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December 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.

Money Flow into the Grains and the Fiscal Cliff

Dec 27, 2012

 

Washington will take another swing at a "fiscal cliff" compromise with the President, House and Senate all back in session today. The Labor Department will release the weekly jobless claims number early this morning followed by the December "Consumer Confidence Index" and "New Home Sales" figures for November. There is actually some whispers and rumors floating around that there is a "behind-the-scenes" attempt being launched in Washington to get Boehner to step down and Paul Ryan to take his place (not sure if there is any validity to this). For the most part there has not been a lot of significant changes in the outside markets since our last pre-Christmas report. Macro analyst continue to keep all eyes firmly focused on the US fiscal cliff. While rating agencies continue to place more focus on US concerns surrounding the US "debt ceiling." In fact just yesterday the US Treasury announced that they would reach their debt-limit on December 31st, but with some creative math they should be able to survive for another 60-days. The fear is this could prompt some Ratings Agencies to warn on US downgrades, ultimately adding even more downward pressure to the outside markets. I see no real outside market support coming our direction until more is known out of Washington.   
 
Money-flow continues to be a major concern for me, especially considering the fact this past year has been another mediocre one at best for the hedge funds. The HFRX, a widely used measure of industry returns, is up by just 3%, compared with an 18% rise in the S&P 500 share index. There was actually an incredible statistic in "The Economist" recently that showed a simple-minded investment portfolio--with 60% in shares and the rest in sovereign bonds--has delivered returns of more than 90% over the past decade, compared with a meagre 17% after fees for hedge funds. It is actually being reported that about 1/3 of all hedge funds have lost money this year. Even though investor interest in hedge funds has exploded since 2000 (now over $2.2 trillion in assets), with many funds struggling to show profits and the stock market performing better than in the past, will money continue flowing into the hedge sector at the same pace it has? I am not so certain. In the Ag markets we have seen a drastic reduction in length during the past several weeks. Most sources thinking the funds are now just long about 265,000 corn contracts, about 120,000 soybeans, and "short" close to 20,000 CBOT wheat contracts.
 
As for today I suspect the "outside" markets will continue to pressure the trade as major "money-flow" is pushed to the sideline fearing the worst in Washington. Even though I personally believe some type of "deal" will eventually be reached, there is a 50-50 chance now that the "new-deal" could be viewed as negative by the larger players, therfore causing even further liquidation. On the flip-side a compromise viewed as positive will generate a more "risk-on" type attitude. Who knows what will happen in Washington, therefore I suggest spec players continue to swim close to the shore. Bull spreads in an attempt to play the tight ending stocks and logistical issues look to be the play in Ag's. The trade will be eager to see today's weekly ethanol data along with tomorrow's export sales numbers.  Producers should have a good start on their 2013 marketing...
 

To see exactly where we sit with our 2012 and 2013 cash sales,  sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

Van Trump Report

 

 

 

Q & A: Should I Be Locking in Interest Rates?

Dec 14, 2012

    

Q. Kevin, what are your thoughts on interest rates. Should I be locking them in?

 

A. We made all-time lows on the 30-year mortgage a couple of weeks ago at 3.31%, since then we have bumped slightly higher to 3.34%. The risk in my opinion is to the upside for longer-term rates, despite the fact the Fed has promised to keep long-term rates low for the next couple of years. What has me concerned, is that for the for the first time in a couple of years, we are now starting to hear a little different song being sung by members of the FOMC. One that is not simply "time-based," but rather based on the improvements of the US housing sector, inflation and the employment situation. From my perspective this means the Fed is now throwing a disclaimer on their long-term low rate "guarantee" that has so feverishly been advertised the past few months. They are essentially saying if the US housing market continues to improve, if inflation moves beyond 2.5% or we see unemployment push below 6.5% then all bets are off and they are making NO guarantees on lower long-term rates. This makes me a little more nervous then I have been in the past, therefore I believe locking in longer-term rates at this juncture is a smart play. Hope this helps...
 

For the rest of the story including more insight into what traders believe are influencing market prices currently, sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

Van Trump Report

Soybean Demand Continues to Surprise the Bears

Dec 13, 2012

 

Soy bulls are also concerned about the neutral-to-bearish weather outlook in South America. Thoughts of record soybean production is becoming more of a reality, but unlike the corn or wheat market, "Demand" for soy is a story the bulls can still rally behind. In fact just yesterday Chinese buyers were rumored to be in looking for another 4-6 cargos of beans. There is also talk that the NOPA crush numbers (released tomorrow) could be very strong. Most in the trade seemed to be looking for a  157.5 million bushel estimate. Meal sales have been very strong, and the cash side of the trade is starting to really heat up.  Our thoughts that the bean "basis" might soon start improving looks as if it is starting to play out. Just yesterday I heard reports that crushers in parts of Iowa are now paying +$0.35 cents over the JAN13 price, IL in areas at +$0.25 over, and the guys up in Minnesota are also reporting a positive basis. My guess is the bears can talk all they want about a huge South American crop, but they are going to have a tough time breaking flat price as long as we continue to see strong export sales and a strong cash market. Do realize China's weekly soybean tally this week totaled over 1MMT's. The Chinese demand continues to surprise the bears and certainly has to be acknowledged moving forward. Keep in mind we are just 14 weeks into the marketing year and we already have over 80% of our estimated exports sold.
 
 
USDA released weekly export sales data this morning showing another round of huge soybean sales, well above expectations. Corn and wheat sales better than last week and in line with expectations.
 
  • Corn export sales reported at 272,600. The trade was looking for a number between 150,000 and 450,000. Last week sales were reported at 47,000.
  • Soybean export sales reported at 1.3194 million. The trade was looking for a number between 500,000 and 900,000. Last week sales were reported at 1.143MT's...Once again very strong sales. 
  • Wheat export sales reported at 573,500. The trade was looking for a number between 300,000 and 600,000. Last week sales were reported at 353,000

 

As for today, the trade will be trying to get it's hand around the latest "supply vs. demand" picture. On top of the USDA recently pushing global corn production higher, Strategie Grains has come out and estimated the EU 2013/14 corn crop at 63MMT's, up some 16%. They are also forecasting the EU 2013/14 soft wheat crop at 134.2MMT's, up about 9%. Lets also keep in mind the South American farmers look as if they are going to have a very good opportunity to produce a record soybean crop. On the flip side the cash corn and soybean market here at home remains strong. The question is how long will our window of opportunity last? How long will the flat price and the basis remain strong?

For the rest of the story including more insight into what traders believe are influencing market prices currently, sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

 

Why I Am "Neutral" the Ag Commodity Markets

Dec 07, 2012

 

 Instead of hitting you with a ton of data and number, I would like to this opportunity to explain why I believe a "neutral" position in the Ag commodity markets is your best bet at this point in time.
 
As we have come to learn in life, "timing" is everything. For me, I can not recall a period where "timing" could be more uncertain. For those of us in the Ag world, especially here in the US, we are looking straight down the barrel at what certainly seems to be the continuation of an extremely damaging drought. We have had close to 700 record temps set across the US in just the past five days. 2012 is more than likely going to go in the record books as the warmest ever for the lower-48. To say the least conditions are extremely dry and producers are becoming more and more concerned each day.
 
As producers we all know the winter months will doubtfully have what it takes to replenish the soils to their normal levels, therefore you have to believe we are going to head into the spring planting season somewhat drier than normal. How dry?...Who knows! But I think it is definitely safe to say we are going to be dry. In fact, well respect weather analyst Dr. Elwynn Taylor, (who will be at our upcoming 2013 Outlook Seminar in February), seems to believe the US corn crop will have a tough time yielding anything over 150 bushels per acre. I heard reports circulating yesterday that Dr. Taylor was thinking more like a 147 bushel per acre yield would be more realistic. Taylor also went on to point out the three driest years since 1950 have been 1956, 1988, and 2012, and in each earlier case the following year also received below normal precipitation. So for argument sake let's simply assume we are going to be dry, to what degree is the unknown.
 
Let's also consider there is also some talk that up to 25% of Ukraine and Russian winter wheat may be at risk of winterkill, thanks to similar warm temperatures and dry conditions which have left the crop ill-prepared for the extreme winter dormancy period. There are also some production problems in Australia and Argentina that can be included in the mix. Let's put it this way, there is definitely enough "weather" concern to make you want to be bullish.
 
Demand seems to be more of question mark, especially for corn and wheat. Not only are "exports" way behind pace but there is also some concern about domestic usage as well. Needless to say the "weather" uncertainties are currently trumping any and all "demand" uncertainties that have arisen. If you are solely playing the "fundamental" picture and buying into the "sizzle" associated with the weather story then you have to be playing the game exclusively from the bullish side of the fence.
 
For me, there is simply more to this game than just the "fundamentals" and the hype associated with the weather. However, maybe for the time being, I am making it out to be more complex and difficult than it needs to be...but I doubt it.
 
In my world "money-flow" remains king. Without the buy-side money flowing into these markets prices could take a quick tumble. In my opinion there are so many uncertainties with the world's top economies it has become increasingly more difficult to see any clear cut direction.
 
Washington is a complete mess and no one is certain how the "fiscal cliff" situation is going to unfold. Everyone seems to have a different opinion about what could or will happen to the US dollar, and no one can accurately explain how the funds are going to react to the new taxes, rules and regulations set to come down the pipe as we move forward.
 
In the worlds second largest economy (China), you have Yum Brands and McDonald's both showing an unheard of 4th quarter setback in "same-store sales." A sign that tends to be a precursor to weaker consumer spending and a shrinking economy. Remember, in 2007 faltering US restaurant sales where ignored by most investors and we walked directly into the largest economic meltdown of our time here int he US. Just be careful thinking China is back on track and all is well and rosy.
 
Europe is completely turned upside down and is in a hole so big its only a matter of time before something major happens, like Greece pulling out of the EU or some type of major default.
 
Japan is close to going over their own "cliff" as spending continues to push their "debt-to-GDP" ratio off the map. If you asked many analyst they would tell you Japan is actually in worse shape than any of the others. This is somewhat scary considering Japan is the worlds to importer of corn. This is country and and economic situation that definitely makes me nervous moving forward.
 
To summarize, the worlds top-four economies are treading on very thin ice and there is absolutely no clear sign of direction. As you know, when there is "uncertainty" in the macro markets it often causes "fear," in return fear causes the big players to hesitate or in many cases simply move to the sideline.
 
Even though I outlined a bullish "weather" play up above, saying that the "sexy" weather story is currently trumping most all negative "demand" stories, I believe global economic uncertainties and the lack of money-flow could ultimately trump the weather story. Therefore I am electing to play the game extremely close to the shore, with next to nothing at risk and very few positions in the water.
 

For the rest of the story including more insight into what traders believe are influencing market prices currently, sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

Van Trump Report

Corn Bulls Excited about Yield Reductions in South America

Dec 05, 2012

   

Corn bulls are happy to see several analyst cutting yield estimates in both Brazil and Argentina. I concur with the Argentine cuts, but I urge you to be extremely careful buying into the rhetoric about a reduction in the Brazilian corn crop. We saw how this worked last season. A period of time in which Brazilian exporters have been moving a record amount of corn ever since their corp was harvested. Lets also not forget the fact they have been selling shipment after shipment to what has traditionally been US buyers. Just earlier this week reports were circulating that Taiwan bought South American corn for about $0.50 cents a bushel cheaper than US corn. There are also rumors circulating that both Japan and South Korea recently booked Brazilian corn for Jan deliveries. I realize eventually Brazil is going to be out of exportable corn supplies, or from a logistical standpoint they will be forced to start exporting soybeans and sugar and the corn will have to take a backseat. The question is how far behind our current export estimates will we fall before Brazil shuts it down and global end users start more aggressively coming our direction? Or will global end users simply try and go hand-to-mouth until South American new-crop bushels come online and available for shipment in March. 
 
As for today there seems to be more of a temporary "risk-on" feel across the commodity markets following the Chinese comments that they will be staying with an easing fiscal policy that is "pro-growth." Keep in mind China has represented about 50% of the global growth the past few years. Without their engines roaring or thoughts they might take their pedal-off-the-medal so to speak, traders would quickly become more nervous and further reduce their risk-exposure. The recent comments, though just words, at least provide hope that China is going to try their best to stimulate more growth. There has been some concern the new leaders were going to dial things back to some degree. Like I said these are just words, but at least words the market wanted to hear. Producers should continue to monitor new-crop prices in search for opportunities to get a small portion of your 2013 crop booked. Specs should continue to reduce exposure in the markets as we move further and further  towards thinning holiday trade. Small bull spreads in anticipation of logistical nightmares in South America or here at home still seem to make the most sense longer-term.    
 

For the rest of the story including more insight into what traders believe are influencing market prices currently, sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

Van Trump Report

Should You Be Doing Anything with Your Stronger Basis?

Dec 03, 2012

 

Corn producers who have enjoyed an abnormally strong basis as of late should be thinking long and hard about locking in they risk. Traditional wisdom would tell you that when freight and delivery charges start working themselves higher the "basis" will generally tend to start weakening. The fear is if the river were to close or have traffic drastically limited down around St.Louis (a delivery point for corn) then the basis could start to really feel some pressure. The one saving grace is the fact that exports "might" start to pick back up. The thought is if the US becomes one of the only sources for corn, then the importers will be willing to pay up the additional delivery and freight charges. If however the exports don't pick up, or the global importers aren't in much of a jam for the bushels, then the additional expenses will roll back onto the producer in the form of a reduction in the basis. This is a tough mystery to solve, and I could honestly see it going either direction, but since we are best trying to manage "risk" and build a more profitable business, I would urge those who are happy with their current "basis" to pull the trigger now on at least a significant portion of your remaining risk. There is simply no need to get greedy at this stage of the game. Flat price corn also remains somewhat of a mystery to me and I remain "neutral." As a producer, one thing you have to pay attention to is the fact the recent gains in flat price has allowed the basis to weaken to some degree. The last thing you want to see happen moving forward is the basis weakening even further, then all of a sudden the flat price starts to break. To avoid these possibilities producers might want to think more about reducing hedges and or selling more cash bushels while both the basis and cash prices are fairly strong, then re-owning on paper if we catch a downward price break. The volatility and premium in the front-end of this market seems relatively cheap right now, meaning this could be our best combination.
 
 
As for today there is talk that a seven-month high in the HSBC Chinese manufacturing purchasing managers' index (50.6), additional rains still being forecast in Argentina, Egypt's purchase of US wheat, fewer corn acres possibly in South America, a weaker US dollar, and beginning of the month money-flow coming back into the trade are providing some early morning tail-winds and pushing prices higher. The question is can prices hold as more uncertainties about the US fiscal cliff unfold and are discussed by the media??? Corn producers should think about locking in a strong basis on any "unsold" remaining corn bushels.
 

For the rest of the story including more insight into what traders believe are influencing market prices currently, sign-up here to receive a RISK-FREE 30-Day trial of my daily Grain and Livestock commentary. So many advisors want to tell you exactly how to market your crop, I want to teach you to better understand the markets and how you should respond.  If you are looking to be educated and not just told what to do, simply click here and get started!

Van Trump Report

 
 
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