Should You Be Selling 2013 Crop?
Apr 26, 2012
Shrinking South American soybean supply continues to dominate the trade. With some analyst dropping their soybean production estimates for Argentina to 37MMT and down to 62MMT for Brazil, the trade is extremely nervous about short supplies. The last time the Argentine soybean production fell below 40MMT was back in 2008/09 at 32MMT. That was the season with the serious LaNina issues brewing. The bottom line is we could soon be digesting a 35 million metric tons loss in South America soy production. The best case scenario is probably a loss of 25 million metric tons, Argentina at 43MMT and Brazil at 66MMT. As you can see, anyway you slice the pie we are going to need more price rationing in order to meet global demand. I am even starting to hear a handful of very well respected analyst thinking it could take a couple of years to replenish global supplies. That is even taking into account the fact Brazil might produce a record soy crop closer to 80 million metric tons next year and Argentina may produce a record 55 million metric tons. The moral of the story is be patient and don't get too overly excited about selling a large quantity of beans too far out, it is starting to feel like Brazil is dangerously close to being sold out and Argentina will simply not have enough "quality" soymeal supply to fulfill global demand.
US soymeal sales are certainly causing many in the trade to believe the US "old crop" crush numbers are simply too low. I do want to make a correction to a statement made yesterday, when I said the Philippines had made a recent US purchase of meal, and they "most generally" tend to buy form Brazil. I should have pointed out that the Philippines have in fact already purchased 730,000MT during the current marketing year. The correct verbiage therefore is the Philippines will pay up for US supplies when "quality" becomes a major concern in Argentina, which is exactly the case right now. I should also note there is some talk that South Korea (who generally buys ARG or India meal) is also looking for around 140,000 MTs of US meal, so be on your toes.
A little of the edge was taken off yesterday when the Buenos Aries Exchange came out and said the recent "freeze/frost" damage had done little if any damage to the countries late planted soybeans. Who knows if this is correct or not, but it certainly caused the market to pause. There was also more talk that China is gearing up to release large government soybean reserves into their domestic marketplace which could obviously cool "old crop" demand and eventually weaken the red hot bull spreads. I will argue that while these small speed bumps may cause the spec's to slow down to some degree, in the end I think we still have more racing to higher ground in front of us. If your a spec look for the setbacks as buying opportunities especially against the Sept or Dec corn as our target of a 3:1 price ratio is still in play. By all means DO NOT TRY AND PICK A TOP IN THIS MARKET!!!
Corn bulls where happy to see the USDA announcing a sale yesterday of 420,000MT corn to "unknown" for 2012/13 and 262,500MT corn sold to "China," broken down as 90,000MT for 2011/12 and 172,500MT for 2012/13. Basically since Monday the USDA has announced 1,285,500MT of US corn being sold to "unknown," who we are assuming is China...570,000MT old crop and 715,500 new. Personally, I am thinking we will soon see another 1 million metric tons plus of new crop sales announced here int he near future. The question remains, will this be enough to spark a more sustainable rally? From my perspective, "I doubt it."
Old crop corn certainly seems to be trapped at the low end of the range. Be careful thinking higher prices are a "sure thing." I have learned painfully time and time again that "the market is always right." We can argue until we are blue in the face that we should be significantly higher, the conspiracy theorist in each of us will want to argue that the USDA is wrong and the bushels are missing, or that China has purchased more than the USDA is telling us, etc, etc... but the point of the matter is we are trending lower. The funds have been exiting their long positions by the groves and we are once again approaching critical "support" at the $5.90 area in the JUL12 corn contract. Several analyst believe we will make a strong bounce back towards $7.00, but I urge you to be careful betting the farm on this theory. Remember, in order to be a so called "market whisperer" your first lesson is to always "listen" carefully to the markets.
Cash prices are firm across the board and the Chinese are buying record amounts, our ending stocks are tight, yet prices continue to break. Something is obviously NOT right! You can try and fight it all day long, but in the end I personally doubt you will be any richer. I can't tell you the last time I won betting against the market. Meaning, if you believe whole heartedly that we should be trading higher, but we continue to slide and make lower lows and lower highs then you are missing something, don't argue it, don't fight it, just recognize you are missing something. As I am sure you have seen the past few session my corn rating has been throttled back to "neutral." I would have thought the market would have jumped on the Chinese buying, or the continuing firm basis, but nothing... Because the market is NOT reacting as I would have anticipated I have to move to the sideline. Oh, one other point, the CME announced they were cutting corn margin requirements on hedge positions by $500 to $1,250. Speculators’ margins were cut by $575 to $1,688. This is also NOT what the exchange generally does in big bull markets. Point being, we are not in one.
The "macros" and "outside markets" are often just as influential to price direction in the grains as planting numbers and weather. I know as a producer, you may have questions as to how this pertains to your farm and your marketing. You can sign-up here to receive a FREE trial of my Daily Grain and Livestock commentary in which you will get where I stand on cash sales and some strategies on how you can take advantage of "Money-Flow." Just click here -