The Bulls Have It

March 4, 2011 11:21 AM
The Bulls Have It

It was tough to find a bear in the bunch at the second annual Farm Journal Media Marketing Rally in St. Charles, Ill., this past month. Sixteen of the nation’s top market advisers came together on
one stage to discuss and debate the 2011 market situation for major agriculture commodities.

"There is a lot of upside in the market right now, especially when you look at China buying beans," said Scott Stewart, president of Stewart-Peterson. "We are in a very bullish situation and could run out of carryover supplies. I wouldn’t be surprised if we add a couple of dollars to corn and beans."

The soybean market is going to keep running until January, when the world gets a better sense of South American production, predicted Doug Werling of Bower Trading.

"The weather is a huge factor in South America. Brazil had dryness and late planting and is not going to see a doublecrop season. It could be a tight situation, so I think the bean market will be surprising," he said.

Worldwide concern about the weather means volatility and opportunity to see the market go higher.

Dryness in the U.S. Western Plains, concerns in Australia and issues in South America are putting demands on farmers before we even put corn in the ground, added Mike North of First Capitol Ag.

"For me, from a fundamental standpoint, we still have a problem to be resolved in that we have an 800-million-bushel carryover in corn," said Jerry Gulke, president of the Gulke Group. "I think the market has to figure out how to get that over 1 billion so it can carry into next fall."

The January USDA Grain Stocks report is key, Gulke added.

"You have to be fairly bullish today, especially as you are seeing the funds get out of positions in recent weeks," added Bill Biedermann of Allendale, Inc.

End Users Worried. North said he is concerned about end users who are in tough positions and worried about margins. "We are in a difficult position where fundamentals suggest we could go higher because we are below a billion-bushel carryout on corn," he said. "A lot of people are worried about having an ample supply to carry us through the next calendar year. At the same time, we already have a massive fund position on the table. We likely won’t be running short of $5 corn or $13 soybeans next fall."

If most of the advisers are correct and corn pushes to $7, then "we are going to have every livestock producer in the U.S. out of business," said Richard Brock of Brock Associates. "It will kill demand."

Alan Brugler of Brugler Marketing & Management expects to see a slowdown in hog expansion, but not as much in poultry, as it is trying to rebuild from the bankruptcies of the past few years. "We will have lower meat production overall, about 4% lower, but that also means the livestock sector will have better pricing power than a year ago," Brugler said. "The consumer is going to miss that 4% and bid to bring it back."

There is no sign yet of a rationing of corn by end users, either in livestock or the ethanol market, said Gregg Hunt of MF Global. "The only thing that would turn my very bullish stance around is if I started seeing the major ethanol players pad the blending of ethanol. You could see a substantial increase in the carry of corn if that happened," he said.

"I don’t think livestock is going to give up corn, either," Hunt added. "So ethanol is the only thing that could turn this market around. The bottom line is simple: We don’t have enough acres, and that game is going to play out until June."

Corn’s in a situation headed into 2011 where it has some feeding margins to work out, added Paul Nelson of EHedger. "Corn is dragging a little behind soybeans, and we are going to see a huge battle for acres."

China Factor. Brock believes short-term markets look good, but he is betting heavily there will be no shortage of $5 corn next fall. "Chinese buying will stop at some point," he said.

The market situation will go the way China goes, believes Andy Shissler of Roach Ag Marketing. He’s watched the Chinese market cycles for 10 years and said that when everything in China’s markets goes to the red, the commodity market falls. China’s inflation issues and political concerns mean there is potential for real problems.

"I feel China crossed the tipping point this past summer with the amount of grain they produce for what they consume. So I’m going to be friendly corn until something changes in China," Shissler said.

China remains the looming factor in markets, but farmers should watch other economic and political issues on the periphery. "Economic affairs, both here in the U.S. and in Europe, have an impact on the commodity markets," added Greg Wagner, an independent commodity analyst based in Chicago. "My concern is not so much that the picture is not fundamentally friendly, but
rather what unknown land mines lie out there. Will we wake up one day and see the dollar collapse and, with it, all those fund positions become de-leveraged? That’s why I am cautiously optimistic about the markets in 2011."

Marketing Strategies. The mixed outlook on the futures market should bode well for local basis, said Kevin McNew of Cash Grain Bids. "We’ve had exceptionally weak basis in the western Corn Belt and it has rallied substantially, up 20¢ to 30¢ on corn and beans. I’d expect that trend to hold. We have a lot of good carry in corn, and I think soybeans will catch up," he said.

Brian Basting of Advance Trading believes the unprecedented volatility right now in markets is an unprecedented opportunity for producers. "Looking at prices for 2011, it would behoove you to consider establishing floors out there for 2011," he said. Remain balanced in your marketing, he added. Don’t do 100% forward contracting or 100% hedge-to-arrive contracts.

"There is a lot of uncertainty. No one will know when the top is in until the top is in. But the next six to nine months could be something that surpasses 2008 in market opportunity," Basting added.

Most advisers are bullish, but Mark Gold of Top Third Ag Marketing believes there are some wrenches in the works, namely political unrest in Korea and concerns with China.

"With the funds long as much as they are, the risk on the downside is extreme right now," Gold said. "Now is the time you need to manage risk and quit trying to predict what is going to happen around the world. Volatility can be your friend. The key is to be in a position today to take advantage of whatever tomorrow brings."

The Advisers

Top commodity marketing advisers gathered at the 2010 Farm Journal Marketing Rally.

advisers jan11Back row, from left: Al Pell, AgDay TV; Paul Nelson, EHedger; Kevin McNew, Cash Grain Bids; Brian Basting, Advance Trading; Bill Biedermann, Allendale Inc.; Gregg Hunt, MF Global; Andy Shissler, Roach Ag; Greg Wagner, independent commodity analyst; Mike North, First Capitol Ag; Chip Flory, Pro Farmer. Front row, from left: Scott Stewart, Stewart-Peterson; Mike Florez, Florez Trading; Jerry Gulke, Gulke Group; Mark Gold, Top Third Ag Marketing; Richard Brock, Brock Associates; Alan Brugler, Brugler Marketing; Doug Werling, Bower Trading.

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