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October 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.

How Much Higher For Corn, Beans & Wheat???

Oct 29, 2010

 If you are long the grain markets or still less than 50% sold for 2010 you may want to consider booking some sales. Yes I am long-term bullish, but you have to reward the market when it makes a nice move. I am also a little nervous that fact that we could see the Feds disappoint the market after their Nov 3rd meeting, simply by doing "nothing".  If they elect not to go through with another round of "quantitative easing" this session, and opt for a "wait-and-see-approach", I feel the knee-jerk reaction by the funds will be to exit commodities across the board. The US Dollar will strengthen and the funds will essentially take their "chips" off-the-table so to speak. The main reason the Fed was proposing another round of easing was to encourage businesses and investors to "buy-now" rather than continuing to believe they can "buy-later" at a cheaper price.  The Fed wanted to spark inflation just enough to jolt the market. They ultimately believe this will encourage growth and help improve the current job situation. The reason I am worried is because I fear they may now do nothing, or at least less than originally anticipated because the fire has already started. They may not need to stoke the inflationary flames. China certainly believes that inflation is on our their door-step.  They have raised their interest rates 0.25% because they are fearful of inflation, they have issued harsh warnings about speculators driving up commodity prices and possibly triggering massive inflation across the board. Japan is worried about the valuation of the Yen now in relationship to the US Dollar, and claims they will continue to intervene if necessary to strengthen the US Dollar in comparison. For the first time in a long time the Durable Goods number was higher than expected, telling me that businesses as a whole are starting to buy more goods in fear of higher prices down the road.  We are seeing new highs in Cotton, Sugar, Silver, Gold and Copper along with much higher prices in Corn, Soybean, Wheat, Cattle, Hogs, etc..The Fed knows they are playing with fire by trying to spark inflation.  The last thing they want to see happen is runaway inflation that would ultimately force them to raise rates.  With our government having so much new stimulus debt on the books, I can't imagine them wanting to see the rates go higher.  Therefore if their original goal was to make the market, the businesses and the World be fearful of inflation and concerned about higher prices down the road, I believe they have done their job.  A good friend of mine once told me "Perception is Everything..." I think the market and the consumers now perceive higher prices coming our direction, which is the ultimate goal of quantitative easing.   With this said I simply can not see the Fed shocking the market by doing more than anticipated. I do not see them buying back more than $500 billion or $1 trillion in debt. I look for their actions to be anticlimactic, ultimately making traders "less" excited and less fearful about "hyper-inflation".  The knee-jerk reaction of the funds will be to take some length out of the commodity markets, and this is where I will be looking to buy the grains. Particularly the deferred Corn contracts. 


Yes we may see a rally going into and through the elections as the market will respond to Republican victories.  The feel on the floor is that if the Republicans gain ground then there is a much better chance of us seeing the ethanol and bio-diesel tax credits approved.  This will give the bulls some additional leverage, but if the Fed disappoints the air will certainly come out of their sales.  After that the market will clearly be awaiting the Nov 9th USDA report.  I am anticipating a bullish report, but you never know what you will get with the USDA numbers.  I am just letting you know if they come out better than expected and do not lower the corn yields significantly and or don't dramatically raise the soybean export numbers this market will be heading lower in a hurry.  I am not trying to scare you, just pointing out the facts.  I think ultimately we will be heading higher in the corn market.  

You may want to use the election rally to price a little more grain.  If the Fed disappoints the fund managers, and the USDA report is Bearish or even Neutral we may see significant pull-backs, taking us another 30-60 days to reach the current levels.  I am just letting you know that if you need to make cash sales during the next couple of months you might want to consider making a portion of them on Tuesdays or Wednesday morning election news. 

I prefer being 60% sold in 2010 corn, 75% sold in 2010 soybeans and about 45% sold in new crop 2011 wheat. New crop corn I would price no more than 20%, new crop beans no more than 30%.  

***Below you will find just a few of the highlights from my reports and commentary from this week. Producers and traders have found the information to be invaluable at helping them predict market direction.  You can receive the Daily Trade & Strategy Reports for FREE each morning by simply clicking the link below. There are no commitments or obligations of any sort.  Many regard the information as some of the best in the industry.  Get signed up today, so you can start receiving the information and commentary as it happens not a day or two later.
 

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Additional Highlights From This Weeks Reports

* We got long March Chicago Wheat on Monday 10/25 @ $7.10 it has been a terrific trade up to this point.  We then secured some of our profits on Friday by selling a March $8.50 calls against them collecting 38 cents in premium.  We currently have over 50 cents of profit in the position ($2,500 per contract).

....Highlights From the 10/28 Report (Friday)

New Record In Ethanol Production...Corn Usage Exploding
Yesterday's ethanol production report showed a new record in production for the month of August.  From what I can gather we produced just over 1.13 billion gallons using just over 400 million bushels of corn...Wow!  This is close to last years USDA number for the year.  On top of that, ethanol stock levels were reported at just under 730 million gallons, making this our lowest stocks on hand since December of 2009. 

China Maybe In the Market For Wheat Now
You heard me right...I said Wheat! There have been some talks from traders in South East Asia that China is looking at importing wheat. The word right now is that they are considering Australia, Canada and the US. I have not heard how much, but China importing any amount of wheat would be unexpected.
 
Hog Prices Could Continue Lower For Another Couple Of Weeks
The downward price action in the hog market has lasted longer than I had anticipated, but I think there is some light at the end of the tunnel.  Right now the market is still focusing on larger supplies and heavier than normal hogs. From everything I hear most of the US pork processing plants are close to full.  There are still a few facilities buying shipments in order to meet slaughter needs, but not very many.  The lack of purchasing has really hurt the cash market, and it has dropped a little more than $15 the past few weeks.  Hogs are simply much heavier than they were at this time last year.  The bigger the hog the more pork you get, plain and simple this is adding to our supplies. They are telling me from out in the field that the hogs are gaining weight much faster than they had anticipated because of this year's higher quality corn, and terrific weather. I have to believe this glut of new supply will have run its course by mid-November.  I am hoping the December contract can find support in the $60-65 range.  I continue to stay short the April $70 put and will be looking to purchase calls on further breaks. 
 
Looking To Buy Cattle On A Pull-Back
There has certainly been a noticeable set-back in domestic demand, I am not really that concerned with it though as I know it is not really all that unusual for this time of year. I do believe the front-end cattle supplies are actually on their way downward.  Front month futures are at a discount to the cash market, and in my opinion will prompt the cattle to move out of the feedlots.  From everything I can see, the front-end supply will be tight as we head into the winter.  Packers should now be able to buy cattle at a slightly cheaper price this week, and maybe even cheaper next week.  I am thinking that we could eventually see the cash fall back to $97-98.  If this happens you should consider trying to buy the Dec contract in the $96-$97 range with profit objective back above $100. 
 
....Highlights From the 10/28 Report (Thursday)
 
Where Will The Acres Come From?
I think this has to be your main question or concern as we move forward. There is no debating the fact that corn will need to add 4-5 million more acres this spring. The problem is Wheat may have taken a large portion of those acres (somewhere in the neighborhood of 3-4 million could be the guess).  If that happens to be the case we are going to see corn and beans start to slug it out as they each try to add more acres to their respective crop. Right now the math just doesn't add up. To get farmers to come up with another 5 million corn acres, December 2011 Corn is going to really need to rally.  I think you may see farmers shy away from planting corn on corn after this years yields, especially if they are looking at $11-$12 beans for harvest next year. The only way it happens is if prices in Dec 2011 corn rally even higher. We also might see the soybean growers in the south plant more cotton at these price levels. I am telling you now when the music stops playing, either corn or beans will be left without a chair. This battle for acreage is why I see very little downside risk in Dec 2011 corn contract.  If your an end user like an ethanol plant, live stock feeder, cereal mill, etc... You had better make certain that you get your corn coverage in place.
 
Could Iowa Corn Yields Fall By 30-40 Bushels?
I heard around the rumor mill today that well respected grain analyst and professor at Iowa State University, Bob Wisner, believes the yields in Iowa could come in 30-40 bushels an acre lower than they were in 2009. This is almost unbelievable considering it could come from one of the US's top corn-producing states.  If we see anything even close to this from the USDA this market will explode.  I think this is a little far reaching, but who am I to suggest he is wrong in his calculations.  Bob's statements have been confirmed by several sources, and his work in the past has always been credible.  It will be interesting in the weeks ahead to see just how accurate he is.  
 
Russia May Be In The Market For Corn
There is starting to be a buzz now that not only China but perhaps even Russia may be inquiring about US corn. From what I can gather traders are a little worried after they heard Russia was trying to barter for 2 million metric tons of Ukraine corn. I am told that Russia wants to trade milling wheat for Ukraine corn, but Ukraine wants cash for the deal rather than giving up their corn.  It’s hard to believe that Russia is actually going to be in the market for additional feed supplies. I personally doubt Russia will be a buyer of any US corn in the near future, but stranger things have certainly happened.
 
From The "Milk Man"...Nik Sutter 
I want to welcome on board a new analyst and producer Nik Sutter.  Nik has joined our team and will be heading up our Dairy Division. Nik is very proactive and has been a highly successful with his cash marketing and hedging strategies during the past several years, and I wanted to bring him on board to help our Dairy producers. If you have any specific Dairy marketing or hedging questions please feel free to call in and we will put you in contact with Nik directly. 
 
Bloomberg published an interesting article this week claiming Milk Futures to be an "Amazing Buying Opportunity". They claim milk futures right now are the cheapest they have been in relationship to corn since June 2009.  In fact during the past three months, milk futures have fallen more than 1% while corn futures have rose by more than 45%.  Some traders are claiming that the milk market could be one of the biggest beneficiaries of the current bull market in grains.  The theory is that investors can make significant returns with less downside risk by buying milk futures at their current levels. On a risk to reward level they may be on to something here.  If you are a speculative trader looking for an "outside" way to play the grains check into milk futures. For our producers who have not yet sold milk for 2011, this recent rally should provide you with a great opportunity to establish a price floor and still participate in upside market movement. I am certainly not saying that you should price 100% of your milk, but I would consider rewarding the markets action by pricing 10-20% at this time. Producers can make the sale on the board by simply buying the July $14.00 Put's, and selling the July $17.00 calls for $0.10 cents to the buy side.  The entire position will cost you a dime and provides you with protection below $14 and a sale at $17.  Using this strategy, you can establish a position each month for July through December 2011 for about $200 per contract. I feel this is one of the more appealing opportunities we have seen thus far to hedge milk for 2011. If you need any more help or assistance in designing a plan for your milk operation just let me know.
 
....Highlights From the 10/27 Report (Wednesday)
 
Getting Paid To Sit And Watch Cattle 
Not a lot of action as of late in the cattle market.  Our play last week recommending selling the calls and the puts is looking good. If you missed the boat you may want to consider selling the December $1.04 calls if the market rallies back up.  We sold them at $0.95 cents and they are now at $0.60.  I am not certain it will happen, but if you get the chance I would recommend taking a shot at it. I have no real interest in being either short or long this market from the current levels. Long below $97 looks inviting and short above $105 would be enticing.  Selling both the calls and puts provides me this opportunity, if neither happens I collect the premium while sitting and patiently waiting for the market to determine it's next move. 
 
What Are We Looking For At The Next Fed Meeting
Obviously the fund traders are highly tuned into the "outside" markets and the price action of the grains the next few weeks will be determined by their actions. Lets take a look at the Nov 3rd FOMC meeting where the market is anticipating Fed Chairman Bernanke to preside over a decision to buy more US backed debt assets in an attempt to increase the rate of inflation and reduce the cost of borrowing in real terms.  I have heard the big boys at Bank of America-Merrill Lynch are estimating the Fed will allocate a total of $1 trillion to the plan, and those in the know at Goldman Sachs think it will be more like $2 trillion before it is all said and done.  Both currently agree that they Fed will more than likely start by announcing an initial commitment of $500 billion after the Nov. 3 meeting.  What the Fed is trying to do is actually increase inflation and reduce the cost of borrowing money.  In essence they are trying to break the current psychology in the marketplace that many seem to have..."Why buy now when I can just sit back and wait for cheaper prices in the future..."  If the Fed can successfully spark inflation and prompt individuals and business to borrow more now in order to buy more now because of fears of higher prices down the road, they believe they will ultimately stimulate job growth, the key part of the equation they have yet to solve. This is a very dangerous game to play, once the inflation fire is stocked it has a chance of eventually burning out of control. If the Fed does not implement "QE2" as anticipated and postpones the plan, you will see the US Dollar gain strength and the Fund Money exit the commodity markets causing prices to fall.  If they allocate more to the plan than anticipated the US Dollar will weaken, more money will flow into the commodity markets and prices will rally.  Pay close attention to this meeting as it will have a direct impact on grain prices next week. 
 
How Much Further Can The US Dollar Fall
As many of you know the weaker the US Dollar becomes the better the chances of exporting US grain and livestock.  I have had many calls as of late asking about how much further I thought the US Dollar could fall. To be honest, I am not really sure. The world is very different right now.  From a technical standpoint you have to believe that we will certainly test the most recent lows established back in 2009 at 74.94, and we may drop even further testing the 2008 low of 72.16. I am certainly not guaranteeing that the US Dollar retreats to new lows, but all signs are pointing in that direction.  A few things that could cause it to rally rather than fall would be a growing domestic economy and reduced federal debt (don't see that happening any time soon).  The Dollar could strengthen if a few of the other global economies fell apart. Traders would look for strength in the US Dollar if they saw China, Brazil, India or Russia begin to struggle.  If inflation becomes such a problem that the Fed has to reverse ship and begin to tighten therefor raising interest rates, you would almost certainly see the US dollar strengthen.  You could also see some short-term knee jerk reactions higher on news of further rate hikes in China, India, Brazil, Russia, etc...This should help give you some downside guidance and things to look for that could cause the Dollar to strengthen.
 
A Technical View Of Corn
I have had several technical questions regarding Corn as of late, lets take a look inside the action.  From everything I hear the trend following funds have been liquidating their corn positions since mid October. Corn futures have only dropped slightly because the commercials have started to take ownership of the crop, and have swapped positions with the trend following funds. Just as I mentioned in wheat yesterday, this type of price consolidation is very bullish in my opinion. I guarantee you the commercials are going to be much stronger longs than the trend following funds would have been. December corn posted a two-year high of $5.88 after the last bullish USDA crop production report, the market has since seen mostly choppy lower sideways action. Regardless of what others might tell you, I think this consolidation is healthy and is natural in long-term bullish markets. Big Bull markets need to take time to breath and digest the fundamental news. I have to believe a test of the recent highs at $5.88 will reignite the fire and the next leg of the bull run will begin. I think this time the market may try and test the $7.00 level. On the downside a major drop below $5.25 would suggest a market top is in place and we may see some additional downside pressure from Fund trying to play the break lower. We may stumble one more time before the Nov 9th report, but I would look to have your purchases and strategies in place before that date.
 
....Highlights From the 10/26 Report (Tuesday)
 
Could Soybean Oil Be Getting Overvalued 
This is an interesting twist but something I think you may want to consider. As most you may know I was extremely bullish Bean Oil for sometime and have made great profits this year trading it on the long side, both outright and spread against soy meal.  I now may have a slight change heart as it compares to soy meal.  Let me explain a little further in detail. First you have to consider that China’s soybean imports in the 2010-2011 marketing year might reach 57-60 million metric tons compared with just over 50 million tons last year. Primarily the gains can be attributed to increase demand from consumption and an increase in crushing capacity. As the crushing margins continue to expand it seems that the crushers are afraid of getting caught short on inventories, therefore we have seen the pace of imports explode.  We know with the increasing demand for meat they are hungry for meal to provide protein for feed.  By increasing their imports and supplies so quickly China may be left with a glut of Soybean Oil in the early summer and or late spring months. Many of you will argue that they continue to import soybean oil, I will agree and say that only escalates my concerns. With Bean Oil now being valued at 42.5% of the crush I think it maybe time to look at reversing ship. I hate to buck the trend, but this may be the time to start considering going long the Meal and short the Bean Oil.

Crude Oil Could Be Stuck In A Range 
I am hearing more and more talk from traders that current crude oil prices simply may be too high to justify current inventory levels. Other traders and money managers may have the same fears as I continue to see more liquidation. In the last six sessions alone open interest in crude oil is down more than 87,000 contracts.  I continue to advise selling the Jan $70 put and the $95 call to play the range.

Hogs Prices Could Tumble Even Further - Traders reacted heavily to the Monthly Cold Storage data and several longs exited the trade on news total pork inventories rose sharply in September. Yes this is bearish news, but I still like hogs to the upside longer-term.  Pork inventories did jump higher, but still remain almost 20% below last years levels, and 12% below the five year average. I am told one of the big reasons for the jump in inventories was because a huge number of hams were put away in cold storage. You have to believe ham inventories most generally increase this time of year in anticipation of the holiday demand, the problem was the increase this September was the highest since 1970. I think the numbers may be a higher than normal partially because Mexico put a 5% tariff on US pork back in August. This had to slow down some of the trade. If you remember back they did this  in retaliation for tougher US truck inspections. I mentioned back then this would have a negative impact at some point on hog prices...well here we are.  I still like selling deep out-of-the-money puts on heavy down days collecting the premium.  Long term I think we are headed back higher. I would be cautious if you are net long the futures market, the ride could get very rough during the next few weeks.

Why I Continue To Preach "Get Long Wheat" ...Technical Trading
I continue to like the March Chicago Wheat Contract.  As you can see form the chart we continue to see increased open interest on price consolidation.  It is believed by many technical guru's that a breakout from a trading range is much stronger if open interest rises during the price consolidation phase (just what we are seeing happen in wheat). This is because many traders will be caught on the wrong side of the market when the breakout finally takes place. When the price moves out of the trading range, these traders are forced to abandon their positions. Some technicians take this rule one step further and say the greater the rise in open interest during the consolidation, the greater the potential for the subsequent move.  Look for major support in the March contract to be in the $6.75 range with longer-term resistance to be up around $7.85. I continue to advise playing this market to the upside.

....Highlights From the 10/25 Report (Monday)
 
I have told you several times that the Russian Drought would affect production for many areas for several years.  Late last week, Russia announced that its winter wheat seeding was down more than 30% from last year and that they were going to need to extended their export ban at least out into July.  I personally think you may eventually see them extend the export ban until 2012.
 
Elevators Urged To Prepare For Higher Prices 
I was sent an e-mail that was being passed around by one of the larger elevators regarding margin and capital requirements for their operations. It read the following, "During the next few months, prepare margin lines for corn to move to $6.50 plus and and beans to move to $14.00 plus. This evolving situation into 2011-2012 will create explosive upside movement. Potentially at times "Out-Of-Control"...Make sure you widen your margins on cash purchases accordingly.
 
Rumors Of China Buying US Corn Will Not Die
As I mentioned in previous reports it simply doesn't pencil right now for China to import US corn, but I continue to hear more and more talk of it being a possibility.  Don't rule this out simply because I said it made no economical sense for China.  They may in fact import US corn if they believe their stock levels have fallen to unsafe levels...regardless of the cost or expense.  The reason I mention this is because I continue to hear more talk that China is taking offers on US corn for delivery out past March. I have not been able to confirm this information with other sources, but the story of China importing US corn is still alive and well.  Don't rule it out.  Understand if they step in early, corn prices will be off to the races.   
 
What The Fund Money Was Doing Last Week
In the reports I had read, the funds increased their net long corn position by more than 2,000 contracts last week to just over 434,500 contracts.  They also increased their net long position in soybeans by almost 18,000 contracts, and are now long about 194,000 contracts. Funds cut their net long position in Soy Oil futures by about 800 contracts and increased their net long position in Soy Meal futures by about a 1,000 contracts.  I am glad we banked our profits in long Oil short Meal, I thought they would start unwinding some as we move towards year end.  I did hear from some good sources that the Funds actually unloaded around 4,000 net long wheat positions last week, and are now net long only about 8,000 contracts. I am telling you now "IF" Wheat ever catches some bullish news and attention, there is certainly room for the funds to come pouring in...be cautious getting caught short this market.
 
Corn Usage For Ethanol Production Could Top 5 Billion Bushels 
Secretary of Ag, during a speech on biofuels, said that Washington will allocate near $500 million for a 15 year payout to stimulate production in order to meet aggressive congressional ethanol mandate targets. Secretary sees ethanol plants dotting the rural landscape and providing a form of welfare for farms grossing less than $250,000 annually. At the moment, ethanol production seems unphased with high prices. October 15 weekly production report showed a new record of more than 880,000 barrels per day. If this pace continues you have to believe annual corn usage for ethanol will be near 5 billion bushels, well above USDA’s current 4.7 billion forecast.
 
Wheat Starting To Be Used As Feed
There are now some talks that durum and soft winter wheat is being fed on the west coast, along with talk of off-grade Canadian wheat looking to move into the US. As wheat continues to loose ground to Corn, you have to believe we will begin to see more of this.
 
Now Is The Time To Buy Wheat  ***Trading Strategy*** 10/25
If you are interested in playing the wheat market you should take a look at the March Chicago Wheat contract.  For a bullish play consider Selling the March $6.50 Puts and Buying the March $8.50 calls @ even money or a slight credit. This position will require margin so make sure you consult with your broker prior to entering. Your downside exposure is wheat closing below the $6.50 strike.  The options have 117 days left on them.  I will be looking to exit the position once I have picked up 30 cents.
 
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Insiders Look At The Corn, Beans & Wheat Markets

Oct 22, 2010

 

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Latest Developments 10/22
  • I have heard from sources close to US exporters that another 2-4 cargoes of soybeans were sold to China.
  • Today is option expiration for the November Corn, Bean & Wheat option contracts. Floor traders are reporting large open interest at $5.60  in Corn and $12.00 in soybeans.
  • The major growing areas of Brazil are expected to continue receiving rain. 
  • Open interest in corn is up almost 80k contracts, and Soybeans 35k contracts during the week.
  • Funds now long 384k Corn contracts, 164k Bean contracts, 77k KC Wheat contracts, and Short 12k Chicago Wheat 
  • A meeting of G20 finance ministers begins today in South Korea. Look for the "Outside Markets" to be somewhat mixed ahead of this meeting. 
  • Ireland is considering 15 billion in austerity budget cuts over the next 4 years, showpng us just how serious the situation has become for some of the EU nations. 
 
I Still Believe Wheat Could Be The Sleeper
Just take a look inside the numbers for each respective crop and their exports on a year to date basis.  We have made export sales of just over 755 million bushels of corn, up about 13% from last year.  We have sold 931 million bushels of soybeans, up about 34% on the year. Wheat has exploded, showing export sales of 693 million bushels, up almost 50% over last year. As more countries restrict wheat exports I am confident the US will continue to see large export wheat numbers in the months ahead. 
 
South American Update
I have heard that most of the planting in western Paraná will finish this week (10-15 days ahead of last year).  Because of threats and fear of La Nina very little corn has been planted. The problem being reported is that when the farmers where purchasing and locking in their inputs beans were simply more profitable. In Brazil once you have the inputs locked in and purchased it is very tough to change crops. I am told the moisture looks to be ok, but the temps are a little cool for beans making the plants grow and germinate more slowly. 
 
China Bean Demand Is Amazing
As of right now the Chinese have taken a record large 19 million metric tons of US soybeans, and we are just 6 weeks into the new crop year. I believe we only exported a total of 23 million metric tons to China in all of last year.  At this pace you could certainly argue that China will purchase over 1 billion bushels of US soybeans this year alone. If this happens the USDA would have to raise the export numbers by at least 100 million bushels and in turn drop the total US soybean stocks by 100 million bushels. 
 
***NEW*** Cattle Trade
From what I am told cash cattle registered their highest cash sale since 2003 out in the southern plains at $102.75. Even though I have been and continue to be extremely bullish, I think we may be getting a little ahead of ourselves and approaching "over-bought" territory, especially from a seasonal perspective. To me it just seems like a very strange time of year to be rallying this much knowing that the retail beef business and wholesale demand here in the US most always slow down some in November. Certainly exports could remain strong, and they have been the past few weeks. I think we once again raised the bar and lifted the trading zone.  I am going to do something a little different and Sell the Dec 104 calls and Sell the Dec 98 puts collecting a total premium of 180.  Essentially agreeing to get long cattle form the 96 range and or short from the upper 105 range. Theses options have less than 45 days until expiration.    
 
Corn Prices In China Trade Above $8 Per Bushel This Week
Corn prices in China set a new record high this week trading up to $8.35 per bushel. I continue to hear all kinds of rumors that China is looking to buy a large chunk of US corn. Some of the floor guys are even telling me that a large quantity of the $5.50 Dec puts being sold are actually coming from the Chinese. I have not been able to verify that information, but I do know for a fact JP Morgan was a huge seller of the puts, and they have been known to have substantial Chinese backing.  
 
My Thoughts Regarding Lower Corn Exports
Logistically speaking how much more corn could we have exported during the past few weeks on top of the record setting bean sales? I reported a couple of weeks ago that sources in China where fearful that US transportation and logistics could not handle much more in light of the massive bean exports and sales they had throw their direction. I think China may have done their homework on this subject, and decided to hold off on any major corn purchases knowing that it would have thrown the US grain market upside down, causing massive delays in shipments and panic type speculation.  I personally believe China will import at least 5 million metric tons of corn (could be much higher). I also believe they know their crop is going to be less than they had anticipated. As I always say "Timing is everything..." China is simply waiting for the right time to begin purchasing US corn. I am thinking once their Bean purchases begin to subside they will look to start purchasing Corn. I have heard reports that this could happen as soon as November or late into March.  Personally I am leaning towards after the first of the year.  I think you will need to see their domestic production tighten.  Right now they have access to a substantial quantity of domestic corn, and the import margin simply doesn't pencil. If they do step in as buyers early in the game it will be because of political reasons, and the government wanting to refill their stockpiles...it certainly won't be for economic reasons.
 
Monday The USDA Will Release Condition Report on US Winter Wheat
Remember that on Monday the USDA will release their first crop condition report for US winter wheat.  I am not anticipating anything earth shattering, but I think it could certainly be lower than last years good-excellent rating of 64% 
 
USDA Promises More Funds To Increase Bio Fuel Production
The USDA Secretary today told members attending a speech today, that the US was committed to allocating more money to help increase the production, distribution and storage of bio fuels.  He also said that he was encouraging congress to extend the Ethanol tax credits and reinstate the tax credits for Bio Diesel. I doubt it will happen, but wouldn't that help push prices even higher if it did... 

US Treasuries May Suffer A Little Set-Back
Most of the market has been anticipating a new policy by the Fed in which they would buy a large portion of notes and bonds if the data warranted ongoing action. In a speech yesterday by the Fed's Bullard, he said he would back a plan that would entail buying just $100 billion of government securities on a meeting-by-meeting basis. This is a far cry from their initial statement that proposed $500 billion in purchases with much more available if needed. This statement is certainly less aggressive than traders had been anticipating, so you have to assume it may move a few players to the sideline. I also anticipate some liquidation ahead of the G20 meeting, the upcoming elections, and the November Fed meeting. 
 
Trade Strategy
End Users & Producers Who Are Oversold should be looking at strategies that involve being short puts and long calls in this market. I continue to like selling the Dec 2011 $4.50 puts and buying the July $7.00 calls @ even money. We have done this trade a few times this week for a slight credit.  In essence you are agreeing to re-own the Dec 2011 corn at $4.50 on the board.  The July calls allow you to participate in the market in the event of an explosive move higher.

Timing Is Everything...Are You In The Right Position For Corn, Beans and Wheat?

Oct 21, 2010
Be In Position Prior To November 1st
I have seen many traders and producers playing around jumping in and out of these markets, some have had success others have gotten stung.  Most tell me they want to be positioned prior to the the November 9th report, but until then they are going to trade the ranges, the technical gaps, etc...Be careful following this type of advice.  Also you need to make certain that if you want to be long these markets you are in position by no later than Friday October 29th. Remember November 2nd is the big election, and the financial markets could cause major concern.  Then immediately following on Nov 3rd the FOMC meeting where everyone is expecting the Fed to introduce more Quantitative Easing, possibly to the tune of $500 billion to $1 trillion.  If that takes place you may see the US Dollar get seriously smacked and commodities across the board jump to an entirely new level. If you are not long yet take a shot on a pull back either this week or next.
 

*As you know timing is everything... especially when it comes to marketing your corn and beans.  I can help you with your market timing. Read a few of highlights from my most recent daily e-mail.  If you would like to receive this type of information on a daily basis make certain you click the link below and get signed up for my FREE Report. The daily Farm Direction report is sent out each day via e-mail, there is NO Cost and NO obligation!

 

 

 

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Cash Strategies 
As I mentioned in the opening paragraph, the first two weeks in November will certainly be one to remember. As a spec you have to be playing the market to the upside. Producers on the other hand need to have a good game plan in place in case the market provides a unique opportunity.  I continue to recommend being 70% sold in your 2010 beans and 65% sold in corn. I have also been recommending you pencil in small incremental 2011 sales at this time.  Be careful and do not get yourself any more than 30% sold in 2011 before March 1st.  These markets simply have too much potential.  I would advise having some type of hedging strategy in place to protect your downside exposure. Those of you who are still not 65% cash sold in 2010 and do not like your basis can consider an HTA or create your own by selling a futures contract on the board. Those that want to make the cash sales and continue to participate in the market should consider a re-ownership strategy such as buying an at-the-money call and selling an-out-of-the money call to reduce the expense.  Your total downside risk is the difference in the two premiums.  For more ways to get your self properly positioned and or hedged prior to November give us a call and we will be happy to give you some ideas and or suggestions.  

Trading Strategy
A couple trades you can consider if you are looking to get long corn. Buy (1) Dec 2011 Corn futures contract and Sell (1) Dec 2011 $6.50 Call @ 40 cents.  With Dec 2011 corn trading at around $5.30, selling the call gives us downside protection to $4.90.  With upside potential on the trade of $1.60.  I really like the long term risk to reward ratio on the position.
 
Ukraine Exports Slowing...US Wheat & Corn Could Gain Export Business
You have to believe wheat and corn prices are going to see more support as the Ukraine curbs grain exports. As you may know, the Ukraine has been a huge supplier of feed wheat to several Asian countries such as South Korea, the Philippines, and Vietnam during the past few years. As Ukraine cuts exports those countries have had to turn their buying intentions to central Europe, Australia and the US. It doesn't help any that several of Ukraine's largest exporters have cancelled orders for thousands of tons of exports. From what I hear Taiwan is now expected to be looking for around 60,000 tons of corn next week. Japan is trying to lock in more supplies for both corn and wheat. Nothing major, but from what I hear it is around 30,000 tons of food wheat and another 30,000 tons of feed wheat. Bangladesh is trying to find another 50,000 tons of wheat to purchase. Everything I have seen is telling me that wheat from Ukraine to Asia has all but stopped. Importers are now looking to switch origins, I am sure they will look to Europe first.  But with Europe also running low on supply and the US trading at a discount we may see substantially more interest in US wheat.
 
Russian Wheat Continues To Struggle 
The Russian winter wheat crop continues to look below average in all reports, From what I see estimates show winter wheat crops for next year's harvest on about 32.8 million acres, that compares with 42.2 million acres on the same date last year.  As I mentioned in reports earlier this summer, the drought would drastically affect even the following years crop...now it looks like it absolutely will.  The bottom line is simply not enough soil moisture. This is why I continue to stay long the KC wheat over the Chicago as I think quality bread-making wheat supplies could get tight as more people realize what is happening on a global scale.
 
Corn Sets New Open Interest Record 
The recent open interest gains in the corn market has been amazing, as of yesterday morning I had heard we unofficial surpassed 1.53 million contracts in total "Open Interest" setting a new record. This surpasses the old record from February 2007. You can see from these numbers that we are heading into uncharted territory. 
 
Soymeal Crush Margins Exploding In China
Exploding feed demand in China is sending soybean meal crush margins through the roof. I know I have mentioned it before, but I wanted to remind you that China now has more than 5.5 times the total number of hogs we have here in the US and only feed about 1.5 times as much soymeal. It doesn't take a rocket scientist to realize that as their meat demand and production efforts grow they will be searching for higher protein feed. You have to believe both Corn & Meal will be the primary beneficiaries 
 
I Like Hogs Longer Term But We May Be In For More Downward Pressure
I sold the April 72 Puts a couple of sessions back, and have seen very little activity.  I held off buying any calls to the upside on fears that we may see more downward pressure.  From what I can gather as more producers shift their feed rations to new-crop corn blends, the hog growth rates are increasing. This in turn is putting a ton of hogs that are now ready for slaughter on the market. I also have to believe producers are pushing them through a little early as to not incur more corn expenses. The problem is the packers are all full, and not willing to raise their bids to get them because there are just so many currently coming in. With hog prices falling the last three weeks, you have to believe producers are really starting to feel it in their wallets. I hope the bleeding will soon come to an end.  The funds are still extremely long and I am a little worried if they decide to exit we could see even a more significant pull-back.  I will be looking to pick up cheap calls on the breaks.
 

*As you know timing is everything... especially when it comes to marketing your corn and beans.  I can help you with your market timing. Read a few of highlights from my most recent daily e-mail.  If you would like to receive this type of information on a daily basis make certain you click the link below and get signed up for my FREE Report. The daily Farm Direction report is sent out each day via e-mail, there is NO Cost and NO obligation!

 

 

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Should You Be Making A Cash Corn & Bean Sale Now

Oct 15, 2010

 I have had several calls this week asking about ways to play the widening basis.  Obviously many of you will be considering using an HTA (Hedge To Arrive) contract.  Simply meaning that you will contract with your local elevator on an agreed upon price but will not set the basis.  As the market heated up the past couple of weeks the basis in many areas has seriously widened.  I had told our clients this would happen several weeks back when the basis was much stronger. Many followed our lead and locked in the basis at those good levels, right now they are very pleased with their results.  For those of you looking to make a sale but hate the current basis, you should certainly consider the HTA.  the only problem is several elevators have stopped offering HTA's with the markets at such extreme levels. I say... Big deal!!! Theoretically you can create your own HTA by simply selling a futures contract on the board.  Essentially you are making a sale of 5,000 bushels per contract at the board price. There is no basis being established with the elevator, making it the same play as an HTA.  We have had some producers call in this week in a bit of a panic when they found out they could no longer do an HTA, all you have to do is sell the futures and you have created your own HTA...Hope this helps.

Below are a few highlights from my report this week.  If you are not already getting the daily updates sent directly to your in-box make certain you get signed up by following the link below. There is NO COST and absolutely NO Obligation.  I thing you will really enjoy it. I provide information and recommendations for cash grain sales, specific basis recommendations, and hedging strategies.  I also provide spec type trade ideas for those that might be interested.  

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Wheat - I personally see very limited downside risk from these levels considering corn and beans stay in strong demand.  I see good support in the Dec Chicago contract in the $6.85-$7.00 range.  On the upside I believe we could see $7.50 before hitting a wall. This gives us a risk to the downside of about 5-15 cents, and profit a potential of 40-50 cents.  If you are just getting to the dance I think the girl you have go with right now is Wheat.  Looks to me like the least amount of risk with a good amount of upside potential. 
Corn - I look for Dec Corn to push higher into the $6.10-$6.25 range.  Heavy technical support seems to be in the $5.30 to $5.55 range. That places our short-term downside risk between 15-40 cents and our upside profit potential between 40 and 65 cents.  Look to add to your long positions on a pull-backs be apprehensive about adding any more length on the rallies.  Be patient, you will get your shots.  
Soybeans - I look for Nov soybeans to push higher into the $12.40-$12.70 range. Support seems to be back in the $11.25 to $11.50 area. In my opinion this gives you short-term upside potential of around 40-70 cents (certainly the most upside potential of the three). Downside risk exposure though could be anywhere from 50 to 75 cents. To me the beans are certainly the "hottest" girl at the dance (providing you with the most upside potential), but I would have to suspect she will be the girl most apt to ruin your entire night of fun (be careful entering the bean market at this level you could see some significant breaks before making the next leg hgiher).
 
The Longer Term Picture
I have been preaching to producers for months not to get oversold, now things are starting to intensify. I am telling you know the acreage battle for 2011-2012 is going to be the story.  In case you weren't paying attention, look at what Cotton did yesterday.  We traded "Limit-Up" 4 cents higher. the options locked "Limit-Up" 8 cents higher. Cotton is now at the highest level since 1995. From what I can gather several of the big exporters might have actually reneged on their sales. That may have left those buyers who where counting on the cotton in a serious pinch. On top of that many of the big boys are saying that China has sold out its cotton reserves and will need to replace supplies. With cotton surging higher I just have a hard time figuring out how corn, beans and wheat are going to gain the acres need in 2011-2012 to accommodate demand and replenish the shrinking stock levels. *** This is why I continue to stay bullish the grains. The only place I can see these markets going longer-term is higher.  Yes, there could  be some significant set-backs along the way, but I have to believe higher prices are in our future.
 
Do Not Panic About The "Basis" Just Yet
Many of my followers have called in during the past few days concerned about the recent weakness in the basis. Yes, I have warned you that in highly volatile markets you will see the basis widen as elevators and end users become increasingly more concerned about capital requirements needed to hold hedge positions on the board. Not to mention we are in the heat of harvest. I think this time around things might be a little different, I certainly hope I am right on this. I believe once we start to work our way through the harvest supply, you may actually see the basis snap back some in most areas. 
 
What I Am Hearing About Global Weather Problems 
Extremely dry weather continues to worry producers in the Western Australian wheat areas, and more  dry weather is forecast for this area during the next week to ten days. In my opinion South American weather has changed very little since my last report, and despite what others want to report there are adequate rains forecast for the next 10-14 days allowing wide spread planting. I am telling you now the the South American weather forecast has vastly improved. We may certainly see La Nina cause some weather problems down the road, but this time around I believe the story will be put to rest by late next week.
 
Consider Buying The Pigs
The hog market has suffered a major set-back, I believe it will be very short lived, if you have been waiting for an opportunity to get long this market you may want to consider getting started. Several of the big livestock dealers are reporting that many of the large pork processing plants are almost completely full for this week and next week. The buying stations are thought to be drastically lowering their quotes to either stop or slow the deliveries. There is just simply no where to place additional hogs for at least a couple of weeks. Basically producers dropped a glut of of slaughter-ready hogs on the market due to profitable prices, fear of higher corn, and a large number of contracted loads tied to the October lean hog futures contract. I firmly believe that continued weakness in the US dollar and poor breeding numbers will ultimately cause prices to rally. I personally believe the recent jump in corn prices may cause some producers to reduce their breeding herds even further. ***I think you have to be a buyer on the breaks and look to sell out-of-the-money Puts and buy out-of-the-money calls. I think there is significant upside potential in this market. 
 
Silver Could Make A Big Jump Very Soon 
We have all heard for years about the massive short silver position JP Morgan has on the books. I have often wondered if it was purely rumors and speculation or if it really existed. The plot looks like it may be starting to thicken. I hate to speculate or even report on rumors, but this is just getting too good to let slip by.  From what I am told JP Morgan's "Super-Star Silver Queen", Blythe Masters, may be in a very serious jam. The word on the street is that she could be caught short 150M oz of COMEX silver, and may have already lost over $900M during the past 60 days on a mark-to-market basis. Keep in mind this more than likely is just their COMEX short positions and not all of the other silver derivatives they have shorted. When they go to unwind these short trades, or are forced to unwind all at once, the market may explode higher. If this story is true this could be huge, we are approaching the 6 month position limit implementation deadline. If the CFTC steps in and forces their hand it could get nuts.  The market looks like it may have already been tipped off by the recent trade action and explosive move to higher ground on anticipation...I am certainly glad I am on the right side of this freight train. *** We continue to recommend being long silver and adding to your positions on the breaks.  If you are just now looking to initiate a new position, be prepared for an extremely rocky ride. 
 
A Must Read Regarding Ethanol & Corn Demand 
As I had anticipated the EPA approved increasing the Ethanol blend rate from 10% up to 15%.  This came as no real big surprise, but could be huge for corn producers long-term.  I am also hearing rumors that rather than doing away with the tax credit all together for ethanol producers, they may just reduce it to 25 or 30 cents per gallon, rather than the 45 cents per gallon they currently receive.  Did you you know that Ethanol margins have actually been improving the past few weeks? I had no idea. I figured they where getting worse and really starting to suffer with rising corn costs. In actuality it has been just the opposite. On the global front I now hear that US based ethanol is the cheapest on the planet, and is now the world leader. Brazilian Ethanol today was priced as high as $2.91 per gallon, US ethanol from the Gulf area is priced just below $2.40. The reports show that the Sugar market has risen significantly higher than corn and has now allowed the US to become the leader in the global market. With US ethanol cheap to world buyers, and profits being made by the producers the demand for corn doesn't look like it will slow anytime real soon.  Look for corn price to continue higher. With ethanol prices here in the US being 50 cents under Brazil it leaves me to believe we are at least 50 cents away from that happening. Keep your eye on Sugar prices and watch the spread for inside edge.  

 

If You Are Oversold & Looking For Re-Ownership
I have had several clients that due to shortages in production and too many early sales have found them selves oversold in the corn market. Many have rolled the sales forward to 2011 and would like to somehow re-own. Yesterday we placed on a position that you may want to consider if you are in a similar situation.  We Sold the Dec 11 $4.50 Puts and Purchased the May $6.80 calls at a slight credit.  Our producers are ok with re-owning the corn if prices fall back below $4.50, and the $7.00 calls will give them upside potential into the acreage battle. If prices stay in this zone it cost the producer nothing, any rally in price from here will produce profits.  If prices fall back the producer will re-own at $4.50 on the board.  Margin on the position yesterday was running around $1,100 to carry.  

Soybean Prices Might Need A Rest Before Moving Higher

With Bean harvest starting to wind down in the east, I am hearing that some of the processors and elevators are full and others are getting close to being full. There seems to be some problems in the shipping, and from what I can gather trucks are being restricted in certain areas. The markets still continue to pay the elevators a significant carry to hold beans until December. Soybeans are certainly coming in by the truck loads, we will just have to see if this market can support this much on hand supply. My hunch is that as the cheaper western soymeal is taken to the east coast there simply may not be enough continued export demand to support it all. Especially now that China has opened back up the door to Argentina. I am not saying the run is over, just that beans could cool off at some point during the next few sessions if we don't see continued export demand. Things have been great up to this point, how they play out during the coming could get a little sketchy. You may see the bean market take a rest and follow both corn and wheat before starting another leg higher.

  

Cattle Call

Traders see the need for 2011 contracts to rally to give feedlots the incentive to place more cattle onto feedlots as corn continues to rally and provides an incentive for feedlots to avoid new placements. The estimated cattle slaughter came in at 129,000 head yesterday which was higher than expected. Normally, this would be seen as a sign that packer demand is strong but some traders may be fearful that the higher slaughter pace could be the result of higher corn prices. This brings the total for the week so far to 259,000 head, up from 255,000 last week at this time and up from 247,000 a year ago.


Look For Opportunities If They Substantially Break Bean Oil

I am hearing from many sources that China will officially be lifting it's ban on soybean oil from Argentina. As I have been reporting, China has been in a real pissing match with Argentina and had banned two of their largest state owned oilseed and grain companies from importing any Soybean Oil from Argentina. From what I am told both Cofco Ltd. (China's largest grain trader), and China Grain Reserves Corp. are now cleared to import bean oil. I have heard they have even taken it one step further and will be allowing Argentina bean oil to clear customs even if it fails to meet the limit on solvent residues.  I think China needs bean oil, how about you? Obviously the market will absorb the new supply as bearish, but I think longer-term it only solidifies my theory that global bean oil demand is surging.  If they beat up the oil during the next several sessions in comparison to the meal I will not be afraid to step back in.  I will keep you updated.  

 

The Battle For Acres Will Direct Prices 
I personal believe all of the "smart-money" is very concerned about the supply outlook for 2011-2012.  There is absolutely no questioning the fact that more acres will be needed.  Not just more Corn acres, I am talking about more acres for all of the big crops. I am hearing talks now that we may need 12 million more acres of just corn, beans and wheat planted just get our stocks back to acceptable levels, and meet export demands. The battle for the acres will ultimately hold all of our answers about price and long-term market direction. This battle will continue to keep the big boys in the market and on the edge of their seats for the next several months.  This is also why I think price will continue to stay elevated through the winter. As the cards start to play out in March or April you may see the markets pull back one by one, until then there are just too many variables. 

Livestock Will Ultimately Trade Higher  I think we will ultimately need to see higher meat and poultry prices so the producers can stay afloat and keep pace with shrinking margins on higher corn costs.  Several well respected traders are now telling me that they anticipate meat prices to continue higher even though we are already trading at almost 30-year highs. The thought is simple, with corn and soymeal prices skyrocketing, very few producers will look to expand their herds. That could be a real "pinch" considering the US cattle herd in July was already the smallest on record dating back to 1973, and our total number of breeding hogs last month were reported at one of the lowest levels ever. You can continue to wait to buy breaks in this market, but you may miss the bus. I have been pricing orders for weeks in the Dec contract between $95 and $96 and just never seem to be able to get filled.  I hate to chase it, but we may not have a choice. Our only hope now is that we see the cash cattle or beef markets soften a bit...I am just not sure what will cause it at this point. Everyone is telling me that forward booking interest for the holiday season is fairly strong, and if there is going to be any set-backs it probably won’t happen until November.  If you are long-term bullish this market like I am you may want to consider selling Puts @ the $95 level in the Dec and collecting the premium.  If the market breaks and trades through our strike we are long from $95 and will be holding the position for a longer-term play. If you are looking for more time head out in to the April contract. You can apply the same strategy in Hogs.  I think we are ultimately headed to test the 1996 highs up around 90 cents a pound. 

Cash Marketing Talk: I have had a lot of producers call in lately asking about marketing strategies for 2011.  Our updated and revised "Cash Marketing & Strategy Guide" will be available at the end of the week or first of next week.  For those that have never seen it, make sure you request a copy, I have had some really positive feedback.     

Those of you itching to pull the trigger for 2011 you may consider dipping a toe in the water, but I would be apprehensive.  Personally we are still 0% sold in corn and beans for 2011, we are about 20% sold in wheat.  Make sure you start small with the intentions of having NO more than 30-40% priced by April in Corn and or Beans. I wouldn't suggest pricing anymore than 5-10% of your total estimated production at this time. I really don't like the thought of pricing any just yet, but if you must do it in small doses. If you are using HTA's make certain to note the basis. If you are pricing corn consider locking the basis, for beans you may want to wait until things start to tighten up.  I like pricing wheat a little more aggressively than corn and beans at this time, but still in very small doses....

As you may or may not know we provide specific detailed cash strategies and recommendations for all of our "producers".  We understand that each operation is unique, and we do not believe in taking a "cookie-cutter" approach. We realize cash flow models, and objectives for each producer vary in nature. I would love to have the opportunity to help you design a plan that fits your individual needs. I wanted to give you some ideas and thoughts about our current cash marketing strategies. If you want us to help advise you with all of your cash sales we provide the service for $600 annually up front, and $600 due at the end-of the year only if you are happy with the results. Give us a call if you would like to discuss the details or have any questions.

Cotton Continues To Surge Higher: Traders continue to worry about the tight ending stock situation, and that fact that producers and those holding long futures positions are still reluctant to sell. this market is really getting squeezed. Even thought the USDA's Crop Production and supply and demand report was nothing to write home about, the previous day's Export Sales report was very bullish. Reports showed export sales for the week at nearly 4 1/2 times the average needed to reach the USDA's current export estimates. On the year we have already sold almost 65% of the amount the USDA had projected. On a normally year we would be about half that far along.  Obviously the USDA is going to have to revise their export projections, and this will even further escalate the tight ending stocks situation. I have to believe with this many sales occurring while we are making new 15-year highs only means that we are heading higher. Continued export purchases will continue to shrink our stock levels even further.  For now the ending stocks are at 2.7 million bales. I have to believe we will quickly be below 2.5 million in a hurry.  They have recently raised the yields here in the US by 2 pounds to 841, but this was counter-balanced by a 500,000 bale reduction in beginning stocks. You have to believe with the other grains making new highs cotton will have a tough time  finding a way to pick up the acres needed to meet the demand (I am thinking it needs 2-3 million acres). I think you have to start looking at the 1995 highs to be the next stop for cotton.  Don't be surprised if you see the market trade above 115.00 during the coming sessions. 

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The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

Understanding The New Marketing Game & How To Make Profits

Oct 13, 2010

 Here is an interesting fact you need to consider. Both Corn & Soybeans set new records in trading volume during Monday's session. Corn traded slightly more than 570,000 contracts (thats 2.85 Billion bushels) that is more than 1/5 of the entire US corn production traded just in one day (unbelievable). Soybeans traded almost 367,000 contracts, blowing the old soybean volume record out of the water by more than 70,0000 contracts set back in April of 2008. You still believe those who say the game hasn't changed, or those that continue to market and hedge using strategies developed 5 years ago. Those days are gone, and will never return. The volume is here to stay and is only going to increase. You have no choice but to get on board,or be left behind...this train is leaving the station.

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Don't Fall Asleep On Wheat... The Next Bull Story
Everyone is playing the La Nina card, and there is certainly reason for their concern. Personally though I am just not sold on the severe dryness story. I think it could be a suckers bet, these areas are very tropical, we have seen this before. Yes it will push plantings back, but I don't see it affecting yields until we get a few more weeks of no rain.  There are already reports of scattered rain in several of the areas in question, so I just don't see it as of yet.  What I do see developing though is a story about Russian wheat acres. I know, I have been preaching for weeks that wheat was the dog of the group, and we have made great profits trading it that way. Now, I think we may need to alter our plan. Sure we may leave some profits on the table, but as I have learned through the years picking the tops and bottoms is no way to bank profits.  We have picked up over $1.20 in our corn and bean calls against the wheat, lets bank it and move on. What I am concerned about is the fact that some players I regard as "in-the-know" are telling me that only about 40% of the entire area seeded has seen good germination, the other 60% of the crop is anywhere from spotty to zero germination. You have to believe as Russia heads deeper into winter, crop abandonment and winter kill may be much much higher than most would anticipate.  Not to mention that the long Corn short Wheat play is approaching a top. I just see very little downside from here in wheat regardless. Maybe that is why I have changed my opinion, the risk to reward is looking better and better each day. The funds could pour a ton more long positions into the wheat market and it could race in a hurry. In addition if they start to ration more corn you have to think it will only naturally push a percentage of the feed grain demand over to wheat.

*I like being long the March KC wheat contract.  You could consider selling the Chicago $9.00 calls against the long KC futures to get a 25 cent bump.  If they both trade up and into the money through expiration, I believe the KC will gain on the Chicago, so why not collect the premium.  it also gives us a little help on a break. Cash marketers should be no more than 20-40% sold in 2011. Look for supplies to tighten after the new year.

I Hope You Are Watching The Basis: We had been reporting some significant improvements in the basis just a few weeks back, now we are starting to see them ease on the recent bull move higher.  Basis was down a penny for corn and down around 3 cents for soybeans at the Gulf. You have to believe the current harvest, and several days of dry weather is putting more supplies in the pipeline.  If traders really start to push the front months higher your basis could certainly widen.  For those still looking at a positive basis or a break-even I would consider locking a portion of your sales. 

Ethanol 
I have been asked about the ethanol credit and blend increase several times this past week, so I thought I would provide my view once again on the issue. Yes, I think the US will  approve an ethanol blend increase from 10% to 15%.  I think this will happen sooner than later, possibly within the next 30-days, and certainly before year-end. The 45 cent per gallon ethanol blenders' credit is an entirely  different story. I honestly doubt the credit will pass. It expires on Dec 31st of this year, and just seems to have too many opponents. With corn prices at seriously high levels, and the thought of loosing more bushels to create fuel just doesn't seem to sit well with the masses. If Crude Oil was trading above $100 a barrel you may see more concerns.  Now that corn prices have skyrocketed and we have ample crude oil supplies I think it will be tough to get it sold. In typical government fashion they will pass the measure to increase the blend ratio, but cut the incentives. It seems to get votes you need to oppose government spending (ie. ethanol incentives), and you need to be concerned about global population and world food shortages (ie. using food for fuel will not get you many votes).  Politicians love to ride the fence.  They will try and please both sides by granting the increase in ratio, but taking away the credits. 

You Have To Be In Position To Capture The Move
The way these markets are trading has greatly changed just in the past couple of  years. The global economy is much more fragile than it was in 2008, and you have to believe both the end users and the creditors are much more concerned about risk associated with the markets and how they can mitigate it. With this in mind I am a little concerned that we may see a massive spike in prices over a very short period of time. If creditors or end users start to panic you could see major scrambling, first higher then immediately lower. I am talking about a spike that could push Corn to over $8 or $9 then back down in the $6 range in the blink of an eye.  We could level off back in that area where we may trade for a rather long period of time before it all gets sorted out. I am not sure we are that point just yet, but you need to have a game plan in place if you have any hope of capturing this move.  I think we are going to be at these levels for a longer period than most may think, but the meat of the move I think will happen fast and feverishly, acting more like a "weather" market, than a supply and demand issue.   

Inside China
I have heard from several sources that China has raised their minimum purchase price for 2011 wheat and soybeans. They raised their ordinary class wheat to $7.53, up 45 cents a bushel.  They also raised their soybean purchase price to $15.40 per bushel. Sources in China are also reporting that they have raised their import expectations for soybeans in October by almost 30% (from 3.3 to 4.2 million metric tons). Soybean demand from China is starting to look like a bottomless pit...I see no real signs of easing or slowing down in the cards. If they have any set-backs in corn who knows where this market will end up. One final note is that China is now officially the world’s largest consumer of energy, just as with beans there looks to be no real end in sight regarding their demand for crude oil either. With Chinese auto sales up almost 20% in Sept you have to only assume they are just getting revved up.  
  

What The Hell Is QE2?
If you watch CNBC or the financial channels all you hear is talk about "QE2".  QE is now referred to as Quantitative Easing.  QE2 is the US governments sequel to the ever popular block buster hit QE1. Basically in the first production back in 2009 the Federal Reserve playing the lead roll purchased $300 Billion of US Treasuries.  This was such a big hit we now have the sequel (QE2) scheduled to debut later this month or early next. This time around though the Federal reserve will raise the stakes and buy $500 billion of US Treasuries, and as a teaser they are threatening to buy even more. This info is coming straight from Goldman.  Remember, Goldman is one of the few select primary dealers that trade directly with the Fed. I have to believe they are on the inside track. This is nothing that the big players have not already been banking on, as they have driven our two-year yields to record lows on fears that the Fed will continue to buy more Treasuries as it battles to keep borrowing costs as low as possible. Some are now saying that the Fed may be forced to hold interest rates at the current low levels until 2015 or even beyond. Be very careful shorting the Treasury markets, I know they look very overdone to the upside, but this market has broke many players trying to short it, being on the opposite side of the guys running the printing press could get very costly. 

What You Need To Know To In Order To Make Profits
I must sound like a broken record, but this business is about making money, not about simply being right.  This is where it gets very tricky, and certainly a conversation I have had several times with clients the past several days. As Kenny Rogers once sang, "You got to know when to hold'em...and know when to fold'em..."Lets just look at corn and beans for an example: I certainly believe corn will work hard to get into the $6.25 to $6.50 range fairly quickly, and that soybeans will trade at a 2:1 ratio if not higher ($12.50-$13.50). The tougher part is how do we capture that move with out loosing a significant amount of capital in the process.  We have to respect the fact that these markets are going to be extremely volatile.  With that said you have to understand there are going to be many violent moves, both higher and lower. These moves will certainly test our convictions and our commitments to the positions. These types of markets make it next to impossible to predict short-term market direction. We both know and understand that the market is trying to find price levels that will ration and slow demand. We may go up 50 cents in corn only to find there is very little if any buying interest for days. The market will violently fall back until support steps back in. This type of action could play out for weeks and even months before it finds stability.  If you get over-extended you could easily get shaken out of your positions. Even though we have a very good idea of where we are headed we have to respect the market and its ability to knock us out of the game in the blink of an eye.  If you need help building a strategy or have questions about getting too over-expsosed please feel free to call our offices (816) 322-9800.

Trading Strategy
Last week we initiated 2 new positions in which we sold March $8.00 Chicago Wheat Calls, and used the premium to purchase March $5.50 Corn Calls, and Jan 1160 Bean Calls at a credit.  Obviously the trade has exploded and worked well in our favor. We have been buying small increments of KC wheat on dips to offset a portion of the short wheat calls but we still have some outstanding short Chicago wheat expose.  I am now recommending that we adjust the position by buying back any portion of the Chicago wheat that is not covered by the long KC wheat.  We have taken over 30 cents out of the Corn/Wheat options and another 40 cents out of the Bean/Wheat options, we should reward the market by unloading the wheat options.  Those wanting to protect and off-set some of their net long exposure, may want to consider selling the March $7.00 Corn calls against 50% of the $5.50 calls that where purchased  last week, also do the same in beans by selling the Jan $14 Bean calls.  This should ease the pain on days when the market breaks, but still provide you with huge upside potential. 

To start receiving our FREE Daily Trade & Strategy Report just click the link below.  There is NO COST & NO Obligation of any sort.  This information is helping producers everywhere improve their cash marketing results and hedging performance.  I have include a few samples of today's report.

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The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

When To Sell Your Corn, Beans and Wheat

Oct 09, 2010

I hope those of you who have religiously followed my post have been acting on our information and now have a great position in the grain markets.

I took a lot of heat from some of the other advisory services when I was preaching "Do Not Get Over-Sold" back when corn had fallen below $4.00.  

I held my ground and now have our clients in fantastic positions, with no more than 60% cash corn and beans sold in 2010, and still ZERO% sold for 2011.

I have some specific cash sale recommendations coming out next week for 2011 that you won't want to miss.  Be sure you sign up for my FREE Daily grain marketing report to get all of the inside scoop. 

Our research team has been predicting this type of explosive action for weeks now. The numbers simply did not pencil. Finally the USDA, and now the market is responding.

Free Ag Hedge Daily Trade Report (click this link to sign up) 

What Happens From Here...When Do I Sell?

We are now looking at the tightest stocks to use ratio in corn since 1996.  We went from them predicting the largest bumper crop on record, to one of the worst in the past fifteen years. The decline in corn yields today have to be the largest cuts I have ever seen at this point in the game. The kicker is I am not even certain we have seen seen the end of the cuts.  In years that production estimates were cut in both Sept and Oct, we generally see more cuts and further declines from October forward. I personally wouldn't be surprised to see yields fall below 150 before all he smoke clears and dust settles. Everyone laughed at me eight weeks ago when I was talking about a 155 yield, now here we are. 

You need to really focus on the long term affects of today's report, and assume rationing of corn is going to be inevitable.  For that to happen we have to assume global grain prices will rise significantly to curtail demand. How high prices will need to go to slow demand will be the big question. After todays report you have to acknowledge the fact that the US and global corn stocks-to-use ratio has fallen to almost 15%, and is now at the 2nd lowest levels since the mid 70’s.  With continued global growth in corn ethanol demand, and expanding feed use to meet the growing demand of global meat consumption I am just not sure where the cuts are going to come from.  I can not envision the price price level in which demand will actually start to slow down...I am hearing now the magic number in corn will be closer to $6.50-$7.00 rather than $5.50 we had been thinking in the past. 

I am going to be a little more apprehensive with soybeans, and urge you to do the same. Be cautious and don't get blindly bullish. Make smart sales as the market provides opportunity. Remember the USDA has a tendency to make the soybean crop a little large as we move from October forward, just the opposite of corn. We may get some additional help though before year end if the USDA realizes soybean acres lost may have actually been grater than the 0.7 million acres they are predicting.  If you figure corn and wheat are going to gain a total 8.8 mil acres, I just think we may ultimately hear that beans have lost well over 1 million acres. If thats the case, even if yields improve slightly another big reduction in total acres planted will take us even lower. I still don't have a great handle on the total acres planted number just yet, but have a hunch beans may have lost more than they are estimating. 

 

A for wheat I still believe the hard wheat will continue to gain on the soft wheat. I have been think that our wheat exports would lag expectations, but now I am starting to sing a different tune as the US Dollar continues to weaken, and all of my contacts in Europe are almost certain they will be running out of exportable wheat in the next couple of months, leaving all eyes looking at the US for their wheat imports.  Our wheat carryover number has also shrank and is looking more manageable.  Wheat exports could be significant after the first of the year, and could ultimately cause the markets to push even higher. Until then I still believe Corn will lead the way. 

If you are still not long or continue to be over-bought, you need to be looking for buying opportunities as the funds will ultimately need to exit a large portion of their longs to book profits prior to year-end.  If South American weather starts to improve we may see large profit taking in soybeans and another buying opportunity as we break. Wheat could fall back as well on lack of large exports during the next few weeks, If this happens I would look to get long the KC Hard Red Winter contract over the Chicago. 

From everyone I have spoke with on the floor, there are still over 165k contracts in corn not filled. I am told a few large players may have been caught significantly short, and had stops at the monthly highs which prevented them from being able to exit their trades today.  I am also hearing that many traders are expecting thousands of more orders to flood the markets Sunday night. Right now the synthetics have us trading at least 38 cents higher than our limit up finish in corn.  Don't forget the corn limits expand to 45 cents on Monday. I am fairly certain you will see them trade limit-up.  Beans are trading just 11-12 higher in the synthetics after finishing up 70 cents in today's action. Wheat is just a few cents higher. It wouldn't surprise me to ultimately see wheat trade lower Sunday night or sometime on Monday.  

Hope this helps bring you up to speed.  Make sure you give me a call if you want our help with your cash marketing next year. In the mean time be sure and get signed up for my Free Daily Report. 

 

Each report is jammed pack full of market commentary and daily market strategies direct from the trading floor. There is NO COST or obligation and the report is e-mailed directly to you each day. Just follow this link to our website and sign up for free. 
 
Free Ag Hedge Daily Trade Report (click this link to sign up)
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

 

Capture The Price Moves In Corn & Beans

Oct 07, 2010

I thought I would post one of our daily reports so everyone could get a better idea of what type of information we put out. Below is today's report 10-7-10.  Remember we send out the reports for FREE and do our best to help producers first and foremost with their cash marketing. Many clients use our research to help them time their cash sales while keeping their current advisory relationship in place.   I know we can add some real value to your current team.

Sign up for FREE by following the link at the bottom of the report.  Hang on for a wild ride tomorrow, the fun all gets under way at 7:30am CST following the USDA report.  

AG HEDGE Daily Strategy Report & Commentary 10/7/2010

Are We Heading For The Next Big Bull Commodity Cycle

Some of the big boys are now starting to argue that commodities are a win-win for investors. Their thoughts are that if the economy weakens the Fed will be certain to print more money. We know if this happens it will  devalue the US Dollar and money will move into hard assets like commodities. On the other hand, if the global economy recovers and shows additional strength, commodity price will also go higher on thoughts that global demand will be increasing.  You have others buying up commodities as protection against the effects of inflation, as currencies around the globe become more devalued. 

Check Your Basis

I am hearing from more of our clients that the interior Corn basis is really starting to tighten. Rumors in Illinois are starting to circulate that some are offering 20 cents over. The bottom line is that processors and exporters have been forced to bid up prices to obtain needed supply. Normally, we will see the cash well below the futures this time of year. I am even hearing now that corn is being bid at six cents over December for December delivery in Lincoln, Nebraska. You have to believe the recent setback tested the market to see if demand was actually strong enough to justify higher prices. I think the response from the basis answers the question. I would be very careful if you are short the December contract and spread long against the back months. If this situation continues you should see the Dec contract gain significantly on the deferred months.
 
Gasoline Price May See A Jump
We are now into our 9th consecutive day of the French refinery worker's strike, I am now hearing that it might soon start to affect production to some degree. Strikers are still up in arms regarding the French government's pension reform measures. Reports indicate they are currently sitting on about one weeks worth of supplies, if the strike goes past that point it could certainly start to cause concerns for higher gasoline prices.
 
Growing Corn Demand From China Certain
I am now hearing reports out of China that the corn crop may not live up to recent expectations. In addition we are now actually getting confirmation that China, because of its growing livestock production and needs for animal feed, will continue to buy more U.S. corn in the years to come, this comes in a report released by the US Grains Council...not just a rumor! The report says China will import between 2-3 million metric tons of corn during this next marketing year from the US. The US Grain Councils President and Chief Executive Tom Dorr has now released statements that China's imports from the US will continue to grow each year, and could peak out in 2015 at 15 million tons. One of the national grain directors in China was quoted by sources as being concerned about a tight supply-and-demand situation as they move forward. From what I am hearing from reliable sources is that China will produce about 158 million tons of corn this year. The USDA thought China would produce about 166 million tons. The 158 number is still higher than last years crop of 155 million tons but certainly less than they had been anticipating. 
 
Estimates For The USDA Report
Corn - Average corn estimates are coming in lower at around 159.9 bushel per acre yield. Traders are also anticipating a rise in ending stocks to around 1.172 billion.
Beans- Average soybean estimates are coming in slightly higher at around 45 bushels per acre. Traders think ending stocks will be down some to around 337 million. Most also believe the USDA will raise export numbers by 20-30 million for beans. 
Wheat - Traders are looking for ending stock in wheat to come in around 873 million bushels, that is down from the 902 million reported earlier.  For wheat though more important numbers will be an estimate for the Australian crop and the forecast for Russian plantings. As of right now both are expected to be down from the last report. 
 
Shipments To China
Global soybean shipments to China last month totaled around 2.825 million tonnes. That is more than double last years amount which totaled 1.227 tonnes shipped in September. Just look at these numbers I found in a recent report that showed total Chinese Soybean imports for the last three years. 2008: 37,815,686  2009: 41.094,825  2010: 50,613,657 they just continue to import more each and every year. 
 
Two Sides Of The Story In Soymeal
First of all you need to know world soymeal shipments in September were up over 30% from last year. Some of it can be explained by the shortfall in Europe rapeseed output.  Asian demand has to also be picking up some, and you cant rule out the short wheat crop.  All of this sounds bullish as can be, but there is one problem. Demand for US soymeal is terrible. In fact US soymeal sales are now down by about 40% from last year. The bottom line is we can not compete with Argentina. They are offering soymeal well below our levels. The real kicker is they are now offering the meal clear out through the March shipment. I think traders here in the US where hoping Argentina would run dry by December and the US would get some of that action, right now that just doesn't look to be the case. 
 
Soybeans Struggling To Attract Buyers
The recent drop in soybean prices attracted some buyers early on the break this past week, but then things have fizzled out. The barge market has been fairly quiet, the Oct was bid at 58 over and looking for an offer. Farmers continue to roll with harvest, but slowed down their cash sales on the lower prices. Cash bids in Illinois are still anywhere from 5-25 under, while I am hearing in Ohio and Indian it could be as far out as 40-50 under. The foreign export business as well as others seem much more interested in buying corn at these levels than they do beans right now. I think with good yields forecast there is no real sign of immediate concern.  This market is totally going to be driven by planting and growing problems in South America. 
 
The South America Soybean Situation
I have received tons of information and reports from traders and individuals concerned about the lack of rain in Brazil. Yes Brazil is dry, yes they are behind two-three weeks in planting now, but from all of my sources on the ground they continue to be confident that beans will get seeded and the rains are coming. From what I am hearing now forecasters are calling for large rains during the last two weeks in October. If that rain doesn't hit, things will certainly start to heat up in the bean market. Right now though there is more concern about when the new crop beans will start to come to market after the significant delays. Generally beans coming from the North are available for export in late Jan or early Feb, while beans from the South generally hit the market in March sometime.  I am now hearing that things could get real tricky because of the delays. Locals are telling us that the beans from the center west could be arriving at the same time as those from the south hit the market. This could be a big pinch logistically for South America and cause some serious delays in getting the beans exported. Many feel that if this starts to happen big players like China will simply go with the US beans rather than risking delayed shipments and internal shortages causing massive price rallies.  
 
Ethanol Credits Closer To Passing 
I heard some additional rumors that the 45 cent ethanol blend credit was more than likely going to get a one year extension from the government. This would be big for the corn market. 
 
Trade Strategy
If you are looking for a low cost way to get bullish corn and beans you may want to  consider the following trade. It certainly does not come without any associated risk, but I like the potential.  The play basically puts us Long Corn & Beans against Short Chicago Wheat. You could make the play in the futures, but I believe we have found a better way to make the play. Go out in the March Chicago Wheat contract and sell the $8.00 calls. Once you are filled use the premium collected to purchase a March $5.50 Corn Call. You should be able to do the trade at a slight credit to help pay for your cost (basically a free trade).  Why I like the trade, is because you can position yourself just 50 cents out of the money in corn and be $1.00 out of the money in wheat. If we project the trade forward and assume wheat trades penny for penny higher with corn, we could potentially earn 50 cents ($2,500) per contract on a free trade. If corn gains on wheat during the next few months (which I personally believe will happen) then we could gain even more. If we are dead wrong and both markets break lower...we lose nothing...not  even fees or commissions. The risk though is unlimited beyond the $8.00 strike if wheat decides to take off and corn does nothing. Certainly that could happen, but I think wheat planting in Russia is moving along at an improved pace, wheat planting here in the US is adequate (a little dry in areas), and world supplies at this time seem to be in good shape. During the next few weeks or months I simply think corn and beans will continue to lead and be the story that drives the markets. 
 
If you can stomach a riskier trade you may want to also consider Selling the March $8.00 Chicago Wheat Calls and Buying the January $11.60 Soybean Calls.  This gets you about 90 cents away in the beans and $1.00 out in the wheat.  Beans will generally trade 2-1 against the beans, so if we run higher the Jan bean calls could explode. The additional risk is obviously in selling the "March" wheat and buying the "Feb" beans. You will more than likely need to exit this trade before expiration. The additional time value of the wheat could cause this trade to be a little trickier to manage than the corn. It has bigger potential, but with it comes additional risk.  
 
Let us know if you need any help designing a strategy or want to know more information about these programs (816) 322-9800. 
 
If you want to receive or daily commentary and specific marketing strategies be sure to get signed up for our FREE Daily Report. There is absolutely NO Commitments and No Obligations for the service.   
 
Each report is jammed pack full of market commentary and daily market strategies direct from the trading floor. There is NO COST or obligation and the report is e-mailed directly to you each day. Just follow this link to our website and sign up for free. 
 
Free Ag Hedge Daily Trade Report (click this link to sign up)
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

 

Why This Could Be A Good Time To Make A Cash Sale

Oct 04, 2010

We have had several producers as of late calling in and telling us the basis in their area is starting to tighten.  For those of you that want to free up some cash and make some sales, now might be a terrific time. If the basis is good in your area, you might want to consider pulling the trigger and using any number of strategies to re-own the board. We have put together some great plans for guys today. The massive pressure to the downside has taken a huge amount out of the "Call" premiums...If the basis is right in your area you can sell the cash and re-own the board at a great ratio. 

Let us know if you need any help designing a strategy or want to know more information about these programs (816) 322-9800. 
 
If you want to receive or daily commentary and specific marketing strategies be sure to get signed up for our FREE Daily Report. There is absolutely NO Commitments and No Obligations for the service.   
 
Each report is jammed pack full of market commentary and daily market strategies direct from the trading floor. There is NO COST or obligation and the report is e-mailed directly to you each day. Just follow this link to our website and sign up for free. 
 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.

What Will Affect Corn, Bean & Wheat Price This Week

Oct 03, 2010
I just wanted to give everyone a quick update as we prepare for another wild week ahead. These markets could be setting up just like they did in 2007 right before the big move higher.
 
If you want more detailed information and strategies about this development be sure to sign up for my FREE daily report. I have some great information coming out this week that you wont want to miss!  
  • The dryness in South America has broke and more rain is now in the forecast.
  • Russian wheat plantings are gaining ground but still well behind schedule. 
  • After the close on Friday FC Stone estimated the final corn yield would be just above 159 bushels per acre.  They also estimated soybeans would come in with a record setting yield of 45.8 bushels per acre. 
  • Informa believes we will see a record reduction in planted beans acres from the USDA.
  • Ethanol approval to 15% could happen in the next few weeks.
  • The funds are still long a huge number of grain contracts, and have just in the past few days started unwinding some of their long grain positions.  Reports are that they where net sellers of 45,000 corn contracts at the end of the week, but still sit massively long.
  • Funds are now actually short Chicago wheat by over 1000 contracts and long the KC wheat contract by more than 80000 contracts.
The bulls have certainly taken a major step back and will be looking for coverage as we head into Friday’s USDA report. Be sure to read all of my commentary this week to stay on top the action. Sign up for my FREE REPORT below.
 

If you would like more information about our cash sales strategies or hedging programs please call our home office at (816) 322-9800.

 

If you want to receive or daily commentary and specific marketing strategies be sure to get signed up for our FREE Daily Report. There is absolutely NO Commitments and No Obligations for the service.   
 
Each report is jammed pack full of market commentary and daily market strategies direct from the trading floor. There is NO COST or obligation and the report is e-mailed directly to you each day. Just follow this link to our website and sign up for free. 
 
 
The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.
 

 

Where Do Corn Prices Go From Here???

Oct 01, 2010

 Well, I certainly predicted a wild ride...and that is exactly what we have had. Obviously yesterdays USDA report rocked the markets much harder than I personally had anticipated. I knew we would be heavily lower today after the USDA came out defending their numbers in such a bold fashion.  Having been around grain trade most of my professional career, I can assure you there is no real concerted effort to segregate corn by into old crop or new crop piles for survey purposes. Most everyone I know simply reports what there grain balance sheet is on a specified survey date...period!  Now the USDA may want to believe that all of their fancy forms and equations are being put to good use, and have worked to prevent co-mingling, but I strongly doubt it.  

 

I know some traders who are viciously crying "foul" by the USDA, but personally I understand the number. I don't like the number, but I understand their reasoning. I think it will take until Jan before we see it all shake out. At that time we might see corn stocks come in several hundred million bushels below the average trade guess as it did back in 2007, validating both their 3rd and 4th quarter stocks reports. 

Also you have to believe that by showing an extra 300 million bushels in this report they can justify cutting yields by about 3.7 bushels per acre in the October report without shocking the market. The reduction in yields will be off-set by the rise in ending stocks.

 

Regardless of what I believe or how I feel the funds have obviously gotten nervous and headed for the exit doors in large numbers. I have heard some heavy hitters like Goldman Sachs and a few of the other big players stepped in as buying on the break. Who knows if they are in it for the short rebound higher or looking to add more long positions. I would suggest the later as just three weeks ago Goldman released a detailed report and moved their Corn price objective closer to $6. 

Understand the USDA number was much much larger than anyone was anticipating (300 million higher). In fact it showed our ending corn supplies to now be almost 20% higher than most analyst estimates. If you look at it as a % it is very significant. My argument still is of that 300 million bushel rise, 200-250 had to come from the new crop production. Production last year was so extremely delayed that there was absolutely no possibility of co-mingling. This year we had between 500-800 million bushels harvested by Sept 1st. I find it next to impossible to believe there was no co-mingling. Most in the know actually tell me that a majority of the new crop corn was being blended in with old crop stocks to make it look better.

Here is even a better one, if you take the Sept 1st stocks figure at face value, 4th quarter feed demand was stated at just above 500 million bushels, this down almost a whopping 25% from last year, and would now be the 2nd lowest on record since 1950. How could that have been the case? It is clear to me now that the USDA has had one heck of a time trying to figure out on feed usage. In the 1st quarter they had feed up 3% from last year. With the release of March 1 stocks, 2nd quarter feed usage it was down 14% from last year. They followed that up June 1st by telling us it was now up 36% from last year.  Now we are way back down...are they serious. I thought their argument just 3 months ago was that the low test weight corn was forcing significantly higher livestock feeding...I wonder what the story is today???  

I could continue to argue the fact until I was blue in the face, regardless the market has suffered a significant set-back. 

The report has really hurt us short-term and certainly made a significant impact.  To make it easy to understand, the USDA basically just added another 4 bushels per acre to the yield, by adding more than 300 million bushels to our stockpile. The problem now becomes if the USDA lowers our corn yield 2-3 bushels in next Friday's report we will still be above the 1 billion bushel level that everyone has been so worried about. The way it sits now we will only see historically tight supplies if the yield falls below 160 bushels per acre. 

I certainly believe that is possible and in fact believe the yield realistically could be more like 150 bushels per acre. I am just not sure the USDA will let that happen. When the largest buyers of beans and corn are also the largest buyers of US Treasuries, it only reasons that by reducing the price they have to pay to feed their country the more money they will have available to purchase US Debt. We keep Bean prices under wraps and China has more money available to buy 30 Year Treasuries.  I hate to think this way, but what can you use to explain numbers drastically changing like they have. 

The markets have provide us with some fantastic opportunities, and we have managed to make some terrific cash sales for our clients along the way. We have also locked in a fantastic floor for our producers who continue to follow our hedge recommendations. I think spec traders can anticipate taking technical heat back into the $4.50-$4.25 range. We still believe there is tremendous value in corn long-term. 

Anticipate another wild ride next week as all eyes fall upon Friday's USDA report.  If you would like more information about our cash sales strategies or hedging programs please call our home office at (816) 322-9800.

 

 

Ethanol & Corn Prices 

There is no debating that ethanol production has driven corn prices higher. There looks to be no slowing it down either. In a recent report released by the EIA it showed July US ethanol production up more than 3% from June's production levels, and easily setting a new monthly production record. We also set another new record, with average daily production coming in at 36 million gallons. How does all of this affect corn? You guessed it, a new record in total corn usage, the report showed the implied grind in July was over 400 million bushels. This information has some big traders worried that the USDA's 2009/10 total corn usage for ethanol maybe too low, even with the 35 million bushel increase that was added in early September. Do you realize that through July, the total amount of corn used for ethanol has been 4.149 billion bushels, up almost 25% from last year. 

Many traders have been aware of the production increases, but this is something I hadn't realized, at least to that extent. Despite the record production in July, our monthly ethanol stocks have actually declined for the second consecutive month. We now have just under 750 million gallons (basically 20 days of usage), our lowest absolute stocks level since December 2009. We basically have dropped 10% in our total stocks level in just the last two months despite the record production. This means demand has exceeded production in both of the past two months. From what I can gather our annualized ethanol demand has grown to around 13.6 billion gallons, and our annualized production is estimated to be around 13.1 billion. Don't get crazily excited and race out and buy more corn just yet.  I know for a fact that demand during the past couple of weeks has slowed due to ethanol's sharp price rise relative to gasoline. Corn was racing higher and crude was falling lower. You do have to take notice of this information and realize that at some price level corn has significant support from the explosive demand of Ethanol.  If crude starts to trade significantly higher, ethanol demand could really push corn prices. 

I believe in the past there was still a lot of apprehension about ethanol usage. After seeing these type of demand numbers you have to believe ethanol is being more widely accepted and used in more applications. 

On The Global Front  

More rains in Russia are encouraging farmers to plant more winter wheat. I also think some of the supply fears in wheat have eased a little bit as importers have gotten a better grasp of how much grain is available. Recent rains in Russia are raising hopes the country will harvest a decent winter wheat crop next year. To be more specific I have heard their plantings are up almost 20% from last week. From what I hear the weather is looking much better throughout Russia. The problem is they are getting down to the wire in regards to the most optimal time to plant.  The Ukraine looks to be right on target for winter grain plantings, and have had no significant delays. The weather has shaped up nicely in India as well, in fact I have heard monsoon rainfall may now be the best since 2007. India is projecting another record crop for rice, corn, cotton and oilseeds  Keep your eye on India to step into the exporting game on more news of record yields, look for them to test the markets with excess soy meal and corn. 

Wheat Planting Here In The US 

Wheat planting here in the US heading into this week is thought to be around 33% completed, that is about 5% below the average for this time of year. From what I am told most all of the eastern Midwest still needs some significant rain to make it all happen.

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The comments and information above belong to Kevin Van Trump, Ag Hedge, and their team of professional trade analyst. The information is believed to be reliable but no guarantee either written or implied is being made. Hedging and or Investing in derivatives, futures or options may not be suited for all producers or investors. This information is solely a recap of theories and strategies being used by Ag Hedge and or it's team of trade analyst. Any investment or hedge decisions that you make are solely your responsibility. Please consult with your licensed advisor and read the entire "Risk Disclosure" statement before you consider using any of the above mentioned strategies or trading techniques.
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