February 6, 2012
By: Craig Haugaard, Grain Origination Manager
Over the week-end I had a chance to do a little reflecting on stuff and I believe that I have come up with a way to insure that we will never have a bear market again. All we have to do is utilize government math. Now when I was a wee lad kneeling at the altar of education I struggled with math. There were several reasons for this. In the early years my lack of interest in when “Alan” would get to Chicago if he got on a train in Minneapolis at 11:38 a.m. and the train traveled the 423 miles between the two cities at a speed of 67 miles per hour caused me to have a less than diligent work ethic. Later on my conviction that letters have no place in math left me stymied when x’s started showing up. Be that as it may I have now found math that is both practical and easy, government math. I started thinking about it when I looked at the unemployment numbers over the week-end. Unemployment dropped by more than expected to now stand officially at 8.3%. Holy crap, happy days are here again. But then you look at Bureau of Labor Statistics numbers and see that last month 1.2 million people just dropped out of the labor force. It occurred to me that there are a couple of ways to lower unemployment; one would be to create more jobs, which did occur last month. The other would just be to reduce the number of folks that you count as part of the labor force, which the government apparently did in spades last month. I was talking through this with my slow cousin Jimmy over the week-end when he said, “Cwaig, if it’s good enough for the govewnment it ought to be good enough fow us.” He may be on to something. So here is the plan, as you know I have been pretty darn worried that if we plant 95 million or more acres of corn this year we could see corn prices head for the outhouse basement. Now, thanks to government math that can be solved, we just move a certain percentage of planted corn acres to something I will call “planted acres no longer participating in the corn market” and voila we now have just enough corn to insure high prices. Heck, if we can not count people we should be able to not count acres, problem solved. Now I need to put a fancy name on this brilliant idea and get my speech ready because I think this could get me the Nobel Prize in economics. The following is the chart of labor force participation rates since 1984.
Now, on to the corn itself. Friday we received a fresh set of South American production estimates from Informa. The trade was looking for a sharp reduction in the numbers so it was probably no big surprise that the estimated crop size in Argentina was lowered to 22.5 MMT. As a comparison, the USDA currently has corn production in Argentina pegged at 26 MMT. What did surprise trades was the fact that Informa left the corn production numbers in Brazil unchanged from their last report, at 61.65 MMT. The USDA currently has Brazilian production estimated to come in at 61 MMT. Over the week-end we saw very good rains in Argentina while southern Brazil remains dry but has rain in the forecast. At the present time this is probably a bigger story for the soybean market than for corn but may play in from a physiological standpoint today.
Technically, we have a very interesting picture shaping up. All three of my indicators are bullish. We continue to bang against the resistance level in the December futures and if we can get a solid close above it that would then project that new crop corn could move up and test that $6.00 level while in the March futures we have resistance coming in at $6.65.
SOYBEANS: 3 higher
The Informa report dropped soybean production in Argentina down to 46.5 MMT, 4.5 MMT less than what Informa estimated in their January report. Informa also reduced their estimate of the Brazilian crop as they pegged that at 70 MMT, down 2 MMT from their estimate of last month. As a comparison point the USDA currently is projecting production of beans in these two countries at 50.5 MMT and 74 MMT respectively. This report provided the fuel that the bean market needed to move to a higher close for the session. This morning I am hearing stories of disappointing early yields coming out of Parana and Rio Grande De Sol. These are obviously just antidotal evidence of a disappointing crop but probably worth at least being aware of. We will have to see what impact the week-end rains have on trade psychology but right now it would appear as if the path of least resistance is still to the upside.
Technically, my indicators are all bullish with the next resistance level in the November futures coming in at $12.57 while in the March futures $12.45 should offer a struggle to get through.
WHEAT: HRS 1 higher HRW 2 lower
Improving weather in our HRW country coupled with a lack of fund buying kept wheat on its heels. The cold weather in Russia has come and gone and the best estimates that I can find seem to indicate that they had around 10% winterkill. That seems to have already been built into the price structure of the futures market. The other important piece of news that came out of Russia on Friday was the announcement that they do not anticipate putting on an export tax. In other news Stats Canada released their stocks number at 20.96 MMT which was slightly above the trade guess of 20.6 MMT.
Technically all three of my indicators are bullish both old and new crop in the Minneapolis spring wheat and old crop Kansas City. In the new crop Kansas City futures the stochastics hooked into a sell signal yesterday although the other two indicators are still bullish. If I had some wheat to sell, either old or new crop I would be starting to think real hard about pulling the trigger on a portion of it at the current levels.
The information contained above was taken from sources which Wheat Growers believe to be reliable, but is not guaranteed by Wheat Growers as to accuracy or completeness and is made available for information purposes only. There is a risk of loss when trading commodity futures and options