My thoughts on the Supply/Demand report!
Jul 14, 2008
The USDA's Supply and Demand report came out very close to overall expectations. It was positive for the bean complex in that it reduced carryover down to 140 million bushels. They did this mainly by reducing U.S. yield down to 41.6 bu. per acre. Beans will be very fixed upon the weather outlook over the next few weeks. With 74.5 million acres planted, even a ½-bu. per acre reduction now leads the market dangerous close to extremely tight carryover stocks. The implication is clear that beans are going to be the leader of the pack for the next few weeks.
What’s the implication on corn? With November 2009 and 2010 contracts now approaching the $15 level, higher input cost on the horizon for corn, will producers elect to start planting more beans? I have to believe this could be a very prudent game plan because you reduce your cash flow exposure of the input side on corn. If you really feel adventurous, focus on getting the floor in place on beans and the place a speculative long position in corn. We are going to be talking about this position a lot over the next few weeks. If you are interested in going over all the positive and negatives of the strategies involved, we are setting up a meeting for August 23rd here in New Richmond, Ind., to talk about the upcoming exciting opportunities ahead.
The variable that will influence how strong the market will be now will be the weather. A mere ½-bu. drop in bean yields could add more than a $1 to beans. In regards to outside market influences, the oil market is surging on concerns about Iran while the dollar is tanking because of all the financial concern about the status of the financials. We came across a really good article which explains many of the variables at work right now. The conclusion is the U.S. consumer is exhausted and chickens are about ready to come home to roost. If you would like to see a copy of the article send an e-mail to firstname.lastname@example.org and she will send it to you.
Well, summing it up, I don’t know of a time in my professional career in the commodities where so much stress and anxiety existed on both the bearish side for equities and bullish side for commodities. As always my fear is for producers when things get looking too good to be true it’s usually the train coming down the tracks rather than the birth of a new day. I hate to always be negative but producers have to start looking really hard in the next few weeks about selling 2009 and 2010 beans.
Have a good weekend and get rested up for another exciting week.
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