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