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May 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.

Today in the Grains: Outside Markets or Weather???

May 31, 2012
 
Weather is obviously going to be critical in the days ahead, especially if you consider how far "topsoil moisture" ratings have fallen in the past couple of weeks. Following are the percentage of topsoil moisture rated "short-to-very short" along with how far they have moved int he past tow weeks: Arkansas now rated 82% "short-to-very short," two weeks ago just 41; Missouri now 77%, two weeks ago 23%; Kansas now 74%, two weeks ago 36%; Indian now 71%, two weeks ago just 15%; Illinois now 63%, two weeks ago 12%; Iowa now 51%, two weeks ago just 9%; Ohio now 50%, two weeks ago just 4%. I think you get the picture. We have lost a ton of top soil moisture the past couple of weeks, if the rains don't as forecast, this crop could quickly start to see reductions to yields.
 
Weather models seem to be showing some new "uncertainty" in regards to precip amounts and coverage, especially in parts of Illinois and Iowa.  I am also starting to hear more concern about the crop down in the Delta region, as it is starting to see early silking. I think right now the weather is a complete crapshoot over the next couple of weeks. I wish I could tell you more. Forecasters are calling for just enough rain and cooler temps, getting what they are predicting however could be an entirely different story. 
 
    
As for today, traders will be patiently waiting for updated weather forecast to give more insight into this weekends coming rain events and more details about the "high pressure ridge" that should start to build over the western corn belt next week. Export sales numbers are delayed for a day because of the holiday, but the trade will be eager to digest this weeks ethanol production totals. There is also no doubt the "outside" market headlines will continue to weigh on the overall direction of the trade.  My gut tells me the risk is to the upside. I feel the market has already priced in a large majority of the meltdown in Europe and has already priced in cooler temps and ample rainfall. Therefore if these events occur, and play out like the trade is anticipating, then yes, we break a little lower, however I doubt significantly lower.  On the flip side if Europe comes up with some crazy new plan or elections in Greece go to the more conservative party, and the rains don't measure up, then we are heading higher. How long we can maintain some type of rally is an argument for an entirely different day. Producers need to keep hedges in place while specs should be trading extremely small in these volatile waters. End-of-month position squaring should produce a two-sided traded. I like the thought of being somewhat long heading into the new month and into an important weekend of weather. 
 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

 

A Must Read on Corn Yields

May 29, 2012

   

Corn "bulls" are still reeling from a $0.70 cent plus break in July corn basis and prices last week, which pushed the July contract to its lowest levels since Dec 2010. As the weather patterns find it difficult to agree, the funds have been fleeing the "old crop" corn market. There is some concern now in "new crop" that the hot, dry conditions could start to affect the overall "ear" size.  We are hearing that the corn in several areas is at a stage that is critical in determining overall "ear" or "cob" size. The fear is if the ears are stunted to any degree the crop will be left to depend on excellent kernel depth and filling. The bottom-line is stress in the crop just prior to pollination can almost assuredly lock in less than anticipated yields.  Producers know this, but it will be interesting to see if the trade wants to take on any more long side exposure with so much uncertainty in the Macro markets. 
 
Please Read: This information was released by the Agronomy Department at Purdue University this weekend, written by R.L. (Bob) Nielsen. For the entire story click here: Hot & Dry; More of the Same Not Good for Corn Yield 
 
...Much of the state's crop has reached the V5 leaf stage of development (5 visible leaf collars) or has progressed beyond this stage. The uppermost, harvestable ear is initiated by the apical meristem of corn at about V5. The potential number of kernel rows per ear is determined by roughly leaf stage V7 (six to eight days after V5). Potential kernel row number is strongly determined by a hybrid's genetic background and is fairly resilient to the effects of stress. However, severe stress that occurs within the small window of time from V5 to V7 can indeed restrict kernel row number determination and is certainly a risk this year for crops under severe drought stress during those leaf stages.
 
Number of potential kernels per row on an ear is less of a genetic characteristic and much more influenced by growing conditions. This component of ear size determination is not complete until the V12 to V15 stages of leaf development and, thus, is vulnerable to potential stress over a longer period of time than is kernel row number determination. Consequently, severe and/or prolonged stress of any kind during this time period can restrict the potential length of the ears (i.e., fewer potential kernels per row).
 
While not actually a yield component, potential plant size is also largely determined during the vegetative period of growth prior to pollination. Severe stress of any kind during the rapid growth phase can result in shorter, smaller plants for the remainder of the season. Severely stressed plants also cannibalize lower leaves in an effort to remobilize nutrients to maintain the health of the upper canopy. The resulting smaller, less productive photosynthetic "factory" will be less capable of producing the photosynthate required during the important grain filling period after pollination and, thus, kernel weight may suffer even if conditions improve late in the season. 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

Will New Crop Soybeans Run to $15?

May 23, 2012

   

Soybean traders continue to fear that a Chinese economic slowdown is going to spill over causing reduced soybean demand down the road. I just don't see it. Sure, we may see some additional purchases go to Brazil during the next couple of weeks, but I am of the belief Chinese demand for US soybeans will really start to pick up form July/August forward. I also believe the USDA is still too high on their Argentina soybean production estimate of 42.5 million metric tons, and expect that it could push down closer to 40 million before it is all over. The question I have now is how long will the window of opportunity last before the trade starts to focus on massive production estimates coming out of South America for next years' soybean crop. Most in the trade seem to be already thinking Brazil will plant an additional 5.5 million acres of soybean acres next year and produce close to 80 million metric tons (Interesting to note a new Reuters survey just released last night showing analyst closer to 74 million). There is also additional talk circulating that Argentina could produce 55 million metric tons. As producers and speculators, we need to find that sweet spot where the market is desperately trying to ration near-term demand but has not yet started to focus on upcoming production. I can tell you right now with prices breaking like they have...we have done absolutely zero to ration near-term demand. My guess is this theme will have to change sooner rather than later. Even though I have reduced my "bullish" soybean rating I believe the market eventually has to trade higher.
 
My short-term concern in regards to the soybean market is the fact most everyone that wants to be on the bullish soybean train may already be onboard. Understand for prices to continue moving higher we constantly need new traders jumping on the train. With "outside" market uncertainty and fears that Chinese imports maybe slowing, we have seen more guys jumping off the train rather than jumping on. I am NOT saying there are many players taking outright short positions or betting against a soybean rally, all I am saying is that some guys are jumping off the bullish train and closing out their wagers, electing to bank profits or reduce exposure to further price depreciation. Once the market starts to refocus on just how tight the situation has become and the fact there is no alternative or substitute for demand, we may see traders once again jump back on board and prices move higher. As I mentioned months ago, I firmly believe new crop soybeans have a chance to break through $14 and even make a run towards $15, I am however just not certain about how we get there. Do we trade sub $12 before making the run? Do we trade sub $11 before making the run? Considering the length of the funds, either scenario is very possible so make certain you are prepared for extremes that we may encounter.
 
Corn, especially "old crop," is somewhat of a concern as the basis in Decatur, IL has now fallen to about +$0.55 over. The problem I see though is that with the flat price continuing to break it will do very little to entice more farmer selling. Let's keep in mind the last time we broke down into the $5.80 range in old crop corn we end up seeing significant Asian interest. My bet is we may see the same thing this time around. With domestic Chinese corn prices still extremely high, you can NOT sit here and tell me that China would not like to get their hands on more US corn right now if the price is right. My guess is we are getting extremely close to the "right price." I am going to continue to bargain shop on the breaks just like we did last time down at this level. If you don't want the risk associated with the outright futures, look to pick up some beat-up call premium on the next major leg down. You don't necessarily need to hold it through expiration but rather try and trade it for a double.
 
***Weather models turning wetter in the near-term for parts of the central Midwest and some additional rains being thrown into the forecast for parts of Russia and Ukraine turn the market upside down. To get specific the GFS weather model basically did a complete 180 by eliminating the "high pressure ridge" past the end of May. In fact they added in a "low pressure system" that could could bring on cooler temps and more significant rainfall. The EU weather model doesn't seem to be in agreement and is leaning more towards continued heat and dryness. In any regards just the thought of cooler temps and rainfall arriving at just the right time was enough to cause the funds to run for cover. From what I heard the funds sold some 25,000 corn contracts, close to 10,000 bean contracts and just over 5,000 CBOT wheat contracts during yesterday's action. There are also rumors that JPMorgan may have forced some commodity liquidations in light of their recent $2-5 billion dollar trading hiccup.

 

We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

 

 

A Quick Thought On Chinese Soybean Demand

May 22, 2012

    

Chinese soybean demand is in question by the "bears", as some traders fear this weeks dumping of government soybean surplus onto their domestic marketplace could setback demand and possibly even prompt a few "old crop" soybean cancelations, especially since Chinese crush margins have recently turned negative.   Many analyst are now thinking the Spring highs in "old crop" soy will NOT be penetrated. I should point out however on a broader perspective "total" soy imports in China for the month of April were adjusted higher to 4.883 million metric tons, that is significantly higher than the initial estimate of 4.45 million. Several in the trade are actually now thinking if May imports come in as strong as some have indicated, 5.6 million plus, then the current USDA estimate of 56 million metric tons imported during the 2011/12 marketing year will need to be pushed significantly higher. My guess is we will eventually see the USDA move to 58 million metric tons, with an outside chance the number could push as high as 60 million. I am not as bullish as some, but I do believe anyway you slice it, the USDA number is currently too low and global stocks will tighten even further. One thought you may want to consider is that Chinese importers may soon be prompted to roll "old" crop" purchases into "new crop," especially if their domestic demand slows and crush margins stay negative. I am of the belief Chinese importers have placed so called "insurance policies" on their South American purchases by booking more US "old crop" supplies than they needed. This way if South America can't deliver the soybeans then Chinese importers can take delivery of the US supplies.  If South America comes through then the Chinese will simply roll their US purchase forward to the new crop. This is just another reason why I prefer building length in new crop rather than old crop soybeans. 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

Weather Concerns to Trump "Outside" Markets

May 21, 2012

     The "weather" cards we have been waiting for as producers are starting to be dealt from the deck. The temps are heating up, the humidity level is dropping and there is now very limited rainfall in the forecast for several top producing counties throughout the corn belt. Wheat has been on an absolute tear, gaining close to $1.00 per bushel since the previous Monday, as more talks of 100 degree heat and a "high pressure ridges" cause the trade to readjust and re-think their "short" grain positions. In my opinion "weather" woes will continue to trump the "outside" market blues for the next few weeks. Even though the economic situation in Europe has not improved, nor has the Chinese economy stopped slowing down, "weather" will now become the most important ingredient for price. As long as a few new "weather" cards continue to hit the table each week our downside breaks should be somewhat limited. With soil moisture levels being more closely monitored and questioned, look for the mood of the market to shift their line of questioning form "how big will the crop be" to now "how much damage will be done to the crop" in these hot dry conditions. As the questioning changes so will the mood of the markets.

Yes there are some extreme weather rumors circulating in the trade right now. Certainly no one seems to have a handle on the Russian situation as of yet. I continue to hear a broad range of guesstimates. Right now the USDA is estimating Russia will produce about 56 million metric tons. The trade is throwing out numbers anywhere from 2 million lower to 10 million lower. My thoughts are an actual number below 50 million metric tons, could start to make a substantial difference in the US balance sheets. If US exports were to pick-up you could see the HRW carryout decline by 100 to 120 million bushels in a heartbeat, so pay close attention.

Since many of "bears" were caught "off-sides" with the South American weather issues a few months back, everyone seems to be taking much more precaution in regards to what is happening in Russia. It is my opinion that since there is too much "unknown" right now, specs need to play the game from either the bullish side of the fence or on the sideline, do not get cute by trying to pick a top in a weather-rally. Producers on the other hand should use the recent gift and start slowly making sales into each big run-up. Meaning if you need to price, hedge or sell an additional 30,000 bushels before or during harvest then do it in small doses on the days we rally. Just keep in mind the world should still end up having a significant supply of wheat despite the recent production setbacks. Yes there are going to be some balance sheet reductions due to weather related problems, but in the end I am thinking a massive supply of wheat in India and other parts of the world will eventually bring prices back down to earth. Make sure you are taking advantage of the rally…we have been patiently waiting for.

Corn is also showing some renewed strength, and is obviously being pulled higher by the first real "weather card" to come out of the deck here at home. Simply stated, the Midwest is hot, in fact producers in several high-producing locations are talking about corn "rolling" before noon. We are seeing corn in China push to levels not seen since the all-time highs were posted back in fall of 2011. Throw on top of that the fear we could see less wheat being feed and more corn and you can see why we are rallying. Think about it like this, at the start of last week wheat was actually a little less expensive than corn, now all of a sudden corn is some $0.60 cents cheaper than SRW and some $0.70 cents cheaper than HRW.… Obviously if this trend were to continue global corn feeding would start to gain back a large portion of its recently lost market share that switched over to the cheaper wheat alternatives. I don’t see this being the case longer-term, but lets enjoy the rally while it lasts.

We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  
 

Weather Quickly Becoming a Concern

May 18, 2012

  "Sukhovey" is the word of the week. For those who aren’t familiar with the term, it is being used right now to describe the hot, dry, desert like summer winds that are blowing into southern Russia, causing several in the trade to take immediate notice. The temps are really heating up and the relative humidity in some parts has now dropped to below 30%. There are a few sources starting to think it could be a repeat of the 2010 weather cycle that devastated the Russian crop.  The bottom-line from here out will be the rainfall amounts in these increasingly dry areas of the country.  If we actually see the crop conditions start to get worse you have to believe the supply and demand figures will really start to tighten later in the season. Keep in mind a lot will also depend on the situation in Europe, the dry weather hitting eastern Australia, Ukraine, Kazakhstan and several areas here at home in the southern plains. Moral of the story, keep one eye on Russia at all times from here out, if the crop looks as if it is going to fall below 50 million metric tons then there is a chance the wheat market will become extremely nervous and explode higher on "short" liquidation. At the same time though we need to keep our other eye on a few weather related problems starting to pop up in other areas of the world...Kansas, Oklahoma, Australia, Europe, etc... 

Corn is obviously going to be all about "weather" the next several weeks. I continue to hear talk from producers who are experience more dry conditions than normal, but at the same time many actually tell me they would prefer this over conditions that are too wet. The dry conditions this time of year often allow the corn crop to establish extremely deep-roots which prove to be more beneficial in the long run. I am not for one-second saying that the dry conditions do not need to be monitored, I just wanted to point out that it is still a little early to be "wildly bullish" on these reports.  

I know it is early to be talking about the 2013 crop, but I want to go ahead and get a floor in on 20-30% of our estimated production for the 2013/2014 crop year. A lot of you guys already have a portion of your fertilizer inputs locked in and cash rents secured for the next couple of years. Wheat traded back above it's 200 day moving average and from a technical perspective is looking much stronger. Corn however has me a little more concerned, especially longer-term. I am just worried that "IF" the weather turns out to be "non-event" then prices could really drop in the coming months.  My reasoning is that ethanol production domestically is NOT see the type of gains it has experienced the past few years, and the livestock herd is NOT growing any too quickly.  Moral of the story, our only real area of growth will be coming from exports. Unfortunately exports in corn will not move the balance sheet like exports in beans move the balance sheet.  Therefore without a significant production failure we could very well be looking at sub $4.50 corn in 2013-14.  Why risk it???

Hotter, dryer weather seems to be prompting the "short" traders to re-think their current positions. Traders might not want to be outright long the wheat market as of yet, but many are certainly reducing their short side exposure as things start to heat up in Eastern Australia, the southern parts Russia and here in the southern Plains. If those short the market continue to buyback their positions in an effort to get closer to shore and reduce upside exposure then there is definitely room to work higher. Corn traders are still digesting thoughts of private analyst raising their estimates for China's corn imports, and the Argentine government lowering their own production estimates for corn. Remember, the USDA is at 21.5 million metric tons for Argentine corn production, when the trade is thinking we should be much closer to 20 million metric tons. The soybean market may soon start to gather some additional support from the hot dry weather as well. Not that the soybeans that are already planted are in any type of trouble, but those thinking about "double cropping" soybeans may soon start to rethink their original plans if we continue to see the hot, dry patterns. You have to believe if the total number of soybean acres stay below 76 million then prices should remain well supported.  With the "weather" becoming more of a concern we should start to eventually see a little more fear and uncertainty coming into the marketplace. This mood should help support most breaks. Traders are definitely nervous about carrying large long positions home over the weekend with Europe teetering on the brink of a melt-down, but with more talk within the trade about a possible "ridge" building very few will want to be outright short. Producers should continue to wait to price more new crop bushels. Those looking to price 2013 corn can start slowly easing a toe into the water. Spec's need to be positioned to the long side in extremely small doses.   

We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

 

 

Three Reasons Why the Market Is Nervous

May 16, 2012

   

Hearing a lot of talk circling around Brazil having already sold close to 85% of their soybean crop and lineups at the ports once again building. We may see more demand coming to the US sooner rather than later. This has certainly given the "bulls" something to talk about, but with the funds still holding massive long positions and the "outside" markets being extremely volatile we are seeing more risk reduction. As I mentioned yesterday, be extremely apprehensive chasing any near-term rallies.  
 
The problems in Europe seem to become more significant each and every day. Greece is a complete nightmare, both Spain and Italy are teetering on the brink of a melt-down, France has recently elected a Socialist as their new President, and the elections in Germany continue to show signs that Chanchelor Angela Merkel may soon be on her way out as well.  The JPMorgan losses continue to mount and there is no definite sign that the worst is behind them. Net-net the market is nervous and uncertain once again about three major issues: 
 
  • The European debt debacle - Will Greece leave the EU? Will the elect a communist to head their new government on June 17th? What is the contagion risk if it where to happen? Will Spain need to eventually be bailed out, and if so who has the firepower and available capital to do it? Remember Germany says Spain is too Big to bail out!
  • China’s continued slowing growth – Will the Chinese government be able to navigate a "soft landing?" How will overall commodity demand be affected with Chinese growth falling well below the traditional double digit gains form the years past? Will the Chinese property bubble soon burst?
  • Problems in the US – Will the Fed look to dig a deeper hole by bailing out the US economy for the third time with QE3? Will the US employment and housing sectors gain enough traction to support themselves moving forward? Just how bad will the JPMorgan trading snafu end up being, could this place a major black-eye on what many had considered one of the safest houses on the block? 

 

Corn traders are being forced to decide if they believe the recent talk about a cooler, wetter weather pattern developing this summer. If the "El Nino" like patterns do develop I have to believe it ultimately delays the crop to some extent, and the "old crop" bushels become much more valuable.  On the flip side if conditions remain dry and are mixed with some extreme heat the trade will start to become extremely nervous about yields and quality. Remember the majority of the so called "early" bushels will be coming predominately from the South.  The recent rounds of rains continue to be forecast for the central to northern areas of the belt. In my opinion I think "old crop" corn remains "undervalued." Continue to bargain hunt, looking for cheap bullish strategies in July corn. Don't bet the farm on it, but picking up some cheap "calls" in hopes that our horse makes a surge down the backstretch might payoff handsomely once the race ends.
New crop corn in my opinion is going to all come down to weather conditions during the last two weeks of June and the first two weeks of July. Producers should use any rally between now and mid-June to try and get themselves to at least 40-60% priced. If the weather is favorable and there is little damage or threat to the crop a sub $4.50 print is definitely a possibility. I don't want you to believe everything you here out there. I know some analyst are saying that China has a floor in the market just below $5.00, and that is our ultimate downside, all I am saying is don't bet on it. Keep in mind "exports" will not move the corn market like "exports" move the bean market. There are some very smart traders out there talking $4 corn as a very real possibility, especially "IF" there are no major production type glitches or setbacks. I should also point out that CNGOIC is now forecasting a record corn crop of 197.5 million metric tons for China this year, a rise of about 3% from last year's so called record crop. Not saying you should believe it, but realize what we are up against as the "bears" will once again throw another arrow in their quiver. I believe it is just still too early to throw in the towel and get overly sold, 40-60% however seems prudent even with this much of the growing season still in front of us. 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

 

High Stakes "Poker" in Old Crop Corn

May 14, 2012

   

Old crop corn is definitely a bird of a different color right now, and in my opinion is extremely dangerous...unfortunately in both directions. Let me explain: while I doubt the bushels exist, and I also doubt the US farmer will sell what he has left on the recent break, we still need to consider a couple of important thoughts. As a trader, and as a friend to a lot of traders, I have learned through the years that as we make a lot of money we start to get extremely cocky or start believing that we can NOT be wrong. Many of the guys who are still holding cash bushels have obviously done insanely well the past couple of years, and now "truly believe they are just that good at marketing." All I can say is be extremely careful driving the car at high speeds looking in the rear-view mirror. I have crashed in these markets several times making this simple mistake.
 
Producers left with "old crop" supplies, in my opinion, are now playing an extremely dangerous game of high stakes poker. Unlike last year (and I hate to say it), but YOU (the producer with old crop bushels) may end up being the ones ultimately holding the "bluff" hand. I realize the USDA has thrown out their bluff by reporting the 851 ending stocks number, while you are actually the ones that own the old crop corn bushels and feel as if you are in control. I am not trying to make anyone mad, but just let me explain a little more about how this game often plays out.
 
If we look back to last year, I would have to say the hedge funds ultimately held the "bluff" hand. Meaning they simply bid up the futures, the trade bought their bluff and they banked big profits as they blew out north of $7.50. From where I sit, the funds look as if they have tried the exact same strategy this time around, buying most every break and getting killed in the process. Simply stated, no one bought their "bluff," production in South America never really fell apart, in fact the USDA is now estimating Brazil will have an extra 200 million bushels compared to their last estimate, and their prices are well below the US for July corn. We also have to realize the US has had next to ideal planting conditions and the thoughts of one billion bushels coming into the pipeline "early" are running rapidly through the trade.
 
All of a sudden the bet moves around the table to the "farmer" who is left with the actual corn, he "calls" the bet, and in some cases due to extreme stubbornness and anger over the USDA he actually raises (by re-owning more on the board). The problem I see for the "farmer" is who will now bid up the bushels he is left holding. Witness how the May contract has broke more than $0.70 cents in the past few days and the positive basis in many areas have backed off by $0.10 cents or more. Remember, this game ends in less than 35 trading-days. Meaning that the July futures contract will be past first-notice-day, and no wants to be the last one to bluff. Basically no one wants to be the guy without the "chair" when the music stops playing. Do you think producers who are looking at a basis of over $0.50 cents in the July contract will want to carry the corn forward and take the flat price hit and the massive basis hit as well? I doubt it, but if no one else "bluffs" or bids up the bushels then where do we end up? This is exactly why I didn't want to hold "old crop" bushels this late into the game...
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  

Are Outside Market Woes Signaling QE3???

May 11, 2012

JPMorgan Chase announced a surprise $2 billion dollar trading loss in their "credit derivatives" group after the close yesterday. The losses are being blamed on "errors, sloppiness and bad judgement," the real kicker is their executives are saying the number "could get worse."  
 
I am afraid in the end this is only going to open up another can of legal worms in Washington as many already feel what the Big Banks call "hedges" are nothing more than risky spec type plays using excess client deposits.  With the MFGlobal debacle fresh on the minds of regulators and investors this is certainly not what we need. I wouldn't call it a "major" nightmare, but it certainly will do nothing to get the "outside" market winds blowing at our back.
 
As long as we are on the subject of Big Banks, lets not forget all of the problems in the Spanish banking system right now, also keep in mind the "downgrades" that may still be coming from the "Moody's" ratings agency around the next corner. If you remember, Moody’s warned earlier this year they were placing 17 of the worlds larger banks under careful review. The fear is sometime between now and mid-June some or ALL of these banks could be downgraded.
 
There is actually rumors stirring that a few of the bigger banks such as UBS, Morgan Stanley and Credit Suisse could be hit with significant downgrades. Keep in mind Federal Reserve Chairman Ben Bernanke commented in his speech yesterday that the US banking system is much stronger and more more resilient than a couple of years ago but still faces several challenges dealing with credit "quality" and overall "liquidity."  Imagine that..."liquidity" issues??? Who would have ever guessed.
 
I should also note that a fairly sizable "hedge fund," was rumored to have liquidate some 25,000 corn and close to 15,000 cotton contracts as they prepare to close their doors in couple of weeks. Like many "hedge funds" they have been on the wrong side of the trade as of late and have been loosing money hand-over-fist. Because of this they are liquidating all of their positions and sending investors their remaining capital. Read additional info on this subject in my first story down below. 
 
Could all of this this lead to QE3? That is the magic question still circulating in the trade. Some will argue yes, but I think the Fed is going to sit back and watch how things play out before they jump in with more quantitative easing. I think they will watch the US stock market. Another 100 to 200 point drop in the S&P500 and they will be more tempted to step in.  If things continue to unwind in Europe, such as Greece leaving the EU, or Italy, Spain and Portugal melting down even further then I suspect the Fed makes a move. If we continue to see noticeable losses in the "housing" or "employment" sector then I would suspect the Fed jumps back in.
 
Otherwise if things stay "status quo" for the next couple of months I suspect the Fed moves to the sideline and lets the US elections play themselves out before making any additional moves. If I had to handicap the odds my guess would be 60/40 they move with some form or fashion of QE3 before the US presidential elections. Ultimately bullish the commodity markets as a whole as they continue their efforts to "deflate" the Dollar.  
 

One last thought: 

Corn traders are trying to desperately understand the USDA's logic in RAISING the "old crop" ending stock number while the cash market remains insanely tight in many parts of the country. Just the opposite of soybeans, the USDA actually left corn exports "unchanged," and decide to reduce feed-usage by another 50 million bushels (the lowest level now in more than 20 years). Throw on top of this the fact they raised Brazil's corn production by 5 million metric tons, while pushing the US "new crop" yield estimate to 166 bushels per acre... and all of a sudden we are swimming in corn.  
 
Just keep in mind however we are not yet swimming in "REAL" corn, but rather the type of corn only "Peter Pan" can use... the "imaginary" kind! All across the country end-users are struggling to find corn, elevators are bidding up the basis  because they can not get enough corn, ethanol plants are temporarily closing because they can not get enough corn, and China is importing corn right and left because they can no get enough corn, but yet the USDA tells the world we have a glut of "old crop" supplies. I am not saying they are wrong, because they are the ones making the rules, and they can count the cards anyway they see fit.
 
All I am saying is "thinking" there is a glut of supply and actually getting the corn in the hands of the end-users are two completely different animals.  In a nutshell, I believe it will take the "old crop" some time to digest the latest round of bearish USDA data, but in the end I think prices will move higher as the market simply does NOT have enough "REAL" corn to go around. I realize we have plenty of the "paper" or in this case "imaginary" corn to keep the pipelines filled. I am just not sure for those who operate in the real-world and have real-livestock to feed, or real-ethanol to produce the "imaginary" corn is going to get the job done.
 
Before long we will be printing pretend Corn the same way we print pretend Dollars! In any regards, I may be dead wrong, but I believe "old crop" corn prices must move higher in order to entice more farmer selling. From where I sit, the farmers who have the bushels left are flush with cash, more storage than ever and certainly seem as if they are willing to "call" what they believe is simply another USDA "bluff." It could get wild in the July contract before this thing comes to an end so make sure you are belted in. 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -  Van Trump Report  
 

What Longer Trading Hours Mean to Producers

May 02, 2012

    The CME has officially announced they will be changing their electronic trading hours. Corn, Wheat, Beans, Meal, SoyOil, Oats and Rough Rice will all soon be trading 22 hours a day starting on May 13th.  From what I have heard we will be open each  trading day from 6pm until the following 4pm. On Sunday nights we will actually open at 5pm rather than 6pm. Although markets trade until 4:00pm CST, daily settlements will continue to be based on the 1:15pm CST close each day. You may not realize it, but this a complete game changer for the industry as a whole and may actually be a much bigger deal than the exchange has anticipated. Fundamental traders and farmers may find themselves at a real disadvantage to the ever more powerful high-frequency traders, especially on days when the USDA releases a significant report.  No longer will one be able to digest the information and formulate a strategy to better hedge their crops as the split second reaction of the "algorithm" traders and high-tech crowd will have already jumped the trade. No longer will farmers be able to field calls from their advisors and develop a game plan or strategy in regards to the numbers as it will be too late. Being open until 4pm is  NOT the problem. In fact I am all for the market staying open a little longer as I believe it gives the producer a better chance to price more bushels and hedge their risk, but being open during the release of the USDA data gives the high-flying tech crowd an undecided advantage. With the world screaming that "speculation" is ruining our commodity markets and unfairly manipulating price, I am afraid the  exchange may have taken a step in the wrong direction with this move. I understand the CME Group is only trying their best to compete with the pressure from the ICE exchange who is going to launch new electronic Ag contracts this month with extended 22-hour trading hours, but when is the government going to step in and start looking out for what is best for the farmer or the individuals that these exchanges were originally designed to help protect. Instead it is all about competing for market share, exchange fees, higher volume, etc... This isn't about creating more direct market access, or creating more liquidity and less volatility for the producers.  This unfortunately is all about money, greed and competition.  Unfortunately form my perspective it looks like the farmer and the traditional grain traders will once again be footing the bill. Talking or writing letters to your Congressmen, the CFTC or USDA maybe the only hope for having this decision reversed. Unless your a farmer that has the time sit on top of your computer at exactly 7:30am CST on the day of the USDA report and you are extremely well versed in electronic order entry, high frequency trading and have an internet connection that is lightening fast this is NOT to our advantage. I repeat if you are a farmer this NOT to your advantage regardless of what song and dance they are trying to sell us! Remember, speed is essential for these algorithm program type high-frequency traders that move huge volume off of the news headlines and reports. Basically the guy with the firms with the fastest internet connections will have an undecided advantage on USDA report days. The high-frequency traders are now happy, the exchange is happy as volume increase and the rest of us are left scratching our head.  

 
One very well respected trader in the industry wrote me the following: "Obviously, like all of us, I don't like the idea of a 22 hour trading day.  It is particularly tough to swallow given that the ICE has essentially hi-jacked the CME/(Cbot) franchise.  It is too early to pass judgement, but my quick read is that like the success that ICE has had in mimicking the NYMEX energy contracts, they have better than a 50/50 chance of draining CME volume away.  I think this also another nail in the coffin for the open outcry session and importantly, pit traded options. The CME has to compete based on a commercial viable physical delivery contract(s) that draws the hedger.  But at the end of the day, its about serving the largest segment of trade...and it's not the hedger, unfortunately.  If successful and I believe it will be, more consolidation is inevitable...further pressuring the retail commission business.  Interesting times...adapt or perish."
 
 
We are making some moves in response to what the market is showing us. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will see where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow" and the Outside Markets.  Just click here -        


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