The Bear is in Control

Published on: 15:13PM Jul 13, 2009
The nice rains here in central Indiana are helping the crop. The only area that’s getting a little dry, if the reports from my clients can be believed, seems to be the northern Corn Belt and parts of Ohio. Overall, the crop rating tonight should be stable to down slightly.  While we will have some seasonal decline into August, I believe we are on track for a crop yield in corn around 156 bu. per acre or higher. As for beans, we all know August is the important month. There are some people in the trade talking about the rapid development of the El Nino and potential dry weather influence. Our weatherman continues to be more concerned about growing degree days and early frost. I would suggest the odds are still better than 70/30 we will meet or exceed current USDA projections.

This all implies that the bear has the upper hand right now. All he has to do is sit back and wait while the bull has to prove that crop yields are being impacted. Right now he’s losing ground fast. Overall, I would suggest selling rallies in December 2009 corn back at the $3.40 plus level and November beans above $9.20.

As for the outside markets, the talk is the government wants to support the dollar. It’s holding but for how long is my concern. The economy is simply not responding to the government stimulus; I fear a second stimulus and the associated debt. Unless the administration changes their way and accepts the best way to create jobs is to embrace and support private business one must expect limited results. Bottomline: I don’t believe the private sector is going to be excited about expansion until he knows that he can make money! Yes that’s right individuals put there money into business to make money by providing a service to their customers. Individuals do not get into business for the right to provide a job to the maximum people possible and pay their insurance!  Maybe somebody should tell the current administration the facts of business!

Right now I believe most small business owners feel like there is a bull’s eye painted on their back for higher taxes, more government regulation and higher cost to have employees. In this type of environment all they are worried about is simply surviving not growing!  In the end without private sector growth the government is not going to get tax revenue.  This will eventually lead to higher interest rates as the government and private sectors compete for dollars. My biggest fear is as we move into 2010 and beyond and tax receipts fail to meet expectations, the administration will have no choice to cut spending as interest rates increase. In this case I truly believe agriculture and defense will be the two prime areas the administration will cut.

Summary: Good weather, limited outside market influence of oil, dollar and equity markets is leading to a market that is falling on its own weight. The earliest I would anticipate a low is slightly before or after the August USDA Supply and Demand report.

If you need any help in implementing a speculative or hedging strategy give us a call at 1-800-832-1488 or email me at [email protected] or [email protected].
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