Published on: 16:47PM Oct 10, 2011
Despite being much higher out of the gates this morning, there is no disputing the fact the European economic woes have placed a strain on several key markets the past few weeks. In fact, many of the "big boys" are really starting to question global "crude oil" demand through years-end. No one is exactly sure how the cards will fall in Europe. This morning we are acting as if everything is fine, but I am telling you now, if crude oil prices fall further on fears of shrinking demand, and the US dollar starts to strengthen again on concerns about Europe, then the US grain and soy markets will have some serious revaluations to consider. Unfortunately, both of these scenarios will need to be monitored closely in the days and weeks ahead. We have rallied by about $8.00 in crude oil since last week, so for now we seem to have a little cushion. Let's just hope it stays that way, and Europe finds a solution to their woes.
My thoughts are if the situation in Europe does't clear up soon, we may be looking at crude oil prices below $75, and this could potentially pressure corn down to the $5.50 range, and beans below $11. The kicker, and one thing that could change all of this will be the USDA report on Wednesday morning. I continue to hear most in the trade are looking for between 12.4 and 12.5 billion in total corn production (the range of guesses is from just a hair over 12 billion all the way up to 12.7 billion). It also seems like most are thinking we will end up with between 83.6 and 84 million harvested corn acres (the range of guesses is for a reduction in harvested acres from 200,000 to over 1 million). Thoughts on corn yields are for somewhere between 148 and 150 bushels per acre (the range of guesses is from 145 up to 151, with the average guess around 148.8 vs the USDA's current yield of 148.1). My thoughts are the corn carryout could be bumped higher, corn feed usage bumped a little lower and total ethanol usage adjusted just a touch in either direction.
As for soybeans right now we are at 41.8 bushels per acre. Could we see a drop to 41? That would be extreme, but it wouldn't surprise me. What I am letting you know is that despite talk about higher yields, don't let yourself get lulled to sleep and believe it is a guarantee...anything is possible with the bean yields. There is also a lot of talk that the USDA could lower their 2011-12 US soybean exports by 50-60 million bushels on slower Chinese demand. I actually doubt this will happen though considering the USDA just raised exports and estimates by 15 million bushels in the last S&D report. Just be careful thinking this next USDA report will be wildly bearish soybeans.
You can assemble the numbers mentioned above in a magnitude of ways, being left with either an extremely bullish or extremely bearish scenario. My personal belief however is that if the numbers are bullish and European fear is still in the air, then the "Big Boys" may use any sizable rally gained from the report to be "long" liquidators by weekend. This means I will not chase the rallies if there is still negative news floating around later this week in regard to Europe. On the flip side, if we pressure the market lower on the USDA numbers and or a combination of European fears, I will be looking to buy "value" on the break.
Ultimately, we could see either a limit-up or limit-down move come Wednesday. The biggest questions is, will the "Outside Markets" hold up, giving enough confidence for the large traders to get involved? If you would like more help with answers to some of these question, sign-up for my daily report. There is no cost or obligation, you can receive the free trial by clicking HERE.
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