Down trend in grains!

Published on: 16:38PM Jan 15, 2010
I’ve been on the road all week. I spoke at the Ag. Connect trade show in Orlando Florida and at the North Carolina Corn, Soybean and Cotton annual meeting. As one might expect after this week sharp price break, there were two classes of individuals. Those who sold aggressively and were very happy and those who have a lot of old crop in the bin and were looking for reasons to be optimistic. I can safely say most of the people were in the latter position.
 
Here are some of the highlights I did pick up from the road.
 
  1. Producers still have a lot of unpriced corn and bean inventory in the bin for old crop.
  2. Not much of 2010 corn has been sold on the recent move to $4.50 and $10.40 respectively.
  3. Farmers don’t believe the yield numbers because of low test weight. Some of this adjustment is explained by the increase in the feed residual.
  4. USDA is going to resurvey numbers and it will be seen in the March report. This may give us some upside price recovery. Expect most of the bullish action before rather than after report.
  5. There is plenty of moisture in areas where wheat acres were not planted and if possible, most will go with corn if spring conditions allow.
  6. Environmental Protection Agency (EPA) is more than likely going to approve blended credits this summer. While the approval sounds bullish, it should not significantly affect increased corn bushels for ethanol. All it does is help reach current government mandates levels and allows ethanol plants to move back to full production capacity. Bottom line: Don’t budget more than 4.3 billion bushels of corn usage in 2011 production estimates.
  7. All the fund index buying that’s been done in a realignment basis is being positioned in the March. Most of the index funds will roll the March to December rather than May. This does imply some significant influence on the March/December spread in the end of February to early March time period.
  8. While we need to keep corn acres up around 88 million, I would suggest if spring weather conditions allow we are in position to move planted acres close to 90 million acres.
  9. Fertilizer prices continue to slip which is reducing the cost of planting corn.
  10. It is estimated that over 185,000 contracts as of Jan. 6, the latest report, was attributed to index funds getting long corn. From Jan 6 to the report, open interest increased. Since the report, open interest has gone sideways. This implies many of the longs in the $4.15 to $4.26 level are still in place. If they say they are trend followers and we take out the 10/6 gap on March corn between $3.63 to $3.67, will they blow out or hold and hope to double-up?
In summary: We have a real potential mess developing right now. The farmer is long in the bin, and the funds are long on paper but the fundamentals don’t support either. Can both hold or will they be paniced out before the market turns?
I encourage everyone to get their market plan written down now for the 2010 and 2011 crops. Only by knowing where you want to get to, does one have any hope of accomplishing their objectives. If you are need help, call us at (800) 832-1488 [Rowland & Laura] or at (877) 898-4324 [Bob].
 
Bob’s Upcoming Speaking Engagements:
Periodically go to www.utterbackmarketing.com and click on “Upcoming Seminars.”
   
January 2010:  Louisville, KY … Indianapolis, IN.   
February 2010: Louisville, KY … Anaheim, CA.
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