Apr 23, 2014
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December 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.

2011 Predictions for Corn, Beans and Wheat

Dec 31, 2010

I was asked by a few subscribers to give my New Year predictions.  Unfortunately as most of you may know I have never been given that special pass to the proverbial "Crystal Ball Club" that so many advisors seem to have access to.  In good spirits I thought it might be fun to throw out a few of my thoughts and best guesstimates for the New Year...hope you enjoy.  

  • One thing for certain is that with an estimated $70 billion more pouring into the commodity markets "volatility" is going to be extreme.  Look for the funds to push these markets to extremes in every way possible in 2011.  Extreme highs will be met with massive, week long profit taking blood baths for those getting to the party late. Keen timing and pocket full of "Tums" will prove to be essential.  Make sure you have the right "Guide" to help you navigate this one...I am afraid you are soon going to be heading into "Unchartered Waters"...
  • I will throw my hat in the ring and predict that China's corn imports soar to over 7 million tons in 2011.  That is up substantially from the 1.5 million imported in 2010.  China eventually gets caught in a production jam and is forced to import more than 25 million tons with in the next three or four years. 
  • This kind of any easy one, but you have to believe Spain will be the next to fall in the European debt debacle. Italy will soon follow. From there I am not so sure, but I will predict that Germany will take the reigns along with the European Central Bank and help from China, to fund a massive bailout and restructuring program to end this madness once and for all. 
  • I will not be as bold as the former president of Shell Oil, John Hofmeister, who is predicting that Americans could be paying $5 for a gallon of gasoline by 2012. I will take half that bet though and estimate fuel prices at the pump could approach the $4 level within the next 12 months.
  • Maybe I am just getting older and watching the weather more, but it certainly seems that more extremes in weather conditions have become the theme as of late. I predict 2011 will be even more intense, look for more extreme droughts and more extreme rains. I am not sure if we will see more of a La Nina, El Nino or Speedy Gonzalez type weather type pattern, all I am saying is that I could see the trend for extreme weather intensifying.   
  • This one is sure to get me in trouble if I am wrong, but what the heck.  I think gold will continue to climb higher breaking the $1500 mark and possibly going much higher than that. Funds may jump the other precious and industrial metals like platinum, palladium, silver, and copper as they feel they can push and manipulate these markets much easier than they can gold. If you are apprehensive buying gold, spreading these other metals against the gold market might be just the right play this year.
  • The S&P 500 continues to push higher and ends 2011 with double digit gains. Some serious blood will be shed on fears of a European crash, rising US debt, etc... These massive down days will keep the doom and gloom followers on the sideline as they watch one of the biggest dog and pony shows ever make the bulls from the Lehman Brother lows, millions on the ride higher. 
  • As for the housing market, I am afraid we remain stuck in the rut. The divorce rate has pulled back the past few years since the economy has turned bad.  Wether you want to believe it or not this has affected the housing market. One of the main things fueling our housing boom from the 70's to the 200's was a skyrocketing divorce rate. Instead of one home, divorced families were forced into buying two homes. Now not only has the divorce rate fallen significantly, but the families who have experienced foreclosures are moving in with other family members and finding out life is not all that bad. It seems that having money in their pocket and spending more time with family is kind of fun. Not to mention our younger first time home buyers who have had to live through the embarrassment and shake up associated with a foreclosure or falling equity values are opting to avoid the potential pitfall by simply renting. One thing I have learned in life is that it takes a long time to change someone's perception or perspective about an event that has rocked their life.  I doubt we see this housing thing rebound anytime real soon.
  • I don't think I need to point out the obvious, but what the heck. With Cotton prices skyrocketing expect to pay a significant amount more for clothes and cotton related goods.  
  • Some of our friends in the government become even more confused about our founding fathers' definition of "Capitalism" and "Communism"...I'll leave it at that.
  • The Fed will continue to be the primary buyer of treasuries to the chagrin of far too few people to make any difference. The Treasury markets will have become "Comfortably Numb" to the charades. Continued efforts will be like spitting into the wind. As I have said all along, manipulating short term rates is one thing, long-term rate manipulation is a crap shoot at best.  
  • I think both the US Dollar and the Euro will ultimately find stable ground. The Euro may be pushed off another cliff before it hits bottom, but stabilization will eventually come in 2011. The Canadian Dollar, Australian Dollar and Swiss Franc may strengthen against both. Don't ask, I stopped pretending years ago to know what-the-hell will happen with the Yen or Yaun. These guys beat to their own drummer...I just keep my dog out of that race. 
  • I will join the masses and throw out a Crude Oil estimate of $110 plus per barrel, on increasing Chinese demand and surging economy.  
  • The Korean Peninsula crisis heats back up after Kim Jong II passes the throne to his "mad-man" son. As he tries to flex his muscles and prove ownership to the title, massive military actions will get under way.  The US and China look to be in opposite corners as this middleweight bout gets under way. Lets just hope one of the two fighters' corner men don't decide to jump in the ring, or this could get real ugly in a hurry. 
  • Similar to the housing market "Unemployment" will not improve. I believe we are chasing a ghost.  These jobs are gone, gone, gone...Only two people I know ever said "I'll Be Back" and meant it...One was Jesus Christ, the other was Arnold Shwarznegger in the movie Terminator. These jobs are not coming back. Companies have learned to make due with out them. Companies understand they need to stay lean to compete. Companies are refinancing and taking the money and investing in the explosive overseas markets, not in the tax laden US market. Manufacturing type companies of the past that employed thousand and thousands in large factories are being replaced by innovative new business like Craiglist, who's entire company works out of a house in San Francisco. Wake up America the manufacturing jobs have left the building. If you were going to open a factory to manufacture goods, would you want to try and do it here in the US where you may face years and years of bureaucratic red tape, spend millions and millions repairing your battered image from the damage protesters have done as they try to keep you from building in order to save a unique species of spotted horsefly's. Seriously, the days of the big American manufacturing machine is gone forever. I hope my kids are innovative... 
  • Along those same lines you have to believe "Facebook" and the "Social Networks" will take over the internet. If I have a question about a certain car I am thinking about purchasing, or more insight regarding a candidate on the ballot, why not just ask one of my 10,000 online friends who all have similar interest and likes.  I have to imagine CEO, Mark Zuckerberg will start to plan for the biggest IPO in US Stock market history and before age 30 will become the worlds richest man, all from a program he designed in one fleeting night while sitting in his college dorm room...Now that is what I call the "American Dream" and that is something we must all fight to keep alive. With both my father and grandfather having fought to defend this great country, I feel I owe them at least that much, for all they had to endure....I challenge you to give something back to this country in 2011 and help get us back on track. I would hate to think that one day all of the sacrifices our fathers and grandfathers have made will all be for not... 

 

Hope Everyone Had A Great 2010...Lets Work At Making 2011 Even Better.
*** I almost forgot...I really just wanted to tease you. The "Crystal Ball" says new highs across the board in 2011 for Corn, Beans & Wheat.  Lets shoot for $8 corn, $17 beans, and $10 Wheat...Happy New Year!!!
 

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If You Are Looking For Reasons To Be Bullish Wheat

Dec 29, 2010

1. There are several rumors starting to fly around that some of China’s main wheat growing areas are seriously dry and the crop in those areas could be in jeopardy.

 

2. The EU may have massively oversold wheat to countries who were forced to replace Russia as their primary source.  If this is the case the US may become the "worlds" primary wheat supplier in the months ahead.
3. There are talks that China could actually be forced to release some of their government wheat stocks as a feed replacement for tight corn supplies.
4. Russia may stay on the sidelines and not lift their wheat export ban, and possibly even be forced to be an importer of wheat before it is all said and done.
5. Many areas in the Middle East and areas of Africa are experiencing extremely dry conditions.  If this continues to be a problem they will need to importer much larger amounts of wheat in 2011.
6. The USDA report on Jan 12th may actually show fewer acres planted than we are anticipating.   
7. Barclays is reporting that institutional investors will increase their stakes in overall commodity assets under management in 2011. Those inside the numbers are expecting more than $70 Billion increase from last year, with grains expected to be a top performer.
 
Quick Thoughts from December 29th: 
  • On the cash side, I am hearing end users and or buyers have their needs covered and seem to be taking a wait and see type approach to covering anything out into to 2011. This worked for them the last time we made new highs a couple of months back, when we broke prices all the way back below $5.00, maybe they will get lucky and it will work for them again.  I promise you, one of these times they are going to get burned. 
  • The word is several of the big players in Argentina have already reduced their corn estimates, and may soon reduce them again.  If you remember, the USDA had them pegged for around 25 million tons...some close to the source are now talking 20 million tons or less.  
  • As for soybeans I was hearing numbers anywhere from 43-48 million tons tossed around in the trade yesterday.  The USDA had them pegged at 52 million in the last report.  Time will certainly tell who is right and who is wrong, don't be surprised if you see the USDA drop their numbers sooner than later in regards to South American production.
  • Egypt finally booked some Soft Red Wheat from here in the US.  There are also more talks that Turkey may jump back in the Hard US Wheat market sooner than later.  
  • The recent rally in beans has sparked a little more farmer selling, but from what I hear most of it has been in the new crop.  I am just not sure many guys are sitting on a lot of old crop beans.
  • I heard that a descent size ethanol plant in Indian announced that they would be firing back up very shortly.  I wonder if we won't start to see more plants that had been closed down start to open back up.  If so you have to believe this puts even more pressure on corn supplies and is certainly bullish the corn market.  
  • Paris milling wheat has now hit a new three year high in trade this week.
  • The soymeal market is trying to slowly gain some back on soybean oil.  As many of you know I am a firm believer that most significant bean rallies in the past have all been lead higher by meal and not oil.  Maybe this rally will prove to be the exception.  I have tried to play meal against oil a couple of times the past few months, thinking meal would begin to make up ground on oil, but this trade has just not worked out well for me...so instead I have chosen to cheer from the sideline.  You can almost bet this will be the one time soymeal makes it's move...lol.  I know with meal now priced around $400, profitability in the livestock markets will be getting tougher and tougher. 
  • For those of you still holding the July/Dec Corn spread I recommended a few months back, you should finally be seeing some decent returns.  I wouldn't jump on the bandwagon now if you are not already in, but it is nice to see this spread work itself back into good profit margins.  I commend those of you who hung in there and stood by the trade.     
  • For those that are interested more specific CFTC data showed that the "Trend Following Funds" bought around 25,000 contracts of corn and 4,000 contracts of beans last week. They were actually sellers of around 8,000 wheat contracts last week. Essential this makes them long over 300,000 corn contracts, close to 150,000 bean contracts and close to flat the wheat market. The index funds were reported as buying around 1,000 corn, and 2,000 beans contracts. They were actually net sellers of wheat by around 1,000 contracts.  From what I can gather this now puts them net long just over 440,000 corn contracts, over 210,000 wheat contracts, and just under 200,000 bean contracts. 
  • I told you there was light volume on Monday.  From what I am told only about 468 million shares actually changed hands on the New York Stock Exchange, and it was actually the fewest for a full trading session since the Spring of 1998.
  • If you are trading cocoa you may want to keep your eye on the developments in Africa as an ultimatum has been thrown down by a bloc of West African countries for the current President (Gbagbo) to step down or be removed by force.  If things get crazy it could certainly start to affect the cocoa supply chain.
  • I have read in recent reports that China imported 2.38 million tons of cotton in the past 11 months of 2010, that is up 81% from the previous year. 
  • Don't forget The EIA Energy inventory data is going to be a day late, talk is that we should see another weekly draw in crude oil stocks of 2.5 to 3.0 million barrels. You have to believe the drawdown is not only a combination of improved demand, but it also has to do with year-end inventory management and tax jockeying. 

 

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Cotton Market Continues To Impress

Dec 27, 2010

With all the news lately on Cotton, I thought I would share my thoughts.  It has certainly been impressive as of late, but many of the big boys are starting to wonder if the higher prices could be starting to ration out some of the market's crazy export demand.  The real fear though is that if prices do fall back, and the cheaper prices spark more sales we could have a run away train on our hands.  Right now the USDA has our current ending stocks estimated at just under 2 million bales.  This is our lowest ending stocks level in the past 50 years.  If sales just simply return to the levels we saw this fall of between 400,000 to 500,000 bales, ending stocks could be at "zero" in a flash.  Obviously the USDA does not want to see this happen so you have to believe any major price breaks will be meet with buy side support.  Any bargain basement price break could be scooped up with one massive purchase by China and cause prices to surge even higher.  With stocks this tight you can not afford to be short this market, regardless, it is just too dangerous.  I would much rather see you "buy" the breaks, than trying to pick the "top" in this market.  

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China Raises Interest Rates! How it will affect grain prices next week.

Dec 25, 2010

I just wanted to let everyone know that China celebrated Christmas by announcing a 0.25 interest rate hike. I have been telling you for weeks it was coming, I just don't think anyone, including myself thought it would come on "Christmas".  The Chinese certainly have a knack for flare these days...This is just the second rate hike in the past three years, and certainly worth paying attention to.  If you remember, the last rate hike rocked the commodity markets on a short-term basis.

I am still not certain how this news will be interpreted or exactly how it will affect grain and livestock prices Monday morning.  It is still too early to call, but I would have to guess the market will see a knee-jerk type sell off at first, meet by heavy end user buying on the breaks. You just never know though, many traders will see the 0.25 cut as minimal and will feel somewhat relieved that is it behind us. Some of the big boys were worried that it could have been much more significant.  Obviously the market had already priced in more rate hikes form China, the timing though may throw a few of the big players for a loop. 
 
The bears will certainly claim it solidifies China's quest to stop at nothing to slow their ever surging economy.  I do agree that this cut will certainly be viewed as a more "bearish type cut" than compared to one that would have come in early 2011. A rate hike before year-end will have a more tightening impact, as the interest rates on the medium and long-term loans, as well as the deposits are reset at the beginning of each year according to the base rates.
 
No matter what the initial reaction is, large global traders will be eager to see if the Chinese economy will be able to continue to grow at it's current pace in the face of further tightening.  If China's economy shows any signs of slowing down and or loosing steam, large traders will quickly cash in their winnings and abandon their "long" commodity trades as they begin to fear demand for Crude Oil, Soybeans, Cotton, and other commodities will soon fall. I personally think China's economy is resilient enough to withstand this rate hike and several more that may be headed their direction. I guess only time will tell. 
 
China is obviously digging in for what looks to be a very long battle against inflation and serious price increases.  I still believe the root of their inflationary problems stems directly from their domestic supply shortages. Once they realize the rate hikes are only acting as temporary bandaids, I believe China will have no choice but to import goods and raw materials in massive quantities to slow the rising prices. When this happens commodity prices should soar. I don't think it is a matter of "if' this will happen but "when" this will happen.  
 
It will certainly be an interesting week ahead with many traders on vacation until the start of 2011.  Lower than normal volume and several "outside market" developments are sure to take us on a roller coaster of a ride. 
 
Rate hikes in China, and more news regarding European debt will not be the only thing affecting our grain prices. Make sure you keep your eye on the military action over on the Korean Peninsula. South Korea decided to give North Korea a taste of their own medicine by holding a massive artillery drill on Yeonpyeong Island a few days back, as you can imagine it has North Korea all worked up. South Korea decided to top that off by conducting another one-day exercise on Dec. 23rd involving jet fighters, mobile artillery and about 800 troops. North Korea is yet to retaliate, but were quoted today using the word "nukes" in several sentences...if things did not slow down. You and I both know the markets do not like hearing words like "nuke" or any context of the world "nuclear war" come out of anyones mouth.  If the market gets spooked enough traders will swarm to the US Dollar for safety and strength.  This will definitely not help those of us looking for higher grain and livestock prices. 
 
I should know more Sunday night after the markets in China open up...I'll keep you posted. 
 

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Will US Dollar Trump Commodity Prices?

Dec 22, 2010

 

There is an interesting trend developing that we need to keep an eye on, and a battle taking place in the markets on two opposite sides of the fence. One massive group of traders is betting that the commodity markets will rally even further, while another massive group is betting that the dollar will strengthen dramatically in 2011. The question is who will come out on top? I know it is hard to believe, but I actually think both groups have a chance of being highly profitable. Even though traders have almost tripled their net-long positions in several futures markets during the past five months. I think there is still room to move higher despite an increase in the US Dollar.  Yes, I realize that the US dollar has moved in the opposite direction of commodity prices in 18 of the past 22 quarters. I just continue to believe China’s 10% annual economic growth and surging inflation will help push commodity prices even higher despite the action of the US Dollar. This could be a fairly cold statement considering about $4 trillion in currencies trade every day on the world’s exchanges, compared to just $391 billion worth of futures and options on raw materials.  This is often hard for commodity and stock traders to believe, but the currency market is absolutely massive compared to commodities.  A stronger Dollar could certainly keep a lid on prices but I highly doubt it will be able to hold these markets down forever. 
 
Quick Thoughts from December 22nd 2010: 
 
  • The cash corn market continues to be extremely slow.  Most end-users seem content on waiting until after the first of the year to price more corn.  They believe more farmer selling and fund rebalancing should give them a better opportunity. That is certainly very wishful thinking on their part, we will see how it works out for them in just a few more weeks.  Those could make for some sleepless nights...
  • Iraq purchased 100,000 metric tons of Hard Red Winter wheat from the US and 150,000 metric tons from Australia. The premium of Kansas City Wheat versus Chicago Wheat has now exceeded $0.60 cents. I had first recommended this trade back when Chicago was at a significant premium to the KC.  Wow, what a great trade this has been. I will be rewarding the market and banking some of the profits, I will remain in the position on a smaller scale looking for the premium to reach $0.80. 
  • I am hearing that after a slight cold front passes through in Argentina this weekend, weather will again heat back up.  You have to believe the cold front may bring along some scattered showers and thunderstorms, but I am doubting it will be enough to ease concerns. I am also hearing most of the rains will once again fall further North, leaving the main corn areas high and dry.  
  • Wheat traders are still mulling over the thoughts and concerns that Russia may actually extend its current grain-export ban beyond the summer, and what delays in fertilizer shipments mean for their crops. 
  • The numbers out of China for November show demand for refined crude oil products rose by more than 15% compared to year ago levels. China's demand for oil and fuel just continues to push higher.  I am starting to jump on the bandwagon that China alone is going to carry the crude oil market. 
  • Here at home inventory data released yesterday showed a larger draw down on crude oil stocks than many traders had anticipated. This certainly adds to the bullish sentiment, and has pushed Crude Oil above $90.  Lets just hope the draw downs in supply are not a direct result of year-end inventory management but rather an increase in demand.  
  • Staying with the "fuel" theme, you may want to do some research on "naphtha", a product used in the refining process. Reports from those on the inside in Saudi Arabia are saying that there is an extremely rare shortage of "naphtha" right now, and has in fact delayed January shipments.  On top of increasing demand, this may be another reason unleaded gas is surging to new highs. 
  • In addition I continue to hear reports circulating about a fuel refinery in the Virgin Islands that produces over a 150,000 barrels of unleaded gasoline per day that is still down and out of operation.  I have to believe eventually this could place a strain on supplies, I will do more investigating to see if there is any long-term issues with the plant or if it is just a temporary glitch. 
  • I found it amazing to learn that since 1980 total world "nitrogen" fertilizer application has increased by 7 times, if you really want to hear something crazy, China‘s nitrogen use during the same time period has increased by 45 times....Wow
  • Some guys over at Informa are stepping up to the plate early and confirming that they believe that the EIA ethanol production data was actually in error the past 2 weeks and that the error will be fixed in today's report. Today's report will reflect on production for the week ending Dec 17th. Informa’s impression is that ethanol production still was a record and on track for a 2010/11 ethanol corn grind that matches or somewhat exceeds their forecast of 5,000 million bushels, but it will be revised slightly lower.  These guys are generally tied in tight to the USDA, so they might be right on track. If they revise the 939 and 937 billion barrel per day numbers significantly lower we will break at least for the short-term. Pay attention to these numbers.  If they revise them to 920 or 915 billion per day it will not be that big of a deal, something massively lower would be a problem.  The numbers should be out right around the opening bell.  
  • Cotton continues to race higher and in fact closed at all time 140 year highs yesterday.  What an amazing run this market has had, hope some of you have been a part of it. 
  • Don't forget the USDA will issue its latest weekly Export Sales report tomorrow morning.

 

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Why China Continues To Dictate Price Direction

Dec 18, 2010

I continue to talk about China and in particular China's demand, and why I believe it will dictate commodity price direction for the next 10-20 years.  I wanted to make sure all of my readers understand why I feel this way.  I think everyone will agree with the fact that China is on track to become the biggest demand market in the world for commodities of all types, especially agricultural commodities. Currently China has a population of 1.3 billion people and growing rapidly. In the past, most of these individuals lived in rural isolated areas and had little or no income. That trend is changing, and changing rather quickly. As of today it is being reported that China’s middle class population is now larger than that of the United States.  To paint a better picture, think about it this way: Here in the US 33% of our entire population are considered "middle class", that is roughly 106 million Americans. In China, only around 13% of their population is currently considered middle class, but with a population of 1.3 bln that equates to over 175 million Chinese. Reports are being released from many world economic leaders that think China's middle class could total more than 700 million people within the next 10 years. Another way to look at is like this. Italy currently has 575 cars for every 1,000 people, Germany has  505 cars for every 1,000 people, the US has 470 cars for every 1,000 people, China currently has only 50 cars per 1,000 people. I hope this helps you see the explosive potential that China poses.  As they have taken the lead in global manufacturing their population is moving to Urban areas by the thousands in an effort to earn higher wages and improve their current lifestyle. With this will come the desire for a higher protein diet (eating more beef, pork and poultry), the demand for more feed grain, fuel, energy, housing, will obviously follow...Bottom line, the demand will be unstoppable.  We will eventually see prices move to entirely new levels. Unfortunately I can not tell you the exact date or time, but I have a feeling you are just starting to witness the initial surge.

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Will Corn or Beans Win The Acreage Battle???

Dec 17, 2010

I have heard some interesting numbers being thrown around the past few days regarding planting intentions and in particular corn versus beans. The argument being waged by many here in the heart of the Midwest is that Soybeans look like they will "pencil" better than Corn.  There are research studies out now as well as several big producers I have spoke with who tell me the numbers are encouraging them to plant more beans, especially with the skyrocketing price of Anhydrous in many parts. One recent study out of Illinois had beans penciling out about $18 per acre better than corn. Their numbers indicated roughly $200 less in inputs for the beans. Obviously this number is going to vary tremendously depending on your area and what you were able to lock in early on. A lot of the guys who have been planting corn-on-corn also believe they will see really good yields from the beans because they haven't planted them in a while.  You also have to think we will be seeing more double crop beans than we have ever seen in the past.  You know guys are going to try and plant wheat then double crop the beans, it only makes sense.  Just yesterday I talked with a couple of guys that had given the wheat a go but have ran into very dry conditions and told me they will more than likely scrap that plan and switch over to beans.  I know farmers traditionally like to plant corn, but with more feed wheat pouring into the marketplace and beans obviously penciling better at this time farmers may actually make the switch.  If everyone jumps on the soybean bandwagon will this ultimately leave us short Corn acres or will farmers stick with the norm and continue to plant more corn acres?  Right now it is just too early to call, the beans however are certainly doing all they can to make it more enticing. 

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Quick Thoughts From December 17th 2010

  • I have been told the river in Illinois is still frozen so barges down by St Louis and further South seem to be in higher demand. 
  • There was evidence of China canceling at least four cargoes of beans in the sales data. This should not come as any big surprise, as I have been telling you the Chinese market has drastically slowed the past few weeks. On the flip side there are rumors that are looking at more beans for April delivery from either the US or Brazil.
  • Some rumors are floating around that China officials have order vegetable oil producers to increase production and this might help some with short-term demand. 
  • The CFTC rule change proposals released yesterday could ultimately force up to 80 large grain trading funds to change or alter their strategies, certainly not bullish news, but I doubt it will have any huge bearish impact at this time.  
  • The most recent Commitment of Traders report showed managed funds have trimmed their long position by nearly 100,000 contracts since late September.  This is a much larger set-back than I had thought.  This certainly gives them room to increase their long positions. 
  • A few of the big boys are thinking that China's corn reserves may have actually been drawn down by as much as 45 million tons this year. 
  • I am told Soybeans from Argentina, specifically from Parangua are still cheaper for China than those available in the US.  The good news though is that we are closing in and getting more competitive. 
  • Remember, Informa will be out with their private crop forecast today. In November they had the corn crop estimated to be 12.592 billion bushels and an average yield of 155 bushels per acre. They had estimated soybeans to yield 44 bushels per acre with a total crop of 3.425 billion. If Informa comes in  with lower yields than the USDA's current forecast (Corn 154.3 bushels per acre, and Soybeans at 43.9 bushels per acre) the market will certainly view the news as bullish. I personally doubt Informa will veer far from the mother ship, if so it could certainly catch the market by surprise.
  • More Importantly I want to see Informa's "Acreage Estimates" for 2011.  Remember, their massive corn acreage estimate of 4.9 million sent the corn market spiraling on their last report.  They estimated beans acreage at 1.9 million.  I think we will see them make some changes to these numbers.  If I had to bet I would say they will reduce the corn acres and raise the beans.  They may also lower the wheat acres. 
  • Cattle On Feed report is out at 2:00 today. I am hearing the average "On Feed" estimate is 102.5%, the November "Marketings" around 110% of a year ago, and November "Placements" at 105.1%.
  • There is some worry that Argentina may actually get more rainfall than many traders had originally anticipated, there is also some talk now of another small front coming through between Christmas and New Years. 
  • Overnight Moody's cut Ireland's rating by 5 notches, this seems very extreme and may cause some increased worries and concerns in the EU and cause the outside markets to work against us.

 

 

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An Insiders Look At Tomorrows USDA Report...Corn & Bean Prices???

Dec 09, 2010

Special Update: Dec 9th  

I have had several clients call with additional questions about Friday's USDA report and what to look for specifically in regards to Soybeans & Corn. Hope this gives you additional insight.

 
From what I am hearing most of the big boys are looking for lower corn ending stocks due to an increase in Ethanol production. As of right now the average analyst guess is coming in around 800-810 million bushels. There are a few guys that have stuck their neck on the line and have thrown out a few crazy numbers. The lowest I have heard is around 610 million and the highest is around 875 million.  Anyway you slice it we will be well below last years carryout number of more than 1.700 billion. Yes, I anticipate they will increase the amount of corn they are estimating for ethanol usage, however I am not so sure what they will do with their estimates for corn used for livestock feed.  If you remember back to the "magical" report in the summer were the USDA found the extra bushels and I told you they might wait until the Dec report to take them back out...tomorrow could be the day.  Even though there is no rhyme or reason for it, the USDA could actually take more bushels away from the ending stocks by raising the feed used for Livestock.  They are eventually going to need to catch this number back up. Who knows, maybe we won't see it happen until the Jan report.  I know its tough to imagine considering there is so much available feed wheat both domestically and globally, I just think the USDA might have overdone some things in the past in this area.  It wouldn't surprise me to see them offset the increases in demand though with some type of decrease in exports. Remember this time around the USDA will be focusing on "Demand" we shouldn't see any real US "Production" numbers until the report in January. Ethanol and Feed Usage are the wild cards...
 
Soybeans could be an entirely different bird. Massive exports should more than likely tighten the USDA's domestic carryout estimate.  Most analyst are looking for something in the 160-167 range. It is tough to disagree if you figure during the first three months of the marketing year we have already sold more than 1.200 billion bushels (more than 180 million ahead of last year).  Do you realize that we only need to sell a little more than 365 million to reach the USDA's current estimate of 1.57 billion, I am fairly certain the USDA as well as myself believe we can do this in our sleep.  Therefore they will more than likely adjust the number higher. How much higher...who knows. One thing for certain, if they drop ending stocks below 150, which they could very easily, we will be off to the races. On top of exports many feel the crush number will also rise, putting a "double whammy" on the market. In any event Soybeans look to be more explosive to the upside than does the Corn market, especially considering that ending stocks could fall to the lowest level in years, and the soy stocks to use ratio could fall to the lowest levels in the past 60 years.
 
Knowing just how difficult it can be predicting demand, I have learned that corn tends to be tougher to judge than beans.  For some reason though the USDA generally tends to error to the high side in in their Dec soybean numbers. If the trend continues bean carryout may not fall as low as some believe.  I think a significant cut is already factored into the market...it is going to take a complete shocker to push us substantially higher.     
 
With both markets I prefer to reward higher price action by taking profits off the board and making some small incremental cash sales.  With the funds massively long the trade may be setting up for a proverbial "Buy the rumor, sell the fact" type of action.  Not that I am bearish by any means, I just think between now and the end of the year the funds may look to take some length off the board and bank some additional profits.
 
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Corn, Bean & Wheat Price Direction

Dec 09, 2010

I have had some folks ask if I could post some comments prior to the open, so here goes...If you want to get my FREE information each day prior to the opening bell just follow the link below and get signed up.  There is No Cost & No Obligation.  Hope you enjoy today's comments.  Have a great trading day. 

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  • As I have been mentioning for several sessions, it looks like the Chinese Crush Margins turning negative are starting to slowly weigh on Chinese demand. 
  • In addition the math is starting to slightly favor Brazilian soybeans out into April and May. Bottom line, we are no longer the "low-cost" provider. It looks as if Brazilian beans at Paranagua has taken the title. I am sure there are those that will want to argue that the cheapest source of beans for China is Argentina, they would probably be correct in theory, but from what I hear offers in Argentina are tough to actually fill. 
  • It is refreshing to see the powers that be in Argentina actually lower their corn production estimates to 24 million tons. I personally think it could end up much lower, but at least they are starting to move in the right direction.
  • I have heard that US soybean crushing plants that have not already reduced their crush production are trying to crush as fast as they can on fears that the margins will slip even further into the first of the year. 
  • It was nice to see Iowa's Senator Chuck Grassley come out and say that he is almost certain the ethanol and biodiesel tax credits will get an extension at least through 2011. Remember, he serves and the "Committee of Finance" and could make some people's life a living hell if he gets the shaft on this deal. To me this has been the strongest indication yet of the incentives passing.  Maybe at a reduced rate, but still passing in some capacity. 
  • If your long the corn market you have to be a little concerned that Ethanol margins seem to be slipping more and more.  Reports are that margins in Iowa have fallen $0.05-$0.08 cents in just the past few days alone, and for many in the country are now hovering just slightly above break even. Obviously the fear of expiring tax incentives has the blenders massively concerned.
  • Remember the USDA will release their updated estimates for US and Global stocks on Friday morning at 7:30 CST.  I doubt we will see any type of production or acreage numbers until their "Final Report" issued in January. Traders will be looking for surprises though in ending stocks in both beans and wheat.  The corn market will be looking to see if they actually raise the Ethanol corn demand numbers. there is rumors that they could raise the number by as much as 100 million or higher...this will certainly be the wild card.  
  • Russian Grain Union chief Arkady Zlochevsky made it public knowledge today that Russia will start importing more corn from the Ukraine very quickly. He also mentioned that they may need to eventually import milling quality wheat from Kazakhstan and barley from the EU.
  • Cold weather continues to keep barge freight at higher levels. 
Consider a Basis Contract On Portion Of Your 2010 & 2011 
From what I continue to hear elevators are still trying to lock in corn for April-July.  Many I talk to have descent sales booked for Jan-March.  If farmers look to move grains in unison after the first of the year, the basis could certainly widen back out until supplies begin to tighten back up.  If your basis is at a good level you might track it for a few more days, then pull the trigger.  I just think after the first of the year you might see additional farmer selling.  If you actually need to make some sales make sure you consider a re-ownership strategy of some sort.  
 
Pay Close Attention To China's CPI #'s Released On Saturday.
I mentioned this in yesterday's report, but since many of you din't understand the implications I thought I would paint a more vivid picture for you today. China decided that they would change the date for releasing their upcoming CPI data. The data was scheduled to be released next Monday.  They changed the release date to December 11th.  Why is this so significant?  Just take a look at the calendar.  The 11th is this coming "Saturday".  You guessed it, their markets will be "closed" on the 11th.  I have been in this business a long time and when a country reschedules a significantly important financial report like the Consumer Price Index for the "weekend" it is not going to be a good thing. Obviously the data is going to show us that the economy has not yet cooled. We can already see that as loan data issued form China is showing that new loans topped the government’s forecast of 7.5 trillion yuan ($1.1 trillion) at the end of November. If the CPI is actually as strong as some suggest China is almost certain to implement further measures to cool their domestic economy. In anticipation that China will raise interest rates, instate stiffer personal property tax laws, the Chinese stock market has already fallen significantly during the past few sessions.  Pay attention to Sunday night's open. I am sure the initial reaction will be lower in the commodity markets. The last few times they have done this we have managed to fight our way back, lets hope we can continue the tradition.  
 
Were The Ethanol Grind Numbers Accurate Yesterday
The corn market found strength from the API report that showed the ethanol grind actually increased and set another new record at 939 billion barrels per day. Several of the larger insiders are discounting the numbers as a joke, claiming they are way off, especially after hard data shows margins rapidly falling.  I am not an expert in the area, but those I trust are telling me that there is a very good chance we will see some type of revision issued next week.
 
Are US Soybeans As Good As We Originally Thought?
The US Soybean Quality Survey was released by the American Soybean Association for the 2010 crop. The numbers kind of shocked me as I have been under the contention that our bean qualities are some of the best we have ever seen.  Guess I was wrong...at least according to the ASA. To summarize their data, total protein content was just under 35%. We were higher than that last year.  The soyoil yield was basically the same as last year and not even close to the numbers the had reported in 2008.    
 
Kona Coffee Hit By A Destructive "Bug" 
I still follow and trade the coffee market from time to time, and I have been told by many of my followers that they enjoy reading my report to a cup each morning.  If prices are not already high enough wait until you read this info.  If you consider yourself a coffee connoisseur (which I am not), you probably know that "Kona" coffee grown off the Big Island in Hawaii is to coffee what Napa Valley in California is to wine. It is believed that the elevation of the beans combined with a moderate tropical climate and volcanic rock combines to produce some of the priciest and highest quality coffee beans in the world. Prices have been know to easily exceed $50 a pound.  I am hearing this year we could be double that if they can not get a crazy destructive bug known as the "coffee berry borer" out of the crop. The problem is this bug has never been eradicated anywhere in the world. All you can do is try and control it, killing it completely has been impossible. Some of the insiders are saying if this bug gains hold it has the potential to reduce the Kona coffee yields by a whopping 90%. If you thought prices were high before, wait until this hits the crop. 
 
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The Direction Of Corn, Beans and Wheat Prices

Dec 07, 2010

I very rarely have a chance to post in the mornings, but I have had several readers asking me about this Friday's USDA report and it's implications.  Below I have listed a few stories form my daily report that I thought you might want to read.  If you are not signed up yet and receiving my FREE e-mail updates make certain you get hooked up. There is NO Cost and NO Obligation, just click the link below to get started. 

 

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What To Look For In Friday's USDA Report

I have had several clients call in and question the importance of this Friday's USDA report.  I think I need to clarify a few things for some of you.  No, there will be no yield or production number's released until the January report. This could still be a big report though, so don't discount it as meaningless. I have tried to list what most of the big boys are looking for...hope it helps.

 
They may adjust the amount of corn used for ethanol up anywhere from 50-100 million metric tons. I wouldn't bank on that just yet, if they don't extend the tax credits the USDA is liable to reduce it. This is a tricky one. They could also increase our estimated corn export numbers if they decide to drop Argentina's crop size from 25 million metric tons closer to what others are estimating now could be just 22-23 million metric tons.  They could also raise our exports if they increase Russia's import numbers. Right now they have Russia importing just 1.9, many believe their needs are double this and maybe even higher than that. There is also the Chinese concerns.  Some guys are arguing they could actually drop the feed usage numbers by 25-50 million metric tons given the great quality of this years crop. 
 
As for Soybeans, it is almost a given that the USDA will be forced to raise exports by at least 50 million metric tons, and the crush by 25 million metric tons simply given the current export pace and the high quality of our US beans.  There are rumors and talks the numbers could be much higher, this report could certainly be very bullish for beans.  Yes, we have built in some premium, but it could be a game changer.  Make sure you take advantage of this move in small doses if it occurs.  Don't be afraid to make some cash sales on the moves higher.  With Domestic crush margins struggling now and China's crush turning negative I think it may be tough to sustain the big rallies, just make sure your getting some sales made while the music is still playing.  Longer-term I think we will eventually trade even higher, anticipate the moves to be fast and furious.  Have your plan in place and ready to take action.  My coach always told me..."failure to be prepared is preparing to fail..." My kids hate it when I tell them that now...unfortunately it is very true.
 
Wheat is hard to gauge, because there is so much they could do with their global numbers.  As far as here in the US, the big players are telling me they wouldn't be surprised to see the Hard Red Winter Wheat exports increasing by as much as 50 million metric tons given the significant problems now in Australia.  I am also hearing that the USDA is a little more concerned after seeing the big asian purchases, this is just very uncharacteristic for them this time of year.  
 
It will certainly be interesting to see how it all plays out.  I will continue to play the game from the long side.
 
Why Russia Could Be The Wild Card
A client and I discussed the situation in Russia this past week, and he had no idea of the severity of the issue and what it could eventually mean for grain prices. I thought I would pass along some of the info just in case you have not been staying up on the story. To start with you have to realize that since Russia did away with mostly government owned farms their production in all areas has suffered. Privately held farms just don't have the resources or man power to equal the production of the government ran operations that produced massive supplies back in the 90's. Just another reason traditional communist friends hate the new democratic system. Obviously this years massive drought did not help matters.  I think the USDA and the rest of the world may have massively underestimated just how much grain Russia will ultimately need. Because of the drought the USDA has reduced Russia's total "coarse grain" usage by about 2 million tons, but is estimating their wheat feed usage at more than double.  I understand that the USDA is thinking the drought will cause a reduction in livestock and poultry numbers, but why is the USDA thinking that Russia will feed so much more Wheat than Coarse Grain (corn)?  Russia has never feed more wheat than coarse grains ever, why would they start now...unless they simply don't have hardly any corn.  If that is the case I would have to imagine rather than running the risk of higher death rates and reduced weights in livestock they would simply try and import more corn.  Maybe the USDA is thinking something different, or maybe the USDA knows Russia has lost a substantial amount of corn and doesn't want to sound off the alarms.  Any way you want to slice it I think the drought in Russia is going to strain global supplies more than any of us may have anticipated.  
 
Drought In 2011 Predicted For The Midwest
I heard from a good friend of mine that Elwin Taylor (a well regarded Climatologist) was speaking at a banker sponsored event up in Illinois this past week, and was talking about the possibility of a significant drought in 2011.  For those of you who don't know Elwin, he has been predicting very accurate corn yield estimates for the past 20 years or so. He hit this years estimate right on the button. All of his estimates are based on growing degrees and days from silking to dent stage. Normal time frame from silk to dent is 40 days.  In 2004 corn took 46 days from silk to dent, and he predicted a record corn yield. The corn got 6 extra days to put on weight, and he was correct.  This year corn went from silk to dent in just 32 days. I don't even need to tell you...obviously less time to gain weight and lower yields. It is not rocket science, he simply believes the more days from silk to dent, the more feed or weight the kernel will put on. I heard he also talked about some interesting drought facts.  He supposedly researched tree records going back 800 years, and found the average time between Midwest droughts is around 19 years. The longest time period between any major drought in the Midwest during the last 800 years has been 23 years. You guessed it, 2011 will be exactly 23 years from our last major drought dating back to 1988.  In addition it is believed that 16 out of the last 17 major Midwest droughts have started in the Carolinas the year before and moved their way into the Midwest. As we all know the Carolina's got rocked this year and their yields were very poor. He was also telling guys that any corn crop that is drought stressed (droopy leafs) at the 4 leaf stage will go from16 rows around ear to 12 rows around ear. I don't know if you should take this info to the bank just yet, but I have heard from several sources Mr. Taylor is very good at what he does and his information is considered some of the best.
 
Cornering The Copper Market???
You may have heard some rumors last month that a single buyer had purchased more than $1 billion dollars worth of Copper on the London Metals Exchange...come to find out now it was JP Morgan / Chase.  Do realize this is somewhere around 65% of their entire Copper supply.  In today's world this is an unbelievable purchase. I have heard they were launching their own Copper ETF next year, so this may be part of their plan or strategy behind the massive purchase.  If you remember I thought something was up when they purchased RBS Sempra Commodities for close to $2 billion back in July. This gave them a host of LME warehouses, and a seat in the LME's coveted trading ring.  It also gave their traders a specialist type seat inside the LME's ring of red leather couches, basically a session held for 15 minutes four times a day that allows elite trading firms to negotiate trades face to face, rather than through electronic trading. Just more special treatment for the insiders...Remember J.P. Morgan is one of the LME's 12 so-called category one ring dealers. That means the bank can make markets in the metal and hold it on behalf of its clients. It will be interesting to see how copper prices respond during the next several months, and how JP Morgan comes out in the deal.
 
Gold Continues To Surge Higher
Could we see $2,500 an ounce? I would not be surprised, I am certainly willing to bet we will see $1,500 an ounce in the immediate future. As Jimmy Rogers and others in the business continue to preach that gold could double in price the  market continues to respond by making new highs. You have to believe as investors lose more and more faith in the governments and become more fearful of uncontrolled spending, they will continue to snatch up gold in an aggressive manner. Just take a look at China, they are buying up gold at a record pace. India is doing the same. Investors and countries are becoming more worried each and every day about inflation as we continue to print more money and rationalize excessive bailout programs. Repots show that Beijing has increased their imports of gold by more than five times that of last year. Not to mention China is now the worlds largest producer of gold, so to say the least China is very interested in owning and amassing large quantities of gold. 
 
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Might Be Time To Make Some Cash Sales

Dec 03, 2010

I wanted to make a quick post letting my followers know that I have banked some big profits in Wheat this week and have also made some cash sales in my 2010 and 2011 corn, bean and wheat.

I hope you are getting my daily e-mail updates, if not make sure you get signed up below.  I will try and give you a quick summary of why I am thinking this could be a good time to make a few cash sales and some option plays you could consider. 

I certainly don't think this is the top, but I am concerned about some of the recent developments:

  1. Wheat has made an amazing run higher on fears of massive rains in Australia, also on fears of colder temps in Russia in areas with little or no snow cover.  In addition traders in the EU are worried about possibly getting "oversold"...prices have rallied significantly in an attempt to curtail demand in the EU and add in premium for quality losses in Australia.  The Asian importers who generally look to Australia this time of year are forced to buy from the US.  I have predicting all of the details in the daily reports.  I am now looking to reward the markets and take some big profits off the board. I am hearing the rains in Australia may subside by late this weekend and early next week.  Traders may take a little premium out of the market.  I will now be about 50% sold in 2011.
  2. I am also looking to make some sales in the bean market.  I reported last week that the crush margins in China had fallen negative and the processors had slowed down.  Just yesterday I heard confirmation that the same is happening here in the US.  Processors were living of beans bought back in October and early November, as demand has slipped the margins have pulled back.  Now as they look to buy beans the numbers simply don't pencil, several crushers closed the doors early this week and don't look eager to return until prices subside.  the funds could certainly push us higher, but at some point the margins have to pencil.  Look to reward more rallies next week by getting yourself 15-20% sold.  
  3. I have also been talking to producers about beans that are in the bin.  One great play right now is buying a $13 put to establish your floor and selling (2) July $16 calls to finance the floor.  It is a great play for guys with beans in the bin. If the market rallies to extreme highs you are essential entering an HTA at $16 short the board.  If the market falls apart you have a floor in at $13.  If you need help with this just give us a call. 
  4. Corn certainly has me worried, simply form the sense that exports have not been as good as I would like to have seen.  Don't get me wrong I am still bullish this market I just want to make sure we are able to make some descent cash sales. I am looking to get to 205 sold on the rallies.  One thing you may want to consider for your old crop corn in the bin (similar to the bean play) is buying an at the money put and selling (2) higher up calls.  You can buy a July $5.70 put and sell (2) $7.00 calls for even money.  It gives you a floor and a strong cash sale above $7.00.  You can do the same on any unsold bushels in 2011 by purchasing the Dec 2011 $5.50 puts and selling the Dec 2012  $6.30 calls.  I am just a little worried that ethanol production has slipped and we could lose the blenders tax credit, causing some of the big funds to pull profits off the board.

Reward the market make some small sales or make a play on the board to create an HTA. I provide much more insight and information in my reports...I encourage you to signed up by following the link. 

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