the "risk-to-reward" ratio for the big players becomes less-attractive. Point being there won't necessarily be new longs jumping in the corn market but rather more shorts banking profits and exiting. 

At the same time I am thinking US producers who have made limited sales will be apprehensive to move cash bushels at this low-end of the range, also preferring to wait until 2014 for tax purposes. That may give the market a little bullish bounce as the bears stop to catch their breath and the trade could perhaps be digesting some type of South American weather headline. I think the trade will want to see how the South American weather plays out before they hammer the bottom out of this thing.

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