AG TIME - Cheap and Expensive by John Walsh
Oct 11, 2018
I would like to start this out by saying, in my opinion, there is no such thing as cheap or expensive. It appears to me that as market participants we get caught up in the cost of production relative to board price. It is irrelevant if a particular person, or many people, can sell at a profit or loss. The market has no emotion. Only we as individuals attach our emotional principals to the market. I bring this up for various reasons. The largest reason is I believe the bean market will continue to decline, perhaps substantially from here. It is probable this talk will be part of the landscape soon. The Brazilian today is saying these prices are still very good and they are looking to advance planting. In my opinion, it will be more than the market has figured in - 119-120 mmt might be under the actual numbers. The USDA numbers today, I believe, solidify the large crops coming the markets way. It is possible the bean number will grow. The glaring issue to me with the numbers is the USDA chose to leave the Chinese import numbers at 94mmt. The common wisdom is this is way over stated by as much as 10mmt. Even if 33% of this figure is the reality, that is still 100 mil bu domestic. 1 billion carry over. This 10mmt represents 8mmt of soymeal. I hear arguments for bullish protein. The Chinese are reducing their protein requirement. It is a stated mission, goal. They feed way more soymeal than the rest of the world in the ration due to the meal corn ratio there. However, they do not feed other sources. We are now seeing Canadian canola meal, by the way, huge crop. In addition, India will be supplying alternative protein. Then South America production through the roof. This does not account for the African Swine problem. The breeding stock, from what I understand, will be cut. A 10% cut to 400-600 million hogs. These are huge considerations. It is my opinion we are on the verge of very large global shifts. Let's see. The 2019 prices are an opportunity to hedge. Nov 19 use a stop sell the board.
The corn, in my opinion, is friendly. There is ample corn, but no room for error. The 1.8 domestic number looks big, but is friendly stocks to usage. The exports will remain strong, the ethanol will remain strong. Will we witness any issues in global production? As I have said, the US market has a window until the next global cycle is through.
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" A MAN WITH NO IMAGINATION HAS NO WINGS " WILLIAM SHAKESPEARE