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August 2013 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.

Setting up for a Wild Ride?

Aug 31, 2013

We eneded the week on very thin volume and final position squaring ahead of the long holiday weekend, which coincided with month-end (both of which traditionally prompt some form of liquidation), that was evident in the markets. In a nutshell this means traders who have been long the soybean market, may look to bank some profits, in turn causing the market to backpedal a bit, as we saw Friday.  The weather is also causing a few bulls to pause as lower temps and scattered rainfall is in the forecast. We saw record high temps from Des Moines, IA to St. Louis, MO, on Friday.  There were scattered showers, at best, for areas in Iowa and northern Illinois, on Friday night.  It looks like we have one more day of heat before the real break could happen.  The problem is if the rains don't fully develop or fall in the key areas, when we open up Monday night we will be off to the races. Better than expected rainfall over the weekend and more rains added to the extend forecast and we could tumble back down the mountain.  To say we are officially at an "inflection point" would be a gross understatement! Producers and traders alike need to stay buckled in, preparing for an insanely wild ride during the next 30-days.  Get all of my daily comments in the Van Trump report by CLICKING HERE.  Have a great Labor Day Weekend....  Thank You   

China's corn crop in question?

Aug 30, 2013

 Corn traders are starting to talk about the potential losses to the corn crop in China. Along these same lines, the USDA announced that China has purchased 120,000 metric tons of new-crop milo, possibly their biggest purchase ever. Is this another clue that Chinese corn demand is set to surge??? Keep in mind last year they were able to use wheat as substitute for short supplies of corn. Considering how much wheat they have imported and the production problems they have had, I suspect wheat won't be available to bail them out this time around. I might be a little early to the party, but I am starting to believe the USDA could be grossly underestimating Chinese corn import demand. Remember, for the first time ever they are now importing corn from Ukraine and Argentina. My question is why would they be opening up new trade lines if they didn't believe they were going to need more and more supply. Eventually China become a "quantity" buyer of corn rather than simply a "price" buyer...is this the year? Here at home there continues to be talk of big yields being harvested down south and that the bushels will be working their way up North to help ease supply shortages. The question is how soon? Considering a large portion of the crop is being harvested at extreme moisture levels (26-28%) there is certain to be some drying delays. Let's also not forget river traffic has been delayed as of late with several spots along the Illinois and Mississippi River having to close due to low water levels. The Corp of Engineers has had to go in and do some dredging to get things going again. The problem is without some heavier rains soon river traffic could be somewhat limited..... To receive my daily report click the link below. Thanks

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What the "trade" is watching this week!

Aug 29, 2013

 Grain and soy traders are trying to put all of the pieces of their puzzle together as well. I thought it was time for a little review session:

  • Weather - Too hot, too dry, not enough sunlight, threat of a freeze, hail, winds, etc... With the crop being planted so late and so many weather variations in play "weather" is currently our biggest wild card. As for right now forecasters are....Click to Read More
  • A long three-day holiday weekend - With Labor Day on our doorstep the trade will have to go a lengthy 3-days with major weather uncertainty. WIll the cooler temps and rainfall stay in the forecast while the markets are closed?
  • Soypocalypse - We have obviously been hit by soy mania as the trade buys every bullish headline that comes across the wire. Low pod counts, small plants, wet feet, limited sunlight, heavy weed competition, early frost, and now talk of more extensive disease problems. From what I hear...Click to Read More
  • Yields - Obviously with so many variables yields remain up in the air. As of right now the consensus is clearly that the soybean yield is currently too high and will need to come down closer to 40 bushels per acre. Corn seems to be under a little more debate, with bulls saying we should be closer to 152 bushels per acre, and the bears saying will end up closer to 158 bushels per acre. 
  • Month-end is quickly approaching - A period of time when many money-managers like to traditionally book profits. The question is will those who have been long take profits and move to the sideline?
  • The upcoming Sept USDA report - With surveys currently in farmers hands it is most likely the USDA will be receiving negative yield data. the question is how far will the USDA drop their yield estimates?
  • Unanswered acreage questions - Will the USDA address the questions surrounding "preventive plant" acres and if so how will it ultimately influence harvested acres? Several sources thinking corn harvested acres are still 1-2 million too high, soybean acres....Click the Read More
  • New-Crop Supplies - Bears are talking about possible record breaking corn being harvested down South. The problem is the crop still has high moisture levels, that once dried down might not actually be a new record. There is no doubt however that this corn is starting to make its way up north in limited supply. Time will tell if it can help ease the lack of supply. May soon start to more directly impact the old-crop basis. 
  • Money-flow coming back into commodities - With threat of war looming in the Middle East, in turn pushing more money back into crude oil and precious metals will it continue pouring over into the Ag markets? Keep in mind Barclay's is now estimating $900 million went into commods in July (the first increase in 5 months).
  • Demand - In my opinion this is one of the biggest question marks, but unfortunately this card is buried so deep in the deck we aren't going to hear much about it for several more weeks. The trade is clearly focused on production, so until the crops are completely out of the fields I suspect demand will remain on the back-burner. 
  • Wheat Demand - There continues to be bullish talk in regards to abnormally strong Chinese and Brazilian wheat demand. Talk in the trade is that China will ultimately import 10 million metric tons compared to just 3 million last year. Last year at this time frame Brazil had purchased about 50,000 tons of US wheat, this year they have already purchased close to 1.8 million tons of US wheat. Addition l thoughts are limited wheat supplies in Brazil and China could limit their ability to use wheat as a substitute for corn, hence they will need more domestic corn supply.
  • Chinese Corn Demand - There has been very little talk about Chinese corn demand, but I should let you know I am starting to hear a little more buzz as of late. There is actually some talk...Click to Read More.
  • Chinese Soybean Demand - Chinese buyers have clearly stated frustrations with South American logistical hiccups and have been strong buyers recently of US soy, the question is how much longer will they buy from the US? Several Brazilian and Argentine cargoes have started being booked, and talk is from Feb-forward the US is simply not competitive. In fact I have even heard of some Argentine cargoes being booked for Nov-Dec deliveries. 
  • Upcoming South American Crop -  We have all heard the talk that South American producers (in just a couple of weeks) are going to start planting record soybean acres. Theory is corn has become to expensive to plant and soy is providing more profitability. There are some though who think the extremely dry conditions might cause some producers to pause and in turn not show as big of a jump as some are forecasting. There is also the fear that dry conditions will delay planting, in turn leaving global importers searching for supplies in early 2014 as South American beans show up late to the docks.      

 

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Will the corn lid come off?

Aug 28, 2013

 Corn traders are also questioning yields. The problem is we planted 97.4 million acres of corn, the most in 77 years, so yields don't have to be "stellar" to produce a record large crop. Do you realize we have increased our planted corn acres by 24% here in the US since 2006? Anyway you slice it thats a big number and one that unfortunately is going to keep some type of lid on prices. For those who are trying to best judge yield losses or damage to the crop, I have included some information from Purdue in regards to yield loss estimates when corn dies due to premature death, which some producers are now looking at because of the recent "flash drought."  

 

  • Premature whole plant death at soft dough = a 55% yield reduction compared to a normal finish.  200 bushel per acre potential corn becomes 90 bushel an acre in this situation.  When corn dies at this stage the grain usually has very low test weight and is of very low quality.  The kernels are also so small that increased harvest loss is common (especially when the field has "greener" pockets mixed in with really dead areas).
  • Premature whole plant death at the start of full dent = a 41% yield reduction compared to a normal finish.  200 bushel an acre potential becomes 118 bushel an acre in this situation.  Corn dying at this growth stage is very common in Illinois right now! This grain looks more like corn when it dies at the start of dent but it often has test weight and quality issues. 
  • Premature whole plant death at ½ milk/starch line = a 12% yield reduction compared to a normal finish.  200 bushel an acre potential becomes 176 bushel an acre in this situation.  When corn dies at a ½ milk/starch the grain usually maintains decent test weight and quality.   (Source: Purdue University)

 

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Why soybeans could make new highs!

Aug 28, 2013

 Soybeans remain the best "story," and there are still many unanswered questions, especially with the lack of available sunlight moving forward. Since most producers are running group 3,4, or 5 beans the fear is they will NOT be able to regenerate or add pods this late in the game. And even if they do add pods the pods won't be able to fill properly. Meaning you may perhaps see the pod count jump but the overall yield would still be disappointing on underdeveloped pods that didn't fill properly. With this in mind the trade currently seems to be penciling in a 40-bushel yield. The only problem is this would take soybean supplies to record tight levels and force heavy price rationing. Considering the Chinese have already booked or purchased a large quantity of US beans we would be left to ration domestic usage. The question is at what price does that occur? There are certainly lots of unanswered questions and "what if's", but the late-planting coupled with the current genetics might make it tougher than many are thinking to produce good soybean yields. Comparing the situation to last year is like comparing apples to oranges. The crop got in "early" so the pods were able to get the sunlight needed to interact with the genetics, this year that might not be the case. Bottom-line, there is certainly a lot of moving parts in the soybean market, and we have to remember the trade has never completely given up on the bullish protein story.  Producers should continue to remain patient. If the market can break through what many technicians are calling a nearby double-top just above $14.09 then we will entertain more sales. Until then sit tight!

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Will US corn get larger like it did in 2009?

Aug 27, 2013

Corn bulls are wondering just how high prices can climb on the heels of the soybean market. The bears are screaming that even though individual farmers are not talking about record yields, the US as a whole is still on track to break all previous production records for corn. If you remember it was back in 2009 that US farmers produced a record US crop of 13.151 billion bushels and prices in Sept of 2009 plummeted to $2.96^6 per bushel. I am certainly not calling for a repeat performance, but I do believe it is important to review and understand our history. Below are a few highlights and comparisons I think we need to consider: 

 

  • 2009 set a NEW record for US corn production at 13.151 billion bushels. This record still stands, but looks as if it could be beaten this year. The current USDA corn production total is estimated at 13.763 billion bushels.  
  • FWIW back in August of 2009 the USDA was projecting a crop of just 12.761 billion bushels, by Jan (the final report) that number jumped to 13.151 billion.
  • Harvested acres in 2009 fell from 80 million in the Aug 2009 report down to 79.6 million acres. Meaning they only cut 400,000 from their Aug 2009  estimate. This time around there is talk the USDA could cut 2-3 million from their current harvested acreage estimate.  This would still leaves us with 7-8 million more acres than in 2009. 
  • Planted acres were reported at 87 million in the August 2009 report. Final planted acres were adjusted down to 86.5 million. This year around we could be 10 million acres higher considering the current USDA estimate is that we planted 97.4 million corn acres. 
  • Yield estimate in the Aug 2009 report was at 159.5 bushels per acre, of which it eventually grew in size to 165.2 final yield estimate. 
  • Total corn usage was estimated at 12.875 billion back in Aug 2009 vs. a very similar 12.765 billion in the most recent Aug USDA report.  
  • Ending stocks were estimated at 1.621 billion in Aug of 2009 vs. the most recent USDA estimate of 1.837 billion. The big kicker and key to this entire puzzle is that "beginning stocks" in the Aug 2009 report were estimated at 1.720 billion bushels vs. just 719 million currently being estimated by the USDA. That means we had an extra 1 billion bushels in the pipeline compared to what we have available today.  That makes a huge difference! 
  • Prices in return during Sept 2009 fell to $2.96^6. 

 

The question is will the US corn crop get larger like it did in 2009? Will we collectively set a NEW record for production? Or will the yield setback even further while at the same time seeing major cuts in harvested acreage? We could obviously go either direction right now, but with a billion fewer bushels to rely on the trade is clearly more nervous. Producers should be looking to reduce just a little more new-crop risk on the rallies to insure profitability, but don't let the perma-bears talk you into selling out just yet. I am going to pull the trigger on another 5% fairly quickly, in an effort to get 70% priced/hedged. Remember, for most of us (with storage) we have at least another 12-months to market our remaining 30%. I am fairly confident we can be somewhat patient and selective with our efforts.    

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Will soybeans make new highs or should you be selling now?

Aug 20, 2013

 Soybean bulls are backpedaling a bit this morning on the higher than expected pod counts and talk of extensive buying of Brazilian beans from late Jan forward. According to the Ag Ministry, Brazil has already recorded a NEW record for soybean exports this year, having exported almost 35 million metric tons, basically 95% of CONAB’s export targets for the country. The kicker is they still have 3-months left in their marketing year. The bulls are wondering if Brazil is close to being sold-out who will fulfill any immediate Chinese orders? Thoughts are with massive supplies still in transit, large quantities sitting at the Chinese ports and a US crop closing in on  harvest there should be no concerns. Be careful here, as we have come to learn in life, everything always sounds really good on "paper." Making it happen can often be a completely different story. Producers who are behind should continue to make catch-up sales. Those who are 60-70% sold or hedged should be looking to reduce a little more risk if we can push into the $13.20 to $13.30 range.

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Are soybeans near the top?

Aug 19, 2013

 Soybean bulls continue to talk about lack of rainfall in many key growing regions; fears of an early frost; thoughts of a 500,000 to 750,000 acreage reduction; yields shrinking rather than getting larger... The bottom-line is the soybean story is simply much sexier than either corn or wheat right now. We all know supplies are extremely tight in old-crop, and new-crop remains well behind schedule, in other words not yet showing up to save the day.  In fact most traders are now thinking if the US doesn't produce a 42 (plus) type yield we could be chewing on another record tight supply story. With fears of shortage still circulating prices are unlikely to break. As the $13 price range is now just a few steps away, I have to imagine many producers are getting one finger on the trigger. The target will be moving quickly so make certain you are prepared to execute (locking in profitability) when your goals are reached. I am afraid if the weather story doesn't play out, US bean prices could be significantly lower as we head into 2014. For the time being however US production remains a question mark and price premium is being added accordingly.  

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Do we have a winning hand?

Aug 16, 2013

 Corn and Soybeans bulls have been excited to see several new cards hit the table the past few days: Very strong export sales data; Increasing dry-weather in some key production locations; Escalating fears of an early freeze; What appears to be bullish FSA Certification and Preventive Plant numbers. In and of themselves each card initially seems to be a winner, but considering they are somewhat of a card from a different suit, the verdict is still out as to whether we can pair them up with something we are holding in order to truly make a winning hand. Lets review: 

 

  • Export Sales Data - No denying the fact weekly export sales have been fairly strong on the price break. The question is with the lofty USDA export estimates already penciled in, and large supplies in South America that will "EVENTUALLY" make their way in to the marketplace, will US exports continue to keep this brisk pace. I am very uncertain. Yes, Brazil continues to have trouble getting supplies out of the country, but the bushels are not disappearing. Meaning, you have to believe the bottleneck eventually frees up to some degree. 
  • Increasing dry-weather - Yes, the east is wet and the west is dry... but it hardly seems like there has ever been a summer where some portion of the US area hasn't had an issue or concern with abnormally dry conditions. I am NOT arguing the fact we are extremely dry in some areas, but with the massive amount of acres in production this year you have to wonder as a percentage of those acres planted are we really all that dry? With a large portion of the near-term rains taken out of the forecast (beside parts of northern MO and southwest Iowa) the trade has become extremely concerned we might not see any significant rains until late August. No one obviously knows for certain how it will play out, but we will need to pair up a few more dry weather cards moving forward if we are to see any substantial setbacks in TOTAL production.
  • Early Freeze - Certainly sounds reasonable to me, especially considering the late planting dates, cooler than normal temps, limited sunlight, already abnormal nighttime lows, etc... The problem is it still hasn't happened.  Meaning we need to catch a couple of more cards to make a hand.  Not only do we need a sub-30 degree print, but we need it in a area of heavy production and we need it to be somewhat widespread... Then we might have a winning hand.
  • FSA Numbers - This is very mixed bag of nuts. Some sources view it as wildly bullish presuming the "harvested acres" in both corn and soybeans are going to plummet.  Others (including myself) are very hesitant, believing that the FSA numbers are being misinterpreted. Yes, the "certified acres" were surprisingly low, but we have to remember there was an extension handed out, so those counties who didn't report may not yet be represented. Thoughts are "certified acres" by the FSA move higher in the mid-Sept report.  There is no question the 3.4 million corn acres enrolled in "preventive plant" and the 1.6 million bean acres in and of itself seems bullish, but we have to be patient and see how ALL of the pieces (NASS data included) eventually fit together. Remember, not only will the FSA numbers be revised each month thru-Jan, but the "prevented plant" acres are acres that were never actually "planted." Meaning they were more than likely accounted for by the USDA via the June farmer survey. Be careful getting wildly bullish off these numbers. I am sticking with my previous guess that corn acres could drop by 1-2 million, bean acres could end up 500,000 acres lower or 500,000 higher (real wild-card), and wheat acres will more than likely drop by 500,000 to 1 million. 

 

I could go on-and-on, but I think you catch my drift.  Yes, we have drawn a couple of nice cards from the deck, but we are going to need to catch something on the "flop" before we can start raising our bets.  Personally, I am going to continue to "check" my hand and play it safe. Don't get me wrong, as producers, we are holding better cards today than we were a week ago, but we are still a long ways from drawing-out. 

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Is freeze insurance the next big thing??

Aug 15, 2013

 Many producers are starting to look into "Freeze Insurance." The graphic below simply shows various types of coverages growers can now take against key weather events that can ultimately limit corn yields. There are also coverages now available that can cover specific time frames, i.e. a $100,000 of freeze insurance in Northern Iowa through late-Sept for under $20,000. From how I understand it, pay-offs are based on temps... so if it falls to 30 degrees you get paid a certain amount, a drop to 29 degrees you get paid even more, and so on. There are also similar short-term policies available for "rain" and "heat" during desired time frames as well. Meaning if you know your crop is going to pollinate during a certain period and are concerned about the heat and or lack of rainfall you can insure just that period of time. Bottom-line, there are some very cool things happening in the insurance world that can help todays producer better mitigate his risk besides the standard policies and traditional on-the-board hedging. Be sure and talk with your local insurance agent about what type of "Freeze Coverage" they are offering right now. If they have nothing available you might want to call our office so we can point you in the right direction (816) 322-5300. I have some guys that are offering some good rates and coverage if it is something you are interested in.

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Are USDA revisions causing traders to become concerned??

Aug 14, 2013

Deutsche Bank and Goldman Sachs are both skeptical of USDA downgrades to the US corn crop. Deutsche and Goldman both raised their estimates to over 160 bpa in the last week and are standing by their forecasts. Other commentators share in the skepticism and expect to see the USDA number go up in future reports.

How did the USDA arrive at a 1.3% reduction in this years corn harvest estimates? Lance Honig, chief of the crops branch of the USDA’s National Agricultural Statistics Service, says the decline does not imply that the corn crop has deteriorated from last month, because the USDA used different procedures for estimating the size of the harvest. August is the first month the USDA surveys farmers and physically checks fields to determine its estimates. In previous months, it relies on statistical formulas because the crop has not sufficiently developed. From July 24 to Aug. 6, the USDA interviewed more than 24,000 producers about their yield expectations as of Aug. 1. The government will continue to survey the growers throughout the autumn to provide updated reports.  

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Is an early freeze in the cards?

Aug 14, 2013

 Fears of an early freeze or even a regular freeze having a greater impact on soybean yields than corn yields, In fact many analyst are now estimating that even a normal dated freeze could put 15-20% of the US soybean crop in some type of yield jeopardy, simply due to the late-planting, lack of sunlight and cool temps that have prevailed this growing season.  What I find ironic however is the fact soybean conditions as of RIGHT NOW actually rank much better than corn on a historical scale. Meaning it all hinges on rainfall and temps during the next few weeks, and without damage to the crop I see it highly unlikely that beans can maintain their premium. With the corn/soybean ratio pushing to more extreme highs (2.7:1 yesterday) many specs might be feeling the pain. For what it is worth, I heard reports circulating that the all-time highs in this spread were set back in the fall of 2009 at about a $3.70 premium to the bean side of the equation (vs. 2 DEC corn contracts). As of this morning we seem to be correcting a touch, but I would continue to except extreme volatility over the next few weeks. A couple of things to keep an eye today: Argentine workers at soybean crushing facilities are expected to go on a one-day strike. Shouldn't be a major issue unless it turns into something more pressing; let’s also keep our eye on the Chinese weather situation where extreme heat, flooding, and now a Typhoon are forecast.   

 
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Is it time to pull the trigger on soybeans??

Aug 13, 2013

 As for today, it seems as if soybeans will continue to push higher on lower than expected US production and continued new-crop buying from China. The bulls continue to talk about massive Chinese purchases, just keep in mind in order to reach the USDA's current lofty import target of 69MMT's...they need to be massive! As of right now it is thought that China has purchased about 2.0 million metric tons MORE from the US than they had at this point last year (10.7 vs 12.7MMT's). With new-crop soybeans almost $0.80 cents off last weeks 14-month lows in the $11.60's, producers needing to make catch-up sales should consider pulling the trigger! I think it is very important to get 70% of your soybean risk OFF the table early this year at "guaranteed" profitable levels. In my opinion there are just still too many potential bearish cards in the deck to speculate with any more production than that.  As for spec's, I continue to like the longer-term thoughts of being "long corn vs. short soybeans" (at a 2:1 ratio). There is talk circulating that this is only the 6th time in the past 38-years that the price ratio for SX/2CZ has gone beyond $3.  

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Are soybeans the only dog with fight left?

Aug 09, 2013

 Soybeans look as if they are the only market with any real fight left in them, corn and wheat continue to like beaten dogs. The soybean bulls have gotten somewhat reenergized by record soy imports reported into China...again! Even more important may be the fact "crush margins" in China continue to remain positive despite what appears to be a glut of available soybeans. Here at home the cash-markets has rebounded to some degree as talk circulates that end-users might not have as much coverage as they were leading on. Basically meaning they are going to need more old-crop soybeans. Don't forget NOPA will be out next week (Wednesday I think) with more specific numbers on the "crush."   The "cold-weather" here in the US is also causing more fear and talk in regards to poor pod development. Will the beans have enough heat units and or sunlight to fully develop? Are conditions in some areas simply too wet and too cool? or on the flip side are some areas still too dry? Remember, some fairly large bean producing areas are running behind on moisture and will definitely need some rains to get their beans to yield.

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"Weather Risk" How Long Can We Play That Card?

Aug 08, 2013

Weather here in the US remains an important topic of debate for both corn and soybean producers. Just the opposite of last year, producers in many locations are now talking about conditions that have become excessively wet and temps that are abnormally cool. The words "flooding" and "frost" have now replaced "drought" and "record heat" in the bullish vocabulary. What we have to understand is that we will always hear more screaming and hollering from those who are in pain rather than from those who are enjoining more favorable conditions. With that being said, of course there are some spotty areas that are struggling, but more than offsetting those remarks are producers who are quietly talking about the possibility of record corn yields. My point is "weather" risk in the corn market is quickly diminishing. Soybeans however may still have a legitimate weather argument to overcome in the days ahead, especially if we don't start to see more sunny conditions.  To get all my comments CLICK HERE for my daily report..

 

 

Chinese weather (extreme heat) has become a concern as of late for many traders. From what I have been hearing the problem areas are primarily to the South and East of the main corn and soybean regions. Talk is cotton and rice areas are much more in jeopardy. In fact the epicenter of the "heat wave" is said to be in a region that produces almost 35-40% of China's entire rice crop. The extreme heat in China is certainly something we are monitoring, but as of right now I do not see it tremendously impacting corn or soybean prices.         


 

 

What are the funds and the USDA likely to do with Corn now?

Aug 07, 2013

 I have heard several analyst and marketing advisors who have very little if any 2013 and zero 2014 sold or hedged for their clients tell them that the crop is not going to come in as big as most are now forecasting. Some claim they have taken crop tours by air or conducted their own independent surveys, etc... I am not going to call anyone a liar, but I will say following this type of so called "risk-management" is an extremely risky move.  Even IF they are right and the crop comes in around 155 bushels rather than 160 or 165 bushels, we are still talking about a near 2.0 billion bushel carry.  Understand when I tell you, once the funds and large specs get their hands around the throat of a market, it takes very large unexpected, almost startling news to get them to let loose. From my perspective no one is going to be overly excited about corn until the carry out gets down closer to 1 billion bushels, which at this point seems like a million miles away. Sure you will have your occasional bullish headlines that might prompt a few of the weaker shorts to bank profits, move to the sideline, rest a bit before going back for the throat.  But from what I have seen in years past, it is going to take some very serious news to get these guys to change their pattern of abuse... Sorry, but a yield in the lower 150's is NOT going to make them flinch! As I have been relentless perching, be extremely careful getting yourself too deep into the forest that you can't actually see the trees.

 

*One little inside tip to consider, the "final" US corn yields very rarely tend to fall in any major form or fashion from the USDA August report estimate. Respected source, Rich Feltes reminds us that last years final yield of 123.4 bushels per acre was the exact same as what the USDA had forecast back in their August report. Just trying to reiterate the fact, though there is always a  slight possibility we drift lower, it is doubtful it will be nearly enough to excite the bulls or cause the bears to release their death grip on the trade.

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USDA Upcoming August 12th "Supply & Demand" Report

Aug 06, 2013

Below are a few insights into what the trade seems to be thinking: 

 

  • Corn - Thoughts are total US new-crop corn production estimates are moving higher from the current 13.95 billion bushels estimate to levels north of 14.0 billion bushels. Keep in mind this compares to last years production of just 10.780 billion bushels. Corn yields are also thought to be moving higher from the current USDA estimate of 156.5 bushels per acre. Thoughts are closer to 158 or maybe even 159 might be in order considering the recent weather. Remember, tis compares to last years 123.4 bushel yield. I doubt the USDA will cut harvested acres in this report, thinking they will wait until at least Sept or Oct in order to see the FSA insurance numbers. Therefore most are thinking new-crop corn ending stocks will now move above 2.0 billion bushels. There is also talk that world supplies will jump higher as well. All in all we have a bearish tilt across the board for corn. Just keep in mind with most ALL sources expecting a bearish report the actual surprise could be to the upside if the numbers do not come out as bad as anticipated. 
  • Soybeans - Thoughts are the total US soybean production estimate is moving lower from the current USDA estimate of 3.420 billion bushels. Most talk is for a reduction to around 3.320 billion bushels, a reduction of 100 million bushels, still higher than the 3.015 billion bushels produced last year. Yield is also expected to fall from 44.5 bushels down to around 43.5 bushels per acre. Keep in mind this is still much higher than last years yield of 39.6 bushels per acre. My guess is new-crop ending stocks will in turn fall from the current 295 million bushel estimate down to around 270 million bushels. I doubt the USDA will make many cuts in overall demand at this stage of the game. Even though I believe Chinese soy imports are still too high. Not so certain before all is said and done domestic demand might be a little high as well. Keep in mind, as I mentioned above most in the trade are looking for slightly bullish soybean numbers, this causes me to believe the surprise could be negative bean prices, especially if the USDA hesitates in making the production and yield cuts that are expected.
  • Wheat - There seems to be some consensus that US ending stocks may move slightly higher on an increase in US production and less overall demand. Depending on who you talk to we are hearing a variety of estimates, but if you held a gun to my head I would have to say most are looking for just a little bit better production numbers in winter, spring and even durum wheat. Keep in mind however these numbers are still significantly lower than last years.    

 

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Will corn basis improve??

Aug 05, 2013

 Corn producers who are still holding old-crop supplies are now left scratching their head. It seems that as US producers became more comfortable with the prospects of new-crop production (mid to late-July) they also became more comfortable releasing more of their old-crop inventory. This has resulted in the elevators and end-users getting more supply than they bargained for, hence the crack in the basis.  Now all of a sudden there is talk of a large wave of new-crop supplies getting ready to come to Midwest via the upcoming Delta harvest and the South American imports. Moral of the story, old-crop basis may NOT rebound. If the end-users now have 3-4 weeks of coverage like most suspect, they should be able to hold off until new-crop supplies from down south start to arrive or the imported bushels from Brazil start to hit the marketplace. Form my perspective, end-users should remain patient and continue to go hand-to-mouth.  On the new-crop side, producers may want to continue waiting to lock in the "basis," as we might see heavy competition from the elevators to secure "early" supplies create a stronger than normal harvest basis. Remember, with most commercial bins in low supply, competition for bushels might help us during the first part of harvest.  My fear however is once everybody starts to build up inventory the "basis" could really take a hit...Just keep that in mind moving forward. We might want to lock basis in earlier this year as compared to the past couple of years.  

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Have corn prices lost the good fight?

Aug 02, 2013

 Corn analyst, as I suspected, are beginning to ratchet their yield estimates higher: Lanworth is now at 158.5 bushels per acre; FC Stone at 157; I am hearing several other private forecasters are now up closer to 160.  As I have been saying for weeks, this now puts the USDA's 156.5 yield estimate in jeopardy of being overly conservative. Don't forget Informa will throw their hat in the ring later this morning, at around 10:30am CST. From where I sit, the "yield" looks as if it will tick a bit higher, but a bigger question in my opinion remains "total production." I personally think "harvested acres" could fall by 1-2 million from the current USDA estimate of 89.1 million. The problem is a 160-162 type yield would still give us in excess of 14.0 billion bushels and a carry out close to 2 billion. The point I am trying to make is the Bears almost have the corn market in "check mate." No matter what the argument by the bulls: more preventive plant acres, fewer harvested acres, a drought out west, stronger ethanol demand, improving export sales, etc... the bears have a stronger offsetting rebuttal. The fact remains, DEC13 corn has now fallen to levels not seen since NOV of 2010. Technical bulls are keeping a close eye on the $4.50 level, in hopes the corn market can somehow muster enough support to keep prices from falling even further. My hunch is we might take a brief pause prior to the Aug 12th USDA report, trading in somewhat of a sideways channel, with neither the bears or bulls wanting to overcommit going into the numbers. After that, the bears more than likely resume their downward pressure. With China supposedly looking at another record corn harvest, demand from the Asian giant may be further off than many of us have been thinking. Meaning prices could push further to the downside before we se them step in any big form or fashion. Moral of the story, don't think it is a guarantee that China steps in as a big buyer on a break below $4.50. They may end up being a lot more patient???           

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Bullish storm might be building in the wheat market!

Aug 01, 2013

 Wheat continues to build a bullish storyline, but until we see some type of confirmed technical turnaround (a close back above $6.80), it will be tough getting much muscle behind us. We definitely have a storm building out on the horizon with the US balance sheet tightening; more "quality" downgrades out of both the US and Europe; talk of Brazil, Egypt and China looking for more wheat; and maybe most importantly the Russian crop looking much smaller than originally anticipated. From what I heard, Lanworth just reduced its 2013 Russian wheat crop estimate down to 48.4 million metric tons...keep in mind  the USDA currently has the Russian wheat crop estimated at 54 million metric tons.

It’s expected that Brazil will soon be in the US wheat market as they are dealing with very tight old-crop supplies. You see, Parana (where nearly 50% of Brazil wheat is produced) has recently suffered a freeze and is making millers increasingly nervous about supplies. From what I understand end-users in Brazil are beginning to call for an increase in wheat imports to satisfy demand. Let’s also not forget fears of the wet spring here in the US causing lower quality Soft Red Winter wheat, sparking supply fears.

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