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January 2012 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.

Rough Day in the Grains: Where Do We Go from Here?

Jan 30, 2012

  The Heavier rains forecast for South America, continued worries about European Debt and a stronger US Dollar weighed on the grain and soy markets right out of hole this morning. 

The good news is Asia will back in full-swing this morning as the Chinese New Year celebration comes to an end. Some believe there is a strong chance we may see additional demand or possible "switchbacks" to US corn and soy because of the logistical problems taking place in South America.  There is also more talk circulating in the trade that Mexico and South Korea might be panicking a little and trying to get ahead of the next wave of Chinese buying. 

I am telling you now, the Mexico thing could be much larger than most wires are reporting at this time. In case you missed it, the USDA reported sales on Friday of 170,200MT of corn to Mexico. Keep in mind this is about 500,000MT in just the past week. As the drought deepens, we will want to carefully monitor this situation. 

The  "outside" markets are trying to get there hands around rumors that Greece may soon be making some type of orderly exit from the European Union, or putting the final touches on a "major" debit reduction program. We will also need to keep our eyes on the latest round of problems being reported out of Portugal, along with Italy's 5 and 10 year bond auction this morning. 

Let's not forget European banks will be in the "headlines" this week as their earnings will start being released tomorrow morning.  The first out of the gates will be  "Santander," who has more than 80 million customers in 40 different countries. Not only are they one of Europe's largest banks but they have grown to become one of the five largest banks in the world by profit. The markets seem to be worried about the European banks so we need to pay close attention.    

Here at home traders will be watching the Florida Primary scheduled for this Tuesday. Mitt Romney has about a 10 point lead over Newt Gingrich, but Tea-Party favorite Herman Cain is now backing Newt. Even though reports show Romney is out spending Gingrich 4:1 in Florida, this race might end up being a little closer than it is currently being reported. If Newt finds a way to win Florida, Gold will quickly move towards $1800, and the US Dollar will give up ground. Net-net the results would more than likely be a "risk-on" type rally in commodities. On the flip side, if Romney takes Florida I would have to believe the US Dollar will continue to rally and some additional risk may come off the board. Keep your eye on politics as it continues to dictate Macro direction.   

The Corn "Basis" is red-hot and seems to be the topic of many discussions in the Ag world.  Even though the basis has now moved to record levels in many parts of the country (for this time of year), several in the industry believe we could push even higher, possibly not peaking until late-April or early-May. One concern I am starting to hear more about is grain "quality." Vomitoxin whispers seem to be circulating in greater frequency out in the Eastern corn-belt, especially in parts of Ohio and areas of Indiana. The problem is with Illinois having a mediocre crop, the traditional movement of corn from Illinois "East" is NOT happening a smoothly as easy as it has in the past. In fact a few respected sources in the industry now thinking both Ohio and Indiana could theoretical run out of corn before the 2012 harvest.  Below are a few more reason I believe the "basis" is so much stronger this year than in years past, and why I believe it may continue to strengthen for the next couple of months:

 

  • Demand Has Been Underestimated: There is talk in the trade that the USDA has simply underestimated domestic US corn demand. Obviously the feed usage number is highly debatable and thought to be too low. Many also believe the USDA has the Eastern corn-belt demand way too low. While others believe the USDA's ethanol and DDGS production ratios are way out-of-whack. Test-weights and quality could be throwing off the grind and blend ratios causing many more bushels to be used than what the USDA has estimated. 
  • Supply Has Been Overestimated: We have all heard the fire and rhetoric from those who believe the USDA estimated this year's corn crop way too high.  Many very good sources have the average US corn yield sub 145 bushels per acre, along with fewer acres being harvested. If this is true then the corn simply isn't there and the basis has no where to go but higher. 
  • South American Infrastructure & Logistical Constraints: Increases in crusher capacity in large production areas of South America may be forcing the ports to bid up for soybeans more than in the past.  We are also now hearing of boats running ashore in Argentina causing even further delays and back-ups. Between politics, labor strikes and transportation issues, South America continues to struggle moving the crop outside of it's borders in a quick and efficient fashion. 
  • Farmers Not Selling: The argument is, with the US farmer flush with cash from high prices, and more available on-farm storage than ever before, the bushels simply aren't being given up easily. There is also a belief that the "bankers" are much more willing to work with the farmers these days because of their improved balance sheets, therefore the farmers have much deeper lines of available credit and room to more easily maneuver. 

 

Weather continues to be highly monitored around the globe. South American weather is obviously the most important at this juncture, but as more rains and cooler temps move into the forecast the trade seems to be somewhat tiring of the story. Rains are expected again in Argentine today with average coverage and about 1 inch of rainfall. Brazil should remain dry for the next few days with rains starting back up towards the end of the week. It looks as if during the next couple of weeks rains could be plentiful in many of the drier areas of Northern Argentina and Southern Brazil. This could obviously weigh heavily on the soybean trade. 

South Africa also seems to be getting some much needed rainfall, and their situation might be improving as well. Russian winter-kill stories seem to have also subsided as more snowfall in many areas looks to have reduced the potential damage to less than 5% of the winter crop.  Temps will still be extremely cold at -20F to -30F in many parts of the region, therefore we can not completely say they are out of the woods just yet. On the flip side, I am hearing Europe will be turning a little colder in the central and western areas, and there may in fact be some winter-kill rumors circulating later this week in regards to Germany and France. As a whole though I would have to say the global weather situation has improved, therefore the weather bulls may be tempted to pull back the reigns a little this week and remove a small portion of the "weather" premium that has been added as of late. 

US Acreage talk is also starting to heat up. There is no question corn acres are heading higher, the question is how high? With a shrinking US cattle herd, you have to believe we will see more and more pastureland rolled into corn acres. Producers understand the first year a piece of "pasture ground" is brought back into production it is generally best to plant corn. The fertility rate will be the highest and there will be fewer complications with insects and disease going with the corn. Throw in the "preventive plant" acres and higher cash rents and I see no where for corn acres to go but higher. I will throw my hat in the ring by estimating 94.9 million corn acres will be planted in 2012. Unlike many, I also believe soybean acres are heading higher as well. I realize Informa and some other top analyst are calling for a reduction in soy acres...I just don't see it.  All of the producers I have been talking to have been very pleased the past couple of years with their soybean yields and don't seem too excited about reducing their acres, with this in mind I am estimating we will jump higher to 76.9 million soy acres being planted. 

Change of ownership has definitely been the theme taking place in the "paper" as of late, as traders who where bearish a month ago have become somewhat bullish, and  some that were bullish have now become somewhat bearish. I am definitely not afraid of change, but believe as "risk managers" we need to carefully take notice.  As Winston Churchill once said, "There is nothing wrong with change, just as long as it is in the right direction..." 

This morning, traders on the floor were reporting aggressive selling and buying of combos (selling puts and buying calls or doing the opposite). I am also hearing a lot of talk about traders buying and or selling the straddles. Supposedly there was a ton of interest in "buying" the July Corn $6.50 straddles at less than $1.00 on Friday. With the volatility low this might make for a nice "trade."    

For those of you not familiar with this strategy, all you are doing is simply buying the July $6.50 call and buying the July $6.50 put. Since it cost you about $0.95 cents to make this play, you will be looking for the market to make an "extreme" type move in "either" direction between now and the July option expiration. If you get a big move you could stand to make some good money.  Ultimately if you hold through expiration you would simply subtract the settlement price from $6.50.  Any thing greater than $0.95 cents would be your profit, any thing less would be a loss. This is NOT a margined position and your total loss can NOT exceed your cost to initiate. If you think we are going to see some extreme moves the next few months you may want to run this idea by your trade advisor to see if it is right for you. 

As for today, you obviously saw trading was most painful for soybeans and will cause some short-term setbacks. The "bulls" will be patiently waiting for reports of additional end-user buying (from China, Mexico, South Korea, etc...) on the breaks. If more export sales and demand aren't announced, I am afraid the break could become more significant over the next couple of days on the improved weather models and stronger US Dollar. Some good news out of Europe or stronger Chinese economic data would go a long way to stop the bleeding.  

*Cattle-and-Calves report released Friday by the USDA showed the US now has fewer cattle and calves than we have had in the past half century.  To be specific we now have 90.8 million head, this is 2.7 million less than last year, and the lowest January 1 inventory of all cattle and calves since 1952. This is also well below what the trade had expected. Most of the traders I had been talking to thought we would stay above 91.25 million head. The biggest loss of cattle was in Texas, where numbers fell from 13.3 million a year ago to 11.9 million on Jan. 1st mostly due to the severe drought.  Below are a few more of the highlights from the USDA report: 

 

  • Beef cows, at 29.9 million, were down 3 percent from January 1, 2011.
  • All heifers 500 pounds and over, 19.4 million, down 1 percent.
  • Beef replacement heifers, 5.2 million, up 1 percent.
  • Other heifers, 9.6 million, down 2 percent.
  • Steers weighing 500 pounds and over, 16.1 million, down 2 percent.
  • Bulls weighing 500 pounds and over, 2.1 million, down 5 percent.
  • Calves under 500 pounds, 14.1 million, down 3 percent.
  • Cattle/calves on feed for slaughter in feedlots, 14.1 million, up 1 percent.
  • The combined total of calves under 500 pounds, and other heifers and steers over 500 pounds outside of feedlots was 25.7 million, down 4 percent.
  • Milk cows, at 9.2 million, were up 1 percent from January 1, 2011.
  • Milk replacement heifers, 4.5 million, down 1 percent.

The Fed's Rate Decision and How It Will Affect Grain Prices

Jan 26, 2012

The "Outside" markets are adjusting to statements made by the US Fed. In case you missed it the Fed announced yesterday that they will leave rates "unchanged." Bernanke and crew also stated they expect to keep rates at extremely lows levels through late 2014. 

 
Reading somewhat between the lines and listening to the Bernanke rhetoric I have a strange felling the Fed is still tremendously fearful of "deflation," and QE3 is a definite possibility. This has forced me to completely change my view on the US Dollar. As I have learned in the past few years, if you can get the US Dollar right, you'll get a lot of other things right. Most of you know I was "bullish" the US dollar heading into 2012 on thoughts of a complete fallout in Europe, and more "money-managers" searching for some type of safe haven shelter. My how quickly things change. Now I am no longer "bullish" the US Dollar, but I have quickly become "bearish." You can call it flip-flopping or what ever you like, this is what happens though when you get massive government intervention in the markets. They have an uncanny way of shortening investment cycles and amplify market volatility. Fiscal and monetary policy changes can change the direction of a market faster than I can flip a coin.
 
The way I see it the Fed wants to spark inflation in an effort to try and create growth, rather than simply letting the market play itself out. You can see for yourself, the past few months when the government has stayed out of the markets, inflation has subsided, the US Dollar has strengthened and the Stock market has rallied. Unfortunately, like most government officials the Fed can't leave well enough alone. They don't feel they are doing their job unless they are doing "something" or making some type of change or adjustment. This has me worried to say the least. I am worried that they are tampering with something that could throw a monkey wrench in the entire operation. If they want "inflation" I am assuming that is what they will eventually get. That means a lower US dollar and higher commodity prices. That also eventually means slower growth and a less bullish stock market. I am also feeling that the political machine in Washington is starting to take on a more "Manufacturing" type policy, which also equals a weaker US Dollar and more inflationary type environment. With this in mind I will be pulling back my US Stock Market rating to neutral, and flipping my US Dollar rating to "bearish!"
 
The European Central Bank (ECB) is under some fire to take "haircuts" on a portion of the Greek debt it currently holds, but they seem very apprehensive. Word in the trade is if the ECB would eat some of the losses it would make things much easier on Greece. The market will be closely monitoring this situation, if the ECB steps up to the plate and takes the hit, the market may soon become more at ease with the entire debt crisis, and we may actually see the European stocks rally and the US dollar fall under additional pressure. Essentially providing us with some additional "risk on" type movement.
 
Wheat is turning more "bullish" in my opinion and therefore I am moving from a "neutral" type stance to a more bullish tilt. The bears will want to adamantly argue about global supplies and record carry, but I see several new bullish type cards being added to the deck that we need to respect and account for. First and foremost I would be apprehensive being aggressively short the CBOT wheat contract simply because the funds are leaning so heavily over the bearish side of the boat. With the funds short almost 45,000 contracts and thoughts that the UK winter wheat crop might be in trouble, and an estimated 25% of the Russian wheat crop will soon be facing potential winter-kill issues as a major cold front moves in makes me feel that we have some additional upside potential. You also have to factor in that US wheat is quickly becoming more competitive in price on a global scale, and it might actually start winning a little bit more global interest. There is also more talk circulating in the trade about the dryness occurring in the Canadian Prairies. Let's not forget US weather issues will soon be a topic of conversation in the winter wheat market during the next 30 days as well. Bottom-line, I see more upside potential in the wheat market than many might be estimating.
 
Soybeans are facing some stiff "fundamental" debate as many in the trade try and digest or determine the extent of the South American crop damage. With more rains forecast for South America, along with it still being fairly "early" in the crop cycle, the question is how much soybean production will ultimately be lost. Several days ago the trade was thinking the USDA could be 15MMTs too high for their South American soy production estimates. Then the trade seemed to backpedal to a reduction of around 10MMTs. Now I am hearing, on thoughts of more rain, the USDA may only be 7MMTs too high (some estimating a loss of 2MMT in Argentina, a loss of 2MMT in Paraguay, and a loss of 3MMT in Brazil). The bottom-line is no one really knows. There are mixed reports and mixed stories circulating through the trade quicker than the market can digest the data. The next couple of weeks will obviously be more telling and some of the more extreme estimates will more than likely be shaken out.
 
Soybean demand is also falling under heavy debate. Not only are traders trying to guess at supply-side estimates, but also demand-side numbers now as well. Currently, many in the trade believe the USDA has total soybean demand overstated. The question is by how much? If we are overstated by the same amount that we have lost in South America then we have the makings of a "Mexican Standoff," and no real reason to aggressively add premium to the soybean market. If however the USDA is correct and we do end up with 7-8MMTs of additional global demand then we may in fact end up being extremely tight. My guess is in typical trade fashion we will push to the extremes in both directions. The "bears" will UNDER-estimate the production losses as well as overall demand, while the "bulls" will OVER-estimate the crop losses and overall demand. As "risk managers" it is our job to recognize when the market is pushing to the extremes and then capitalize on these movements. Don't get caught up in trying to defend, predict or determine the number, rather focus on playing the game. In other words, leave the scorebook and the stats to those sitting in the stands.
 
Smart money right now is starting to think the market is "overestimating" the extent of the damages in South America soy, along with "overestimating" the growth in demand that many (including the USDA) have penciled in for 2012. With this in mind I would strongly urge you to get caught up on your new-crop sales.
 

Just wanted to tell everybody about our Grain Marketing Seminar we are having at the end of February in Kansas City, MO.  You can come and hear me give my Outlook on crop prices for 2012 as well as hear some of the biggest names in the US Grain trade, Global Grain analysis, US ethanol industry, and more. 

 

Click this link to find out more Grain Marketing Seminar 2012.  Like this blog and want to read more, sign-up for our free trial of the daily report. Click here 

 


 

Know Both Sides of the "Bearish" and "Bullish" Story

Jan 24, 2012

 

The "outside" markets seem a little more concerned this morning as talks in Greece breakdown, and the Standard & Poor's ratings agency has reportedly turned more negative on six French banks including Credit Agricole and Societe Generale (SocGen). Traders are also digesting news from the "Bank of Japan" who decided to keep its key interest rates "unchanged" at close to zero percent but downgraded its growth forecast for the year. 
 
Don't forget the world is patiently awaiting news from the US "Fed" in regards to "Quantitative Easing." From what I am hearing, the Fed's first meeting of the new year will wrap up tomorrow, at which time the Fed will release a statement to the public at 1:30pm CST (Wednesday). Following that announcement we will hear from Fed Chairman Ben Bernanke, who is scheduled to speak at 3:15pm CST. I doubt we see any significant changes, but you never know. Make sure you are prepared! 
 
Keep in mind, "Thompson Reuters" is now reporting that 8 out of 17 primary dealers they have surveyed, who do business directly with the Fed, believe the US central bank will announce some type of "QE3" during the first half of 2012 - and the expectation for how much they will print (if they do) is rising to $600 billion, from $525 billion just over two weeks ago. Bottom-line...Make sure you are strapped in when Bernanke speaks, there could be extreme volatility!  
 
Long-term strength in the US dollar is also being questioned. For weeks many risk-managers have been thinking that European debt problems would ultimately push the US dollar higher in 2012.  That mind-set is now clearly changing and we need to pay close attention. I am starting to be of the belief that big money is looking down the road to an extremely important US Presidential election, and has left the EU debt crisis to sort itself out. The trade currently seems to feel that a Gingrich or Obama victory will equal "uncertainty."  Which in trading lingo equals extreme volatility. If we take that one step further, a Gingrich or Obama White House looks as if it would mean a weaker US dollar, higher gold prices, higher commodity prices, and at least initially a weaker US Stock Market. On the flip side the market seems to believe a Romney White House would mean "stability," therefore equating to a stronger US Dollar, along with strength in the US Stock Market, and weaker commodity prices. The takeaway is that I believe "politics" will be trumping "fundamentals" during the remainder of 2012. Throw all other assessments out the window, big money will be using the next ten months to better positions themselves for the next four years.       
 
Argentine corn production seems to be the hot subject around the water cooler these days, and rumors are starting to fly throughout the trade in regards to total production estimates. I am now hearing from very reliable sources that not only will  production ultimately fall below 22 million metric tons, but I am starting to hear estimates from inside Argentina that a sub 20 million metric ton number is a reality. I am also hearing talk that a soybean crop around 45-46 million metric tons could be possibly in the cards as well. Understand, these would be significant production cuts if they were to be realized, and the market would need to immediately add more premium to our current price.  In addition, there are many people in the trade talking about more second crop soybean acres in Argentina being planted behind the failed corn. Be careful with this thought, as I am hearing more talk about wheat stealing some second crop acres from soy. Remember, the Argentine government places a much stiffer tax on soybeans than they do wheat. In any regards, the takeaway is a smaller Argentine corn crop.
 
If we are looking for a sequel to this summer's "Agricultural Bull Run" we might just be able to pull something off, as it seems that a few of the key cast members are starting to gather upon stage: 
 
  • Leading Actor - "South American Production" In the last episode, US production and weather related issues played the lead. This time around, South American Production steals the spotlight as many in the trade now believe the USDA may be 10-15 million tons to high on their estimates. 
  • Supporting Actor - "Ethanol" With crude oil staying strong and the world looking for more alternative fuel ethanol margins remain strong. Many are now estimating corn used for ethanol at 5 billion bushels is too low and may need to push higher by 150-250 million bushels. 
  • Leading Actress - "Macro Markets" The outside markets seem to be stabilizing and a "risk on" type environment seems to be the theme of the day. If our leading lady can find even more support in the coming weeks we could be in for a real award winning performance. Look for politics to trump fundamentals in months leading up to the US Presidential election. 
  • Supporting Actress - "Chinese Demand" Crush margins are turning positive and supplies at the ports seem to be shrinking. Corn bids in northern China are heating back up, and there is talk that the Chinese economy may start to turn back around. This character actor has the potential of bringing down the house.

 

There are still several key cast members and crew that are missing from the previous action packed hit, but if we can get them back onboard we might just have something worth watching: 
 
  • Stage Manager - "Big Ben Bernanke"  If Big Ben can bring along another dose of "Quantitative Easing" to the party our cast and crew will become much more relaxed and comfortable about the sequel. He might not seem like a big part of the performance, but he does a tremendous job behind the scenes. I am not sure the last episode would have happened without the help of Big Ben. By printing more money and pushing us further in debt, the US Dollar is sure to fall under pressure and spark more commodity interest. 
  • Cameo Appearance - "Wheat"  Most may not realize this, but wheat has been instrumental in kicking off the most recent hit performances in the Ag markets. I am afraid if we can not get "wheat" to cooperate or to be a part of this performance, our show may never make it to the big screen. In my opinion the "cameo" by wheat could be make or break. 
  • Makeup & Hair - "The Talking Heads"  Everyone looks better on stage or on film, and in our story much of the credit has to be given to the "press."  If the investment news channels start to talk more about shortages in corn and or soybeans, I have to assume we will once again see the best "Makeup and Hair Stylist" begin to shine and do their part to stoke the "bullish" flames. Don't underestimate just how important it is to have these crew members on hand. They can either make or break the perception of our audience. 

 

I think you get the picture. There are some key players that are needed to bring a "bull" story to life. I think we have several at the current time who are willing to play their respective parts, but we still need a few to read the script and agree to the details of the contract. If we can get them to agree to the terms, I have to believe we could start shooting any day now.
 
Bullish I have become, but just keep in mind many very respectable sources are extremely bearish, with good fundamental reason. I don't want to rain on everyone's parade, but I want you to know both sides of the story, so you can make the best decision of your operation. This past weekend, Informa added about 65 million bushels to their 2012 corn crop production totals and is now estimating the 2012/13 ending stocks number to be a whopping 1.749 billion bushels (more than double our current level). In the process, I am hearing they have lowered their projected 2012/13 average corn price to $4.20, and seem top be thinking the December 2012 corn contract could print a $3 handle by this fall, if US production goes off with no real weather type glitches. There is also fears circulating as the USDA has raised their world wheat production numbers by almost 40 million tons, and we are now staring at the the second highest world wheat ending stocks in history! My point is, I am "bullish" why some of the best and most respected sources in the industry are now aggressively "bearish." I guess this means "game-on." Oh well, I never liked following the crowds anyway, it always seemed too easy!
 
As you can see, "fundamentally" the numbers would indicate we have an extremely steep hill to climb. For this reason, I urge to be smart and reduce your risk accordingly. This is NOT the environment or the hand to be betting the farm on. I am willing to the risk a portion of our bushels, just not the entire crop. The more bushels you can get locked in at a profit, the easier it is to take a chance on the remaining bushels. Put yourself in a position to take "some" risk, not in a position to loose it all!
 

Just wanted to tell everybody about our Grain Marketing Seminar we are having at the end of February in Kansas City, MO.  You can come and hear me give my Outlook on crop prices for 2012 as well as hear some of the biggest names in the US Grain trade, Global Grain analysis, US ethanol industry, and more. 

Click this link to find out more Grain Marketing Seminar 2012.  Like this blog and want to read more, sign-up for our free trial of the daily report. Click here 


 

Thinking About Making Some Cash Sales???

Jan 19, 2012

 

With talk of more widespread rain falling in Argentina as well as in Central Brazil many, of the "weather bull's" have elected to move to the sideline. I wouldn't get too bearish, the 6-10 day looks as if it may dry back out with some additional heat.  
 
 
Let’s also not forget, corn is starting to once again catch a bid up in Northern China, and some rumors are starting to circulate in regards to Chinese interest in US corn. There is also more talk about Chinese soybean crush margins turning positive, which could prompt China to look for more soybeans. Most traders now believe the US would be China's primary choice considering Jan/Feb shipments from Brazil are thought to be delayed by about 1-2 million metric tons. From what I am hearing, the heavy rains in Northern Brazil and lack of production in the South has slowed down both harvest and delivery of beans. This obviously has China concerned, and is pushing demand back in our direction. As I have mentioned, there seems to be a more bullish picture starting to evolve in the soybean market. Therefore, as a producer I would be hesitant selling over 50% of your 2012 production. I would also be patient with additional wheat and corn sales. I am think we might start to see US wheat become more competitive on a global scale. If this happens, the funds might bail out of their short positions and it might prompt a little rally.  
 
We have made some good sales up to this point, and I have a hunch there might be some additional room to the upside in the coming weeks. In the near-term you have to remain patient and don't panic if the market breaks lower on reports of improved South American weather. Longer-term though I think we might start to see more interest in US exports and another leg higher. In fact there is talk this morning of South Korea buying more US corn (close to 800,000 tons in the past couple of weeks), China looking for more US soybeans, and Japan in for wheat. If your a spec trader, I have to believe a $0.20-$0.30 cent break may provide you with a legitimate buying opportunity.    
 
Argentine corn production continues to be the topic of heated debate, as the "Bulls" argue that production estimates could end up much lower than what the USDA is currently estimating. If you recall, the USDA had at one point estimated the Argentine corn crop at 29 million metric tons, most recently that number was reduced to 26 million. Now many in the trade are thinking we should be somewhere between 20-22 million metric tons. 
 
The USDA originally had the Argentine soybean crop pegged at 52 million metric tons, and recently cut their estimates to 50.5 million metric tons. Most in the trade still believe this number is too high, and firmly believe we should see a number below 50 million metric tons.
 
On the flip side I am hearing that wheat yields in Argentina are actually coming in better than you might think. Most still have the crop estimated at around 14 million metric tons, and since the USDA is at 14.5 million metric tons, I don't see any real concern.
 
Here at home, I continue to be asked about acreage projections, and in particular what I am hearing from all of our producers in regards to planting intentions. Honestly, I am hearing very little in the way of "changes" to the normal rotations.  Every time I go out and speak I poll the producers in the audience about their intentions. Below are my early assumptions:
 
  • Corn-On-Corn Producers - Most producers are making very few changes to their traditional rotations. Corn-on-corn producers seem to be the most fearful about a "wet spring." They really don't seem all that concerned about switching to a more traditional rotation like many have speculated. Some producers are making some small adjustments and going with more soybeans in low lying areas or acres that have been extremely wet in the spring the past few years. For the most part though producers seem to be sticking with what they have done for years. Yes, I think corn acres will be higher, but I question anything over 95 million. 
  • Short Supply of Corn Seed - Producers in the south seem to be grabbing up most of the shorter variety corn seed traits (trying to capture and deliver against the old crop inverse), or to be able to second crop beans. This is leading to some concerns and questions about availability of short-term corn in the northern plains. If farmers can't get their hands on the corn seed, they will obviously be forced to roll out more soybeans acres. We need to watch how this unfolds. Supposedly ample corn seed supplies will be coming in from South America, but with the current weather dilemmas who really knows. 
  • Wheat Winter Kill - Another thing we need to consider is that many producers will be planting soybeans behind wheat. With winter-wheat being planted in mass because of the high insurance guarantees up above $8.00, you have to figure a larger than normal percent of the wheat crop will NOT be harvested. We also have to pay close attention to the "winter-kill" numbers. The more I hear about winter-kill, or "unharvested" wheat, the more I am hearing producers talking about planting soybeans.
  • CRP Ground - There is no question a large number of acres are coming out of the CRP program. From what I am hearing most of the acres coming out of the program are rolling into soybeans in many areas. CRP ground will certainly need to be monitored. 
  • Informa will give us their updated 2012 acreage estimates on Friday. Keep in mind Informa most recently estimated corn acres at 94.4 million and soybeans at 74.6 million.  It wouldn't surprise me to see their soybean number increased and the corn acreage number bumped just a little higher as well. 

 

To start this morning, the "outside" markets are providing some additional support. The shifting of the tides so to speak, in regards to the "outside" markets has encouraged me to become more bullish as of late. There are still a few more hurdles we need to clear before we can become more "wildly" bullish, but I certainly like the direction we are headed. Bottom-line, remain very cautiously bullish!  
 
*You can't tell me "Money-Flow" doesn't matter, because from where I sit it means everything. Consider the fact that many in the trade are now estimating we are off to our WORST start in years in regards to "earnings," with over half of the companies reporting so far, NOT beating their expectations. On the flip side we are off to one of the "BEST" starts ever in the S&P500 Index. In fact it we a now seeing our best start in the past quarter century. The S&P 500 has advanced seven of the first eight trading days this year, something that has only occurred eight times since 1900. I know that sounds crazy, but with many of the money-managers now thinking US Stocks are one of the safest bets on the board, the money is obviously pouring in. I pointed out weeks ago, when money-flows into the stock market and traders are making good returns, it becomes awfully hard for the commodity markets to attract a lot of NEW buying interest. If you remember back to the stock bull run from 1997-2000 commodity prices were very subdued. Think about it this way, "If you are a money-manager and making 15-20% in the US Stock market, are you going to be looking for alternative type investments in more risky asset classes like commodities?" I doubt it! Just keep this in mind as we move forward, if this truly is the start of a new US Stock bull run, we may be putting a temporary lid on commodity prices in general. 
 

Just wanted to tell everybody about our Grain Marketing Seminar we are having at the end of February in Kansas City, MO.  You can come and hear me give my Outlook on crop prices for 2012 as well as hear some of the biggest names in the US Grain trade, Global Grain analysis, US ethanol industry, and more.

Click this link to find out more Grain Marketing Seminar 2012.  Like this blog and want to read more, sign-up for our free trial of the daily report. Click here



Previewing Thursday's USDA Report

Jan 10, 2012

Previewing the USDA Report: 

All eyes will obviously be on this week's USDA stocks report. I included a few numbers and estimates that will be discussed leading up to Thursday big release (7:30am CST).

 

With the extreme weather patterns and difficulty the USDA and other agencies have had the past couple of years predicting and estimating the crop, there could certainly be some surprise and adjustments coming down the pipe. Rather than trying to "predict," I urge you to try and "position" ahead of this report. Just two short years ago this exact report cost many producers a small, or in some cases, large fortune.

If you remember many of you were hoping for "bullish" numbers from this report, but that didn't happen, the numbers came out "bearish." It was early 2010 and we proceeded to break from around $4.25 to a low of around $3.25 during the next six-months. We then bounced and several analyst advised many of you to lock in sales for the next two or three years at around the $4.00 to $4.50 range. This, in turn, ended up costing many producers an absolute fortune.

My advice, just as my grandfather had always taught me, is to prepare for the worst and hope for the best. We can't blame the USDA, we have to blame ourselves if we fail to properly prepare or position ourselves. We know the difficulties involved in estimating such a large crop, and we also know the adverse weather conditions and problems that we all faced in our own fields. In fact, many of us couldn't even estimate or gauge our own yields in the fields we have farmed for the past 30 years.

I urge you this time around to be "proactive" and not "reactive" to the numbers. Have a game plan and strategy mapped out prior to the release, then follow your guidelines. The market will become extremely emotional for several days as it sorts through the numbers, it is extremely important that during this time period you stick to your guns and follow your plan. Expect the market to do the unexpected and anticipate "limit type moves in either direction. Keep in mind last year this report produced a "limit-up" move in the March corn contract. Where as in 2009 and in 2010 it produced a "limit down" move in the March corn contract. 

I Hope these numbers give you a better idea about what could becoming our direction Thursday morning:

CORN

  • Corn Final Crop Estimate: Most in the trade seem to be looking for the total corn crop estimate to come in around 12.26 billion, compared to the current USDA estimate of 12.310 billion and last years 12.447. The range of guesses seems to be anywhere from 12.1 to 12.4 billion 
  • Corn Yield Estimate: It seems like most in the trade are looking for the average yield to come in around 146.2 bushels per acre, compared to the current USDA estimate of 146.7 bushels and last years 152.8. The range of guesses seems to be between 145 and 147.5 bushels per acre. The average guess is right around 146 bushels per acre.
  • Corn Ending Stocks Estimate: This is a real "wild card." I continue to hear numbers all over the board, but it seems most are going with a carryout in the mid to low 700's. I would have to guess the range is between 575 and 1 billion. The average estimate is being reported at 749. The USDA is currently estimating the carryout at 848. Many are estimating an extremely tight "stocks/usage" ratio. Some talking as tight as the 1995/96 crop year.
  • Corn Feed Usage: Having been burnt several times, very few analyst even want to attempt guessing at this number. Right now the USDA is estimating it at 4.6 billion. Many feel this number is grossly overstated so anything is possible.
  • Corn Exports: Currently the USDA is estimating corn exports at 1.6 billion. There is now some thought that with South American production in jeopardy the US may need to pick up the slack. Some analyst are looking for the USDA to bump exports by 100 million. I think that might be a little steep, but there is certainly the thought that it could creep higher.
  • Corn Ethanol Usage:  Currently the USDA is estimating usage at 5 billion. This number is expected to stay right around this level. There was some talk a few weeks back that it might slip from here, but the recent surge in production makes that tough to stomach. You have guys on both sides of the fence, but no one is looking for any significant adjustment.
  • Quarterly Corn Stocks:  Last year the Dec 1st quarterly stocks were reported at 10.057. This year the trade is looking for a number closer to 9.400. The range seems to be from a low of 9.200 - 9.700. 
  • Argentina Corn Production: The USDA is currently estimating the Argentine crop at 29 million metric tons. We all know this number is NOT going higher. The question is how low will the USDA take it this early. The trade seems to be thinking we will see the USDA drop the Argentine production number to between 23 and 25 million metric tons. I personally don't see them going much below 25 million metic tons at this juncture, choosing to cut more in February once they have some better numbers.
  • Brazil Corn Production: The USDA is currently estimating Brazil's corn crop at 61 million metric tons. Similar to Argentina, we are hearing numbers all over the board. The trade seems to be looking for a 1-2 million metric ton cut in production. It wouldn't surprise me to see the USDA leave this number alone, or only slightly reduce their current estimates. I doubt they cut them below 59 million. 
  • Global Corn Ending Stocks: Right now the USDA is at 127.190 million tons, and most are thinking this number will come down closer to 121 million tons.

SOYBEANS

  • Soybean Final Crop Estimate: This may be a little against the grain, but I am thinking the USDA may slightly reduce their total soybean production numbers. The USDA is currently estimating production at 3.046 billion compared to 3.329 billion last year. The average guess is for the number to move just a little higher, closer to 3.048. The curve ball would obviously come if they reduced the number, which is certainly possible. If it were to happen I wouldn't look for anything below 3.025 billion, but a little reduction wouldn't surprise me. The average range of guesses is between 3.01 - 3.2 billion. 
  • Soybean Yield Estimate: The USDA is currently at 41.3 bushels per acre compared to an average yield of 43.5 last year. The trade seems to be looking for a little bump in yield. The average guess is from a low of 41 to a high of about 42.7 bushels per acre. 
  • Soybean Ending Stocks Estimate: There is talk circulating in the trade that if exports don't dramatically pick-up soon we may be staring at one of the largest ending stock numbers in recent years. Right now the USDA is using a 230 ending stock number. Several analyst believe this number could eventually jump to 300+, but as of right now I just don't see it moving that high. I really doubt we move much above 250. The average guess is around 235, with the high side around 285 and the low guess down around 130. 
  • US Soybean Exports: I have to believe most of the trade is looking for the USDA to reduce our soybean exports by another 25-75 million bushels. Currently the USDA has our soybean exports estimated at right around 1.3 billion, some guys are thinking it should be closer to 1.2 billion, so be prepared. 
  • Quarterly Soybean Stocks: Last year the Dec 1st Quarterly Stocks number was reported at 2.278. This year most in the trade are looking of that number to jump towards 2.324 with a range of guesstimates form 2.220 on the low side up to 2.580 on the high side. 
  • Soybean Production (Argentina): The USDA is currently estimating the Argentine crop at 52 million metric tons. As with corn we all know this number is NOT going higher. The trade seems to be thinking we will see the USDA drop the Argentine soy production number to 50 million metric tons or lower. 
  • Soybean Production (Brazil): The USDA is currently estimating Brazil's soybean crop at 75 million metric tons. The trade seems to be looking for at least a 2-3 million metric ton cut in soybean production. There are some extreme guesses thinking that Brazil will ultimately harvest 70 million metric tons or less. I am not in that camp...at least not as of yet. Still too much time for the weather to improve to rule out the soybeans. Look at how our US soy production turned out after the extreme heat. Understand that there are definitely going to be reductions, let's just not get carried away too early.

WHEAT

  • US Winter Wheat Acreage Estimate: Currently the USDA has total winter wheat acres estimated at 40.646 million acres. The trade seems to be thinking this number could jump higher, some are thinking it could jump by 1 million plus acres. Remember, the high insurance guarantee this year has many in the trade believing the acres certainly got planted, the question remains how much will get harvested. Most are thinking the number will jump by about 300,000 acres to 40.946. The lowest guess I have heard is around 39.5 million acres, and the highest is around 42.9 million acres. 
  • Hard Red Wheat Acres: The USDA is at 28.48 million acres, while most in the trade are thinking this number could jump to almost 30 million acres. The range of guesses is from 29.45 million to 31.65 million. 
  • Soft Red Winter Acres: Currently the USDA is estimating 8.56 million acres have been planted. The consensus seems to be that this number will be reduced by at least 1/2 million acres. The average guess is around 7.75 million acres. The high guess is around 8.6 with the low guess around 6.4 million. 
  • White Winter Wheat Acres: The trade is looking for a slight jump from the current USDA estimate of 3.61 million. I would have to believe the number will not exceed 4 million, but it will be slightly higher than the current USDA estimate. Form what I have been hearing the range is between 3.5 - 4 million. 
  • Quarterly Wheat Stocks: The USDA was at 2.150 as of September 1st. Last December we were at 1.933. From what I am hearing most in the trade are looking for the number to fall to 1.695. The high end of guesses are up around 1.9 with the lowest estimates coming in around 1.59
  • Wheat Ending Stocks Estimate: Currently the USDA has ending stocks estimated at 878 million, but I am thinking we might see a slight reduction down to around 840 or 850 million. The highest estimate I have heard is up  around 890 with the lowest down around 765. 
  • Global Wheat Ending Stocks: The USDA is currently estimating global ending stocks to be at 208.52 million tons. I am thinking they might drop this number by about 1.5 million tons to around 207 million tons.

 

Remember, this is only a small portion of my Daily Report that comes out every morning. For more information on Risk Management and Profitability, go ahead an sign-up for the 30 Day trial of my report. There's no obligation!  Simply sign-up by clicking here at the Van Trump Report 


 

Why You Need to "Manage Risk" Instead of "Predict"

Jan 05, 2012

 

 

The "outside" markets bsically worked against us today. The grains saw some back and fill type action as traders digested news of improved US crop conditions and a little wetter South American forecast. 

 

 

Not trying to re-play the same old song and dance, but right now the market is stuck in somewhat of a holding pattern awaiting the release of data pertaining to the end-of-year crop production numbers and any type of change in the South American weather forecast. 

From everything I am hearing and looking at, the weather in Argentina and southern Brazil looks to remain hot and dry through the weekend. We may have gotten a little wetter than we were at the beginning of the week, but nothing substantial. There is a chance for some rain and some cooler temps on Tuesday or Wednesday of next week in Argentine, with most thinking it will then move into southern Brazil. Several forecasters are simply calling this a little break in the action, before these areas heat back up and turn dry once again. Production estimates continue to be cut right and left, and in my opinion, the market seems both concerned and somewhat confused.  Have we added in enough premium to compensate for the production losses? Are we overreacting like we did during the US growing season and pricing in the worst possible scenario? Will the good areas in northern Brazil help offset the losses to south? These are all great questions, but ones we simply have no answers for at this juncture. 

Looking ahead to the 2011 US ending crop totals, I have listed a few of the bigger questions that still remain unanswered to make it a little easier to assess the numbers:

  • Will the USDA reduce the corn yield numbers? The USDA is currently estimating the corn yield at 146.7bpa, several in the industry think we should be sub 145bpa. From what I am hearing, Ohio and a few of the others who where late to harvest actually came in a little better than anticipated. 
  • Will the USDA reduce total harvested corn acres? The USDA is currently estimating 83.9 million harvested acres. Several analysts still believe we should be below 83 million.
  • Will the USDA add to the feed usage numbers? The USDA is currently estimating corn feed usage at 4.6 billion.  As you know, this number has been highly scrutinized and many feel it is way too low.  Many analyst are looking for jump of 100 million in feed usage numbers. 
  • Will the USDA increase their export estimates now that South America is having significant problems? The USDA is currently estimating exports at 1.6 billion. There are now more rumblings that this number is too low and the USDA should push it higher by at least another 100 million. 
  • Will the USDA bump ethanol usage higher? This number could actually go either way. Currently the USDA is estimating 5 billion bushels of corn being used of ethanol.  Most are estimating this number will remain unchanged, while others are looking for a slight bump higher, and a fraction of analyst are even thinking it could be lowered.  
  • Will the USDA lower their soybean export numbers? Currently the USDA is estimating soybean exports will total 1.3 billion.  Many in the trade think the USDA is way too high and this number needs to be reduced by 100 million. 
  • Will the USDA raise the soybean carryout? The USDA is currently estimating the soybean carryout at 230 million. Many are thinking on weaker exports, this number could now jump beyond 300 million, maybe eventually north of 350.


Keep in mind there is a big difference between a "researcher" and a "risk manager." As producers, we are NOT trying to be researchers, we are not trying to predict crop size or weather patterns.  As "risk managers" you should be accessing the data that is being presented and making the proper adjustments to your marketing plan based on numerous factors and assesments. 

If you remember, our plan going into this marketing year was to get 30-40% locked in at profitable level prior to planting our crop. We were going to use the South American weather scares as our opportunity to lock in bushels. The opportunity is upon us and I urge you to react accordingly. Remember, you are NOT a "speculator" or a "research analyst," but rather a "risk manager." Reducing your risk and locking in profitable margins is your goal. 

Many advisors or, should I say, "researchers" told many of you to lock in your bushels in 2010 at around $4.00 for the next three years, obviously that didn't work out so well and you are now left fighting an uphill battle.  That is NOT "risk management," that is trying to predict the markets. That is being a researcher and calculating out your thoughts and numbers, then trying to predict the future. The problem is if you are right you are the "hero," but if you are wrong you have "zero."  If your a producer you have to take yourself out of this mindset.  Look at the entire picture, look at all of the pieces and all of the moving parts, then try and best assess your overall "risk," and ways you can effectively REDUCE it while still remaining profitable.  

I believe we have more room to work higher on the production setbacks occurring in South America and the potential changes being made by the USDA, but as "risk managers" we have to take our shots when we get them.  We also have to consider all of the pieces to the puzzle and make certain we are not wearing our "agricultural- only" blinders.  

There is actually a very strong chance that in 2012 the US Dollar could rally and the problems in Europe could spill over and rain on everyone's parade. I am of the belief either of these two scenarios would be enough to alter money-flow and seriously dampen any type of weather related gains.   

This keeps me cheering for the weather rally and hoping it will continue, but forces me to make more sales and reduce risk on fears that the "outside" markets could ultimately weigh on the entire commodity sector. 

Be a "risk manager" and I promise you will succeed. Leave the speculation, research and data collecting to those who have something to prove. Remain patient, follow your game plan and look for all of the necessary clues.  

As far as the "outside" markets are concerned, all eyes will be on US employment data the next couple of days. Next week I suspect most attention will shift back over to the European debt issues and 4th Quarter earnings here at home. 


 

 

 

 

 

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