Bullish Bears and a Hungry Commodity Market

December 21, 2010 08:07 AM

 Leading market advisers attending the Farm Journal Media Marketing Rally earlier this month offer their take on the 2011 market outlook. Analysts were unanimously bullish on the market, but several can’t shake the feeling of potential pitfalls along the way.

Brian Basting, Advanced Trading
I think we’re looking at unprecedented volatility and I think we’re looking at unprecedented opportunity at the same time. It’s just a matter of choosing the right tools. I think one could build a bullish case for all crops, but I think you can build a cautious case that as the price goes higher, the harder they can fall. I think we learned that in 2008 when markets went to unprecedented levels and then lose half their value, or more than that, in just a short amount of time. I think a lot of volatility here in 2011, but tremendous opportunity out there.
Bill Biedermann, Allendale Inc.
The rest of this marketing year, you’ll want to sell your cash on rallies until you get down to the inventory you want to hold onto. As far as price forecasts for next year, I’m looking for a $4.50/bu-$6.50/bu. price range; of course $6.50 getting there first because we need the acres. Now, if we don’t get the acres or we have a weather problem, $6.50 won’t even touch it. If we get the acres and have trendline weather, we’ll probably be around that $4.50 by next fall.
Richard Brock, Brock Associates
I’m very positive in the grain markets, and I don’t think we’ve seen the tops in the markets. At the same time, next fall I don’t think we’re going to see shortage of $5.00/bu. corn; we’re not going to have a shortage of $13.00/bu. soybeans. Keep the price high enough, long enough, and people will figure out how to make more or use less. That will happen again this time around. I think the biggest news in 2011 will be a bear market in soybeans. I’m not sure when it will start, but whenever a market goes up this much it goes down even more. This one’s not going to be any different. Irrelevant of ethanol, irrelevant of China, every bull market needs more bullish news to keep it going up.
Alan Brugler, Brugler Marketing
Basically we’ve a got a tight supply and we’re trying to spread that supply over the entire year. Simultaneously, we’re trying to buy acres for next year. At the moment we have inverses in new crop, old crop spreads, because the focus is on making the old crop last. Marketing-wise I think you’ve got pricing opportunities as long as the specs want to stay in the market, as long as the demand is there, you can have prices go higher.
Chip Flory, Pro Farmer
We’ve got to ration corn use. That certainly suggest higher prices. We’re 100% sold on 2010 corn, but we still have some in the bin because we’ve contracted out to June and July to capture the carry that’s in the market. We’re looking to purchase some call options so we can be in place as the market tries to ration the demand pace. The slowdown, whether it be by the market or the government, will probably be the ethanol market. The rationing will have take time if the market does it. If the government does it through some sort of a waiver, it likely won’t be until the end of the year, so we think we’re still on pace to grind at least 4.8 billion bu. for ethanol.
Mike Florez, Florez Trading  
I’m quite positive. I trade technically and there is nothing I see that suggests a top in the market. I’m not talking just commodities either. We’re inflating the economy and everybody knows it. There’s going to be a lot of buying coming into the market and I don’t think you want to be hedged right now. You are losing protection, but once you hedge, you made the statement you think the market’s stopped. I don’t think the market has stopped. I think we’ve got dollars to go.
Mark Gold, Top Third Marketing
There are a lot of bullish factors out there in the market, there is no doubt about that. To make any predictions about where this market is going to go is fool hardy. I would say the bias is to the upside through the end of March and early April as we make the decision what wins the acreage war. We do believe cotton is going to win acres back because of the historically high prices, so corn and soybeans are going to have to fight it out. Between now and the end of March, there’s going to be a great pricing opportunity that farmers are going to have to look at.
Jerry Gulke, The Gulke Group
The consensus in the Marketing Rally is most people are pretty friendly. I think it’s all about China. They can make or break our markets and every day they seem to be buying grain. I get a little nervous when one country buys 40-50% of all exportable beans in the world. They can make beans go up or come down, so I think we need to get really educated on what happens in China. Is there a bubble coming, is there not. In the next 3-6 months we have to look at what happens if corn prices drop by a dollar. What will that do to demand? It won’t curb it at all. We’re in a situation now where we need to reduce demand so we have a cushion going into next year, barring a weather problem. Therein brings what I call the Perfect Storm 2. We cannot have a situation where a major exporting country or a major user have a crop problem next year. We have to do better next year in corn in the United States, or I don’t know how high it can go. We’ve got the cattle guy and the ethanol producer in place. The cattle guy will feed until the grain runs out. It could get real exciting come June, July and August next year.
Gregg Hunt, MF Global
Right now I’m friendly, basically everything. I will stay that way until I see the acreage battle and what comes out of that. I don’t think there’s enough acreage out there tp meet the total demand for corn and soybeans, especially when wheat has already taken 3 million acres and they’re going to plant more cotton. I don’t know how high high is. The reason I don’t say that is I don’t like to put a number on the market, because once you do that you get back to saying "I won’t get out until we hit that number." No one knows how high high is and how low low is. So keeping it simple is your best best.
Kevin McNew, Cash Grain Bids
We’re looking at basis right now that’s been exceptionally weak, especially in Minnesota, Wisconsin and Iowa. But we look for that to recover as farmers put grain into storage. The basis shows some good opportunity for recovery in the next 2-3 months. I think it’s a good time to store on basis and a good opportunity for farmers to make some money on storage.
Paul Nelson, EHedger
If I start trying to guess the marketplace, I’ll probably miss the one thing that moves it. I feel confident that we’ll continue to see extreme volatility. Being in the position to adjust your strategy that centers back on the cost of production and knowing where is a good cost to sell is your best option.
Mike North, First Capital Ag
The market is incredibly volatile. That’s what we know about the market. Trying to predict prices in this market, or any market, is virtually impossible. It just gets farther from your grasp when it’s this volatile. We already know the funds are in the market. We know that our carrouts next year are small. We know our ethanol industry is strong and has good profits. We know our livestock industry is on the bubble and can go either way. We know there is right now there is a bias in this market place that can lend itself to higher prices. But we’ve seen the market is still at risk for whatever reason. Expect choppy trade for the next four to five months, but once we get to planting I’d be very concerned about the risk in this market.
Andy Shissler, Roach Commodities
I think China has huge problems and it’s not going to get better anytime soon. They sold reserves all year last year to try to keep prices down. They went into a year where they had weather problems. Whether it’s on the street or not, their crop is not what they say and not a big secret, I don’t believe. They’re going to go through a tough year trying to get enough food to put in front of their people. That doesn’t get fixed in a week, it doesn’t get fixed in November with a $6.00/bu. price for one day. I believe we crossed the tipping point with Chinese demand last summer to where they finally have enough demand on the other side that they can’t grow a crop big enough. I believe it’s going to cause fundamental changes in their agriculture over time, but it’s not something they can fix this year. The market is going to stay higher for awhile and we’re going to get chances to sell this market a few time.
Scott Stewart, Stewart Peterson
I’ve been in this business 30-some years and I’ve been bearish 90% of those years, but I really think that’s changing. I believe that’s changing. We are into a global market situation now, the world supplies are very low. I think producer need to focus on managing the opportunities available as much as they do managing the downside risk. I feel like there is some explosive potential, but every bull market is followed by a crash and a massive bear market. So the real story is uncertainty and volatility and being prepared for it.
Greg Wagner, Independent Analyst
I have mixed feeling on the markets right and the profit levels. We have very profitable price levels on row crops as well as wheat. We also have mature bull markets in corn and soybeans, and to a certain extent wheat. Bull markets don’t last forever. My concern is more on the periphery, some macro-economic event that may precipitate perhaps an adverse price move in commodities. That may take the form of something similar to what happened in 2008. You have the political intrigue and the intrigue in China; there are a lot of uncertainties, so I’m cautiously optimistic. I think producers have to take a rational approach and not get too exuberant on prices. There’s an old adage: "When you’re yelling, you should be selling. When you’re crying, you should be buying." So maybe a little of that is crucial at this juncture.

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