Sep 20, 2014
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October 2011 Archive for Current Marketing Thoughts

RSS By: Kevin Van Trump, AgWeb.com

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

Looking Ahead to Next Week in the Grains

Oct 28, 2011

After the smoke has cleared from this crazy week, we find beans down 18 cents in the November contract, so I wanted to address this issue for a second. I am making some adjustments to my long-term ratings for Soybeans, if you aren't getting my free daily report, sign-up to get all of my ratings for row crops and livestock.  I know many of you are probably thinking I should be raising the ratings for soy, especially with the new rhetoric flying around that China will soon be upping their soybean imports closer to 60 million metric tons...which (just for the record) I am highly skeptical of. The reality is, I believe China has a real hunger for South American soy and is looking to enhance that relationship as much as possible. Point being, China will take as much of their business to Brazil as they can. With around 60% of total US demand going to exports, and crush margins lagging both domestically and abroad, I just have a hard time being really bullish soybean prices at this juncture. I feel the current USDA export number at 1.375 billion, and the USDA crush estimate of 1.635 billion could both be too high. Do you realize shipments for the marketing year are down over 30%, meal sales are down 10% and soybean oil sales are down by more than 70% compared to last year.  Certainly if we were to see some type of weather related issues in South America my stance would have to change abruptly...

 
 
In terms of my wheat ratings, I am thinking about changing it as well. My thoughts are that even though the acres here in the US are getting planted, the drought could eventually dig even deeper into the heart of our US wheat producers.  I will say I am slightly more bullish the "higher protein" wheat, but I am also wondering how the "money flow" situation building in the Chicago wheat contract will turn out.  I know everybody and their brother are short the CBOT wheat market, so could there be a short-covering rally?  I still feel as if wheat is going to try and stay competitive with corn as we move forward.  
 
In terms of Corn, I explain in much greater detail the questions that need to be answered and where my new ratings are in my daily report...
 
With mighty "Money" up to bat and the US equities and metals both rising at the same time, some are thinking we will soon start to see the "Inflation" gods once again banging their drum. How this all plays out is anyone's guess at this stage of the game. If inflation takes off, the governments will be in no position to raise rates or make the payments on the debt because of the fragile set of economic circumstances in the world today. I am not one to buy into doom-and-gloom, or hyper-inflation especially as we are set to witness the greatest October in US Stock history, but we certainly need to be digesting all of the new cards that have been thrown onto the table. Anticipate extremes in both directions, but look for the grains and soy markets to remain trapped in a range for the next 60-90 days with the edge now going to bullish "money-flow."  
 
If you would like more help with making cash sales and taking a long-term view of the market, we'd like to help you.  We have a lot of good cash sales and hedges on the books for the farmers we work with.  If you would like to learn more about us CLICK HERE to Sign-up. 
 

 

Bulls are Running But for How Long?

Oct 27, 2011

When we came in this morning, the overnights were already having somewhat of a party as European officials agreed to increase the firepower of their current bail-out fund by providing risk insurance to new bonds issued by struggling eurozone countries.  This among a few other stabilizing moves had the bulls up and ready to run in anticipation of US markets opening.  Also, if you happen to read my daily report, you know all eyes were on US GDP numbers this morning.  Most in the trade expected them to show about 2.3% growth for 2011, but the number released actually showed a jump to 2.5% which had the bulls rallying big time as the stock market saw green across the board.  The S&P 500 index moved pass 1,200 to finish the day around 1,281, a huge move as traders are piling the risk back on.  To understand the strength in the market as of late, the S&P has risen 13% from October 3 when the index came within 1% of a bear market. 

My gut is telling me that "managed money" is now looking at US equities as one of the safest bets on the table. With US companies continuing to show stronger earnings, and having slimmed down their payrolls and expenses extensively in the past fews years this seems as if it could be a safer play than investing in the alternatives. Do you want to throw money at the European bond market as they continue to go further in debt? How about investing in the US treasury market? Do you want to buy US farm land after this massive run higher? Do you want to invest in commodities with thoughts that China could in fact be slowing? My point is, with massive money on the sideline and the desire and need to get invested, the larger players may choose what they deem to be the lesser of all evils "US Stocks."

 

If you would like to know how this will affect Corn, Soybean and Wheat prices, sign up to take my full daily report.  It’s easy to sign-up and free Click HERE.  I will tell you that I am going to continue to play the game conservatively from the bullish side of the fence.  I do like the story in corn and think it has a bright future...  My thoughts are simply that the bullish and bearish fundamentals seem to be offsetting one another these days...

Is China the Answer for European Debt Woes?

Oct 26, 2011

 

The European Debt issues seem to be the dominating news currently as I am now hearing rumors that China may get involved in the ESFS.  Will that bring enough confidence to get traders excited and get the market back on track?  Not sure yet, but it could.  You have to believe all parties will come to some type of agreement that will implement swift bank recapitalization, a final solution to bailing out Greece, and specifics for addressing the problems arising in Italy, Spain, Portugal, etc... Traders will quickly be looking to see the overall size of the EFSF, and in particular how much it will be leveraged. Estimates are all over the board, but many are expecting the current 450 billion Euro plan could jump to 1-3 trillion Euros. The other big question will be how much of the Greek debt is going to be wiped off the slate, will it be 20%, 40% or 60% like some have been estimating.  My concern is that if the European banks are forced to eat 60-70% of the Greek debt, and move the losses right to their bottom line, how much of their extended lines of credit will they need to reel in to accommodate the losses.  It would be substantial.  
 
From a more traditional fundamental perspective, grain and soy traders are trying to digest more "bearish" news. To begin with we could turn to rumors that Japan may have in fact purchased a couple of cargoes of Ukraine corn, which would be the first such purchase made in over a year. From what I am hearing Ukraine plans to harvest a record corn crop that could approach 20 million tons, yielding global corn exports of up to 12 million tons. On top of this there are rumors that Japan is planning on buying more cargoes of corn from Ukrainian. It may not mean much to the trade as of yet, but I promise if our top corn buyer starts to snatch up several hundred thousand tons of Ukraine corn the market will be shocked.
 
There was also some negative soybean news floating around the trade yesterday when well respected South American crop consultant Dr. Michael Cordonnier raised his estimate of the Brazilian corn crop by 1 million metric ton from 74 to 75 MMT. He says he has a positive bias toward the crop as the early onset of rains has made for very good planting conditions for nearly all of the major soybean areas of Brazil. Remember, this is coming on the heels of rumors that corn production in Brazil could jump by 3-4 million metric tons.
 
My thoughts for the next 30-60 days are that positive news out of Europe could be met with increased "money-flow" into commodities as a whole, and therefore a "risk-on" type environment could ultimately push grain and soy prices higher.  I continue to believe we will be range bound with upside potential no better than the downside risk at this juncture. The "outside" markets will drive price direction for the next two weeks, then we will be staring down the barrel of the November USDA report (due out Nov 9th).  
 
If you would like more timely information on issues that deal directly with your cash sales, I have many more details and numbers that are included in the daily "Farm Direction" report, so make sure you are getting your copy each day. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.
 
 

Must Read: US Farmland Values

Oct 24, 2011

The FDIC is convinced there's a bubble brewing in "Farmland." With prices continuing to skyrocket it is becoming tougher and tougher to debate. Three Federal Reserve banks regulate almost three-quarters of the nation's 2,144 farm banks. From what I am told, examiners at the regional Fed banks and the Federal Deposit Insurance Corp. are now heavily scrutinizing the lending standards, concentration levels, and loan documentation and risk management practices in the rural banks. It is really no wonder, when you consider values were 20% higher in the second quarter than a year ago in the district of the Kansas City Fed, which includes Nebraska and oversees 614 agriculture banks. The Chicago Fed, which oversees 538 banks, reported a 17% increase for the same period in its district, the most since the 1970s. Non- irrigated farmland in the Minneapolis Fed district, which oversees 393 banks, reported an increase of almost 14%. These types of gains are being looked at as real concern, and many, like Yale economist Robert Shiller have called Farmland his "dark-horse bubble candidate for the next decade." The big question is what happens if a "Black Swan" type event pops up, or several at one time hit the market? What happens if a massive drought sets in and provides the producers with fewer bushels? What happens if government subsidies are cut? What happens if government biofuel mandates are lifted? What happens if inflation and interest rates take off? What happens if global demand begins to slow? What would happen if crop prices fell by half? As of right now there are really no concerns, especially as The Department of Agriculture recently reported that farm income will jump by more than 30% this year to a record $103.6 billion. The big question is what happens if and when the money dries up. Many influential players, like former Kansas City Fed President Thomas Hoenig, believe "low interest rates" really pose the biggest threat. Hoenig is adamantly against keeping rates at or near zero for any "extended period" of time, as he feels it could lead to a serious build-up of future imbalances, such as "asset bubbles." His prediction of a national housing bubble in 2005 was dead on. Essentially regulators missed the risks in residential and commercial real estate that led to a financial crisis, the longest and deepest recession since the Great Depression, 9.1% unemployment and nearly 400 bank failures since 2008. The concern is that low rates for any extend amount of time allows investors to take advantage of the program and promotes "hot-money" flowing into select asset classes more so than normal. The point is if rates were not this cheap, then the competition for the land would not be so aggressive. Hoenig certainly speaks form experience, as he joined the Kansas City Fed in 1973 as an economist in the banking supervision area, just as farm prices started climbing and then later collapsed. In the early 1980s the bubble burst and land prices notched annual drops of more than 10% in four of the next five years. The aftermath forced thousands of farms into foreclosure, pushed small towns to the brink of depression and brought down 347 banks in the Kansas City Fed's district from 1982 to 1992. Memories of the 1970s bubble and bust seem to be making regulators much more nervous, especially after seeing the damage done by the recent Housing Bubble bursting. By comparison though, at the peak of the housing bubble, real estate prices were rising 17% year-over-year, and to me it just doesn't seem like it's the same set of circumstances. In a survey at the end of 2010, lenders reported to the Kansas City Fed that loans were between 50-90% of the value of the land, with an average of just over 70%. As we have known for years, higher "loan-to-value" ratios certainly pose much greater risk to lenders. Compare this to the numbers reported in 2006 that showed more than 40% of US housing borrowers had actually put "no-money-down" for loans. That is a loan-to-value ratio of 100%, which is much higher than the 70% ratio farmland is currently at. With this being the case, I personally don't see us in a "bubble" as of yet. Are we heading that direction...without a doubt! My main concern is that if the pension funds and other "investors" in farmland start to stumble they will quickly be looking to sell. The only reason they will be looking to sell is if the "producers" who are renting the ground are unable to make the high cash rents work. If that is the case then you have to also figure the "producer" who couldn't pay the high cash rent is struggling himself. Therefore when the "investor" goes to sell the land who will be the buyer. The investor can't get the land to pencil, because crop prices are in the tank, and the producer has no money due to the same reason. Even though I love the though of owning more ground, we need to start being cautious up at these levels. 

For more information on these numbers and the potential effect on the bottomline of your business, make sure you are getting your free copy of the daily report. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.

 

 

How Much Will a Chinese Slow Down Affect Grain Demand?

Oct 20, 2011

 

I wanted to touch on something with you producers, the belief that a slow down in China will have no real affect on overall soybean or corn demand, but rather only be geared towards a setback in "industrial materials." This is what many analyst are writing and actually telling their customers, be careful with this.  To some extent I agree with this analogy, but let's look a little deeper into the trade. Yes, Copper, Crude Oil and Soybean imports have fallen from their pace set in 2010. Falling import data, overcapacity in the real-estate sector and fading demand for Chinese goods abroad, has many analysts speculating some tough times are ahead for China. Again, I’m not saying we should panic, but even a moderation in growth is troubling and worrisome for the global commodity markets, as traders have been "placing large bets" for months on Chinese demand continuing to rise rapidly over the coming years. In terms of demand for soybeans, I--along with many other analysts-- highly doubt structural growth or demand will take much of a hit despite setbacks in exports and real estate...people still need to eat! We have talked in length about the population shifts and rise of the "middle class," higher incomes and the demand for  higher protein diets. In my opinion, despite China's ripples, this transformation will continue to take place...regardless. The big story therefore is obviously industrial materials and energy use, not corn and soybeans. However, after years of China gobbling up resources including copper, gold, aluminum and oil, commodity bulls are starting to get nervous about even the slightest sign or reduction in the Chinese appetite. Commodity producers really can’t rely on another big government stimulus like the one that China used to boost demand back in 2009. Higher inflation (or fear of creating even higher inflation) and massive debt now on the books in many areas will limit Beijing’s ability to alter monetary policy. Again, this is definitely something the larger players are watching, so we have to carefully keep our eye on Chinese demand as we move forward. Even though I highly doubt it will affect overall "long-term" corn and soybean demand, we have to realize fund traders liquidating positions or scaling back in other markets may force reallocations and therefore spill over over and directly affect the corn and soybean markets. My point is, don't believe the analyst who are telling you a slow down in China will not affect corn and soybeans. As we have learned during the past few years, these markets are all highly correlated in some capacity or another. Fundamentally the corn and soybean picture may not actually change one iota, but as large traders adjust their portfolios, corn and soybeans may helplessly fall victim. In these waters, just remember,  no one market is insulated or safe from ancillary market destruction.
 

Are We Getting Closer to a "Risk On" Move in the Markets?

Oct 17, 2011

The grains fought hard amid continued European debt fears, with December corn and wheat finishing just barely positive and November soybeans down a substantial 17 cents to 1253. Many are asking if we are getting close to a "risk on" type of environment. With the G20 meeting happening this week, I am hearing that officials from all over the world are putting pressure on Europe to immediately find a solution and plan for its problems. If it can come up with a comprehensive plan, maybe we can get this ordeal behind us and move on...but that is still a big MAYBE. We have many other unanswered questions that must be taken care of as well: China’s slowing growth, the stability of the Japanese economy, U.S. debt and employment concerns, etc. These things are all indications as to whether or not we can again put some "risk on" and move prices higher in the grain and livestock markets.  

As far as the corn market is concerned, producers have to be somewhat enthused by the fact we have rallied by almost 70 cents from last Monday's low of around $5.72. There were also more rumors being thrown around on Friday that China was back in the U.S. corn market. I have heard no confirmation or specific numbers, but it certainly helps build our "demand" story. We also had Informa releasing preliminary estimates for 2012 U.S. corn plantings; if you aren’t getting our report, we go more in-depth on this and what it will mean to prices next year.  
 
Similar to the corn market, it was nice to see soybean prices bounce back last week (up over $1.10 from last week's lows); I just hope we can maintain the momentum. There seem to be a lot of analysts who have their sights fixated on that $13.00 mark; I am just not sure demand or production news will be enough to hold us there for very long. Not only am I concerned about more acres, but I continue to be concerned about overall soy sales. Just a month into the marketing year, we are already 25% behind last year's pace. Not to mention meal sales are down close to 15% and soybean oil sales are down close to 90%. Yes, there are some thoughts that the soybean oil ending stocks numbers estimated by USDA are too low when compared to the recent NOPA crush data, but as of this morning, the market obviously doesn't seem to care. I am of the belief that if we are going to see soy mount any type of real rally, it is going to need serious help from the "outside" markets; right now, I just don't think it can climb the hill on its own merit.
 
Another big question is the U.S. economic numbers released this week (PPI, CPI, Housing Starts, etc.). For more information on these numbers and their effect on grain and livestock prices, make sure you are getting your free copy of the daily report. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.

What Questions Should Producers and End Users Be Asking?

Oct 13, 2011

 

In typical fashion, the USDA yesterday gave bullish news by reducing the US corn crop, but took it right back by raising the global stockpiles. I am of the belief right now that you can rearrange these cards and make them work if you are either a bear or bull, it just depends on what set of glasses you have on when you are looking at the data. As many of you know, I primarily deal with producers, end users and long-term investors, and I continue to like the long-term growth potential in the agricultural markets and view substantial breaks as buying opportunities for the end users and times to hunker down and take advantage of your storage for the producers. I am fairly certain the sun will shine again on these markets; the larger players simply need some time to readjust their positions and take it all in...be patient and continue to wait a little further break to be a buyer. If you are a producer and you are looking for some help on the marketing side of your operation, feel free to take my free report.  We have some terrific cash sales on the books and good hedges currently in place.  

 

 

So what do producers and end users need to be watching right now? With the USDA keeping corn yields the same and lowering bean yields, some are asking, Are yields ultimately headed lower? Many are worried about supply and asking, Will US farmers plant even more corn next year? I am even hearing rumors that South America will plant several thousand more acres of corn. How will Ukraine lifting its export tariffs and taxes ultimately affect corn prices? In terms of weather, are we in for another La Niña weather pattern? If so, will this mean continued dryness for the South or bring spring flooding again in the upper and eastern Midwest? What’s the long-term outlook for ethanol production and livestock demand? Will they remain strong? One of the greatest worries currently is the thought of China slowing down. Many are questioning whether China’s demand will slow and what that will look like for corn and soybean imports.

 

If you would like some help with answers to some of these questions, I have many more details and numbers that are included in the daily "Farm Direction" report, so make sure you are getting your copy each day. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.


Some Last Minute Thoughts on Tomorrow's Big Report

Oct 11, 2011

 

As I have been saying for months, this report could be a complete game changer. I have been including many specifics in my daily "Farm Direction" report; if you are not getting the information, make sure you get signed up by following the link below. You can check it out for a while at NO cost just to see if it is something you think might help you make better marketing decisions. 
 
To give you a quick synopsis and my "two cents," I have included some thoughts below:
 
  • The market is estimating the USDA will bump the corn yield from its current 148.1 estimates up closer to 148.9. I have heard guesses coming in as low as 145 to as high as 151. With this in mind, anything below 148.5 has to be considered somewhat bullish, above 149 will be considered bearish.  
  • I really don't think "yields" will be the game changer, I believe "harvested acres" will be the key to the equation. Right now, harvested acreage is being estimated as low as "unchanged" at 84.4 million acres to being reduced by as many as 1.2 million acres. I am thinking a reduction somewhere between 400,000 and 500,000 acres will be viewed as neutral, anything lower will be bearish. The satellite imagery gurus are thinking that the crop is overstated by 750,000 to over 1 million acres. It will certainly be interesting to see who is right... Remember, the FSA numbers are being made available to the USDA for this report even though they are not being released to the public until Oct. 15. 
  • My fear is that the trade seems to be aggressively leaning to the "bearish" side of the boat heading into this report, while some of analysts I respect most are thinking sample test plot data is showing continued lower yields. With this being said, I would suggest reducing your exposure to the bare minimum, as someone is going to be massively wrong. Therefore, money flow should be extreme, and I would suspect a limit type move in one direction or another off the data.
  • The trade is also leaning to a bearish soy report, which I am also NOT in agreement with. Not that I am wildly bullish, I just don't see yields jumping much, and I don't see the USDA reducing demand by much, either.  
 
Our "bear spreads" that I recommended weeks ago in both grain and soy have banked great profits, and I will continue to ride them through the report. If I had to be long or short outright futures, I would prefer to play the game from the long side rather than the short side at this juncture.   
 
 I still have several concerns and questions that need to be answered moving forward, and that is why I am sticking with my "bear spreads" and would only suggest being very moderately long any outright futures. 
 
Additional concerns and things to consider moving forward: 
 
  • Money flow associated with the European debt situation prompting a "risk off" type environment. 
  • Ukraine exporting tax being removed, adding more Black Sea grain supplies.
  • South American corn acreage thought to be up some 10% to 15% this coming season.
  • Thought that U.S. corn acres may jump beyond 95 million harvested acres next season.
  • Massive amounts of global feed wheat still available as an alternative.
 
I have many more details and numbers that are included in the daily "Farm Direction" report, so make sure you are getting your copy each day. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.
 

Answers for the October USDA Report

Oct 11, 2011

 

As I have been saying for months, this report could be a complete game changer. I have been including many specifics in my daily "Farm Direction" report; if you are not getting the information, make sure you get signed up by following the link below. You can check it out for a while at NO cost just to see if it is something you think might help you make better marketing decisions. 
 
To give you a quick synopsis and my "two cents," I have included some thoughts below:
 
  • The market is estimating the USDA will bump the corn yield from its current 148.1 estimates up closer to 148.9. I have heard guesses coming in as low as 145 to as high as 151. With this in mind, anything below 148.5 has to be considered somewhat bullish, above 149 will be considered bearish.  
  • I really don't think "yields" will be the game changer, I believe "harvested acres" will be the key to the equation. Right now, harvested acreage is being estimated as low as "unchanged" at 84.4 million acres to being reduced by as many as 1.2 million acres. I am thinking a reduction somewhere between 400,000 and 500,000 acres will be viewed as neutral, anything lower will be bearish. The satellite imagery gurus are thinking that the crop is overstated by 750,000 to over 1 million acres. It will certainly be interesting to see who is right... Remember, the FSA numbers are being made available to the USDA for this report even though they are not being released to the public until Oct. 15. 
  • My fear is that the trade seems to be aggressively leaning to the "bearish" side of the boat heading into this report, while some of analysts I respect most are thinking sample test plot data is showing continued lower yields. With this being said, I would suggest reducing your exposure to the bare minimum, as someone is going to be massively wrong. Therefore, money flow should be extreme, and I would suspect a limit type move in one direction or another off the data.
  • The trade is also leaning to a bearish soy report, which I am also NOT in agreement with. Not that I am wildly bullish, I just don't see yields jumping much, and I don't see the USDA reducing demand by much, either.  

 

Our "bear spreads" that I recommended weeks ago in both grain and soy have banked great profits, and I will continue to ride them through the report. If I had to be long or short outright futures, I would prefer to play the game from the long side rather than the short side at this juncture.   

 
I still have several concerns and questions that need to be answered moving forward, and that is why I am sticking with my "bear spreads" and would only suggest being very moderately long any outright futures. 
 
Additional concerns and things to consider moving forward: 
 
  • Money flow associated with the European debt situation prompting a "risk off" type environment. 
  • Ukraine exporting tax being removed, adding more Black Sea grain supplies.
  • South American corn acreage thought to be up some 10% to 15% this coming season.
  • Thought that U.S. corn acres may jump beyond 95 million harvested acres next season.
  • Massive amounts of global feed wheat still available as an alternative.

 

I have many more details and numbers that are included in the daily "Farm Direction" report, so make sure you are getting your copy each day. Thanks again and best of luck. You can sign up online by clicking HERE or you can call the office if you have any questions or need to get signed up: 816-322-5300.

 

What Producers Need to Know Heading Into Wednesday's Report

Oct 10, 2011

 

Despite being much higher out of the gates this morning, there is no disputing the fact the European economic woes have placed a strain on several key markets the past few weeks.  In fact, many of the "big boys" are really starting to question global "crude oil" demand through years-end.  No one is exactly sure how the cards will fall in Europe. This morning we are acting as if everything is fine, but I am telling you now, if crude oil prices fall further on fears of shrinking demand, and the US dollar starts to strengthen again on concerns about Europe, then the US grain and soy markets will have some serious revaluations to consider. Unfortunately, both of these scenarios will need to be monitored closely in the days and weeks ahead. We have rallied by about $8.00 in crude oil since last week, so for now we seem to have a little cushion. Let's just hope it stays that way, and Europe finds a solution to their woes.   
 
My thoughts are if the situation in Europe does't clear up soon, we may be looking at crude oil prices below $75, and this could potentially pressure corn down to the $5.50 range, and beans below $11. The kicker, and one thing that could change all of this will be the USDA report on Wednesday morning. I continue to hear most in the trade are looking for between 12.4 and 12.5 billion in total corn production (the range of guesses is from just a hair over 12 billion all the way up to 12.7 billion).  It also seems like most are thinking we will end up with between 83.6 and 84 million harvested corn acres (the range of guesses is for a reduction in harvested acres from 200,000 to over 1 million). Thoughts on corn yields are for somewhere between 148 and 150 bushels per acre (the range of guesses is from 145 up to 151, with the average guess around 148.8 vs the USDA's current yield of 148.1). My thoughts are the corn carryout could be bumped higher, corn feed usage bumped a little lower and total ethanol usage adjusted just a touch in either direction. 
 
As for soybeans right now we are at 41.8 bushels per acre.  Could we see a drop to 41? That would be extreme, but it wouldn't surprise me.  What I am letting you know is that despite talk about higher yields, don't let yourself get lulled to sleep and believe it is a guarantee...anything is possible with the bean yields. There is also a lot of talk that the USDA could lower their 2011-12 US soybean exports by 50-60 million bushels on slower Chinese demand. I actually doubt this will happen though considering the USDA just raised exports and estimates by 15 million bushels in the last S&D report. Just be careful thinking this next USDA report will be wildly bearish soybeans.
 
You can assemble the numbers mentioned above in a magnitude of ways, being left with either an extremely bullish or extremely bearish scenario. My personal belief however is that if the numbers are bullish and European fear is still in the air, then the "Big Boys" may use any sizable rally gained from the report to be "long" liquidators by weekend. This means I will not chase the rallies if there is still negative news floating around later this week in regard to Europe. On the flip side, if we pressure the market lower on the USDA numbers and or a combination of European fears, I will be looking to buy "value" on the break.
 
 Ultimately, we could see either a limit-up or limit-down move come Wednesday.  The biggest questions is, will the "Outside Markets" hold up, giving enough confidence for the large traders to get involved?  If you would like more help with answers to some of these question, sign-up for my daily report.  There is no cost or obligation, you can receive the free trial by clicking HERE.  

 

Thoughts on the Coming USDA Report

Oct 09, 2011

I'm thinking the market is going to trade in a small range until the highely anticipated USDA report is released this Wednesday.  There are numerous balls being held up in the air right now, and it's impossible to accurately predict when they will fall and which way they will bounce.  Will the USDA keep corn yields under 149-149.5?  Will they reduce harvested acres to 700,000?  IF these things happen, I think we go screaming higher.  The question is, will the funds jump in and help propel us?  I don't know, but if they don't we will have a hard time moving higher.  In terms of soybeans, we could see a either a "reduction" or "gain" of 100,000 harvested soybean acres, the trade sees a possibility for either.  Another question they really don't have a grasp on is soybean yields, could they actually be lowered?  In terms of other markets, will Argentina and China ink their trade deal allowing GMO corn exports?  We still have little idea of how much they could potentially be willing to export.  In terms of beans, I continue to hear rumors that they are sitting on large quantities of high quality beans. Question is, when will they begin to aggressively move these beans?  When they do, they will be the cheapest source for beans.  

Ultimately, we could see either a limit-up or limit-down move come Wednesday.  The biggest questions is, will the "Outside Markets" hold up, giving enough confidence for the large traders to get involved?  If you would like more help with answers to some of these question, sign-up for my daily report.  There is no cost or obligation, you can receive the free trial by clicking HERE.  

Why Today's Move Up in the Grains is Short-Term

Oct 05, 2011

Today we saw a decent run up in grain prices as the trade digested a surprising corn number with yields dropping to 149.5 from 151 last month.  They also reduced total harvested corn acres by 430,000.  Be careful on this number, as many in the trade are actually hoping for an acreage reduction by the USDA of more than twice this amount.  As for soybeans, Informa bumped their yield estimate from 41.5 to 41.8 (the same exact number the USDA is using), but actually raised their harvested soybean acres by 70,000. Yesterday, I  thought we had a few more bullish numbers thrown at the trade than most of the analyst had been expecting. STATS CAN came out with lower Canola numbers than the trade was looking for, and slightly lower All-Wheat numbers. That was followed up by the US Grains Council (USGC) concluding its tour of China's key production area. After taking 300 plus samples their data actually concluded that China would have another record corn crop of 167 million metric tons, which is basically an increase of approximately 9 million tons over last year's crop. The good news is this was well below the 178 million metric tons the USDA currently has estimated. The specifics of the USGC survey projects a corn harvest area of just over 74 million acres and a yield of just under 86 bushels per acre. More good news was the fact the USGC still believes China’s production will be insufficient in meeting their projected domestic demand. The Grain Council's thoughts are that China has drawn down its corn stocks the past few years to areas well below its 25% comfort level. Therefore, China will need to import to fully satisfy domestic demand and rebuild their surpluses. Based on the new data the USGC is now estimating import demand from China will be somewhere between 5 and 10 million tons.

If we are talking about the "outside" markets you simply have to look at recent downgrades by Goldman Sachs, who just downgraded the economies in both Germany and France, thinking that they are both going to fallback into a recession. In addition, JPMorgan came out and downgraded their growth estimates in Brazil. Moody's decided they needed to get involved and has now downgraded Italy as well. The bottom line is that the US seems to be doing better, but the rest of the world is now "going to hell in a hand basket."

 

As I said in this morning’s report, we were due for some type of short-term bounce, which we got today.  I still believe we are oversold, I am just not sold on the fact that the bottom is in. The winds in Europe may have shifted, but I promise that fire is still not out. Our best hope is for a better than expected US jobs report on Friday.  If we can show that we have added 150,000 plus jobs  the US stock market might really pop to the upside, US Treasuries could fall under some heavy pressure on reallocation, and we could end up with a little wind behind our sales.  If the job data disappoints then all bets are off, and I would have to imagine we give back all of the short-term gains.  

 

I continue to be hesitant trusting any rallies at this juncture.  If you are a producer, I know your basis is beginning to jump, if you are thinking about selling some grain, I would get with your advisor and design a re-ownership strategy that fits your needs.  

 

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