On this day in 1881 the record for “smallest crowd” to ever watch a professional baseball game occurred when 12 folks showed up to see the Chicago Cubs beat the Troy Trojans by a score of 10 to 8. That has nothing to do with the markets but it is also the most interesting thing that I have learned so far today.
September 27, 2011
By: Craig Haugaard, Grain Origination Manager
CORN: 14 higher
You guys are scaring me. In the past week or so I have had a number of conversations with producers and nearly without exception the producer I have been talking to has been more bullish than I am. Let me point out that that is no easy feat. For heaven’s sakes, I was the guy that told you December corn futures were going to $7.80 so I think my bullish credentials as of late are well established. Of course, I am also the clown that thinks you should be making incremental sales when the technical indicators tell us to do so and frankly that has been working out real well also. So here is what concerns me. I have had people tell me that China has to buy corn from us, that the real national average yield will be around 143 bu/acre, that the harvested acres are going to be much less than what the USDA has been projecting. Heck, now that I re-read that it occurs to me that I have been suggesting some of that stuff as well. Here is the problem. When you fixate on those items and convince yourself that as a result it is just a matter of time until the market realizes the brilliance of your thought process and begins a major rally you may freeze up, not make sales and watch the market run away from you. So, for today my vow is to say nothing nice or positive about corn but instead to dwell on every bit of negativity out there that I can find. You can thank me later. My first thought is that the USDA report on Friday will in all likelihood show a significant decrease in the amount of corn fed in the fourth quarter. This very possibly will swell the carry-out by 100 million bushels or more and as a result increase the ending stocks to a figure where price rationing will no longer need to occur. Also potentially adding negativity to the corn market is China. We have been operating under the expectation that they will come in as a buyer but perhaps as long as the Viptera GMO corn is not approved they will stay away from our market. Making that decision easier for them right now is the fact that feed wheat from Australia is working in to China cheaper than our corn. Then there is 2012 where, if we plant 94.3 million acres as Informa is suggesting and we get trend line yields, we are suddenly looking at the carry-out building. Can you imagine a December 2012 corn futures price that starts with a 4? In the words of John Lennon, “It’s easy if you try.” Then there are the outside markets. With the dollar surging and some analysts suggesting we could see crude oil as low as $64/barrel could the outside markets exert additional bearish pressure on this market? I think that answer has to be a firm yes. Now I fully realize that I have chosen to lay out a bearish picture on the very day that I am calling the market to open sharply higher. With that in mind let me close by saying that absolutely nothing that I have laid out in the proceeding brilliant analysis is guaranteed to occur but in the face of the blind bullishness that I have been encountering I thought it would be healthy for you to at least entertain the notion and think about how you are going to respond in if fact these turn out to be the fundamental factors driving this market and we enter into a longer term bearish move.
SOYBEANS: 14 higher
I forgot to mention under the corn comments that by and large the yield reports are coming in better than expected. That is the case in soybeans as well. On the flip side, while Friday’s report is expected to see an increase in the corn carry-out the conventional wisdom seems to be that the report will project a smaller carry-out than what was suggested in last month’s report. Into this mix add a market environment which currently clearly favors planting corn next spring and I think you tip the odds in favor of beans gaining on corn in the becoming months. The following chart shows the current spread between the spot corn and spot bean futures. What it is telling us is that right now the nearby soybean futures cost 1.94 times the current spot corn futures price. As you can see this is historically a very low relationship. The red line is drawn in to represent the current spread between the November 2012 bean futures and the December 2012 corn futures. As you can see new crop 2012 beans currently are priced at 2.12 times the price of 2012 new crop corn. Again, on a chart that goes back to 1986 you can see that historically we don’t spend much time with beans that relatively cheap against corn. I think we will see that spread adjust to encourage more bean planting next year. If it does not then beans have the potential to see the carry-out tighten further in 2012 and that could get very interesting indeed.
WHEAT: 7 higher
The thought that Friday’s USDA will show the HRS wheat crop to be smaller than what we have been projecting lent strength to the market yesterday. Also helping push it along is the ongoing drought in HRW country., After the close the weekly crop conditions report indicated that only 14% of the crop in Texas has been planted. This is well down from the five year average of 34% and I can assure you that it isn’t because it is too wet to get into the field. Oklahoma is reflecting a drag as well with 11% planted versus the five year average of 31%. Couple all of this with the good wheat feeding that we are seeing this year and I believe we are setting the stage for a fairly impressive tightening of the wheat carry-out next year.
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.