Karen’s Thoughts: This corn market is reminding me more everyday of how corn futures traded two years ago (except bean fundamentals were bullish then too). There continues to be “drought talk” and La Nina talk, even though it keeps raining throughout the Midwest. We are hearing of rain totals of two inches or more again this week for the driest locations in Illinois – making it hard for me to see an actual drought building in the Corn Belt. So, the first of April is a great time to “talk” drought or “too much” rain (just like in 2004). This is what makes the grain markets a blast during the growing season. You get “opportunities” to make solid marketing decisions, IF you’re willing to do it. So, why is it so hard to pull the trigger when prices reach attractive levels for spring? It’s because the weather hype and earliness of the season FREEZES you. It’s almost inevitable that we also hear reports of this advisor or that advisor hyping how prices will soon be above $3 (or even $5!!). I’m ALREADY seeing the first reports of “expect below-trend-line yields.” All I have to say about that: “This crop isn’t planted yet!” Remember two years ago when all the hype was CERTAIN prices HAD to go $5.50 that spring? They DIDN’T. In fact, there is a strong 15-year seasonal for December corn futures to decline in April. So, if you are once again swept up in the hype – just do your self a favor and ask if the corn crop actually looks like it’s in trouble? It certainly isn’t in trouble yet! In fact, genetics have proven the last couple of growing seasons that corn can take a LOT of weather stress (hot/dry or wet/cold) and still produce RECORD crops. One other hint that corn futures are being driven by hype right now – the basis isn’t playing along. Of course, corn prices CAN go higher than they are today, but they can also go lower. When the funds decide to cash in profits on this run-up, we could see a reversal similar to two years ago in the spring! Scott’s Thoughts: The bullish hype extended to extreme levels in the corn pit over the past few days as traders look to justify the extended post-USDA report advance. While the acreage data from USDA was clearly bullish, I believe some of the arguments being used to call for higher prices are pushing deep into the “creative” territory. For example, just on Thursday, I heard claims that corn “had” to go higher because of planting delays from too much rain – and the same day I also heard claims that corn “had” to go higher because of the ongoing drought. Wouldn’t rain cancel out drought? Talk about hype! I find it useful in these cases to push the hype aside and look at what we “know”: 1) Basis widened over the past week because plentiful cash corn supplies remain available. 2) Export demand from Asian buyers appears to have disappeared now that China is hinting it may reenter the export market. 3) Funds hold aggressive net long positions. 4) Bird flu remains a potential threat to demand as it spreads across Europe and Asia. 5) If we produce trendline yields this year, carryover supplies should still be abundant. Keep in mind, the market pundits who are calling for MUCH-below trendline yields must be assuming a bigger drought than we faced last year. Last year’s moisture stress only held yields back to near-trendline levels. Bottom line: I believe it is best to plan for a “normal” crop… and adjust your marketing plan from there as the season unfolds. To assume a crop disaster in the spring is a good way to create a disaster in your marketing plan when fall arrives. Our Corn Verdict: While USDA’s acreage data gave traders a bullish factor to hype, abundant carryover supplies still hang over this market as a critically bearish factor. Plus, with speculative money already loaded up on the long side of corn, we remain on guard for a potentially wicked price correction. After all: It’s hard to sustain a drought rally and a planting-delay rally at the same time! Call us NOW for hedging strategies on 2006 and 2007 crop at 800-262-4643.
SOYBEANS
Karen’s Thoughts: For years I have heard seasoned traders refer to soybean futures as the “sizzling grain futures” – meaning it has the ability to carry the rest of the grain complex. This year the soy complex has lost its luster and is drifting into hibernation. Does that necessarily mean it “can’t” come back at all this growing season? No. Never underestimate the power of soybean futures. But realistically, it doesn’t look bright for a powerful rally like we have grown used to over the years. So, that might mean sharpening the pencils and finding the price levels which are acceptable in a marketing plan during a year that “could” prove tough at the end of the season. In other words, waiting until harvest to price beans could bite this year. Scott’s Thoughts: Bean futures responded to the acreage data from USDA with a few hard days of price pressure. But was the drop deep enough to account for the bearish fundamental outlook of this market? Doubtful. Consider that U.S. soybean carryover is already projected to swell to a new record. Now, add in big acreage potential and we could actually see this year’s record carryover nearly double next year. My math is based on basically a trendline yield and a near steady demand base. Demand “should” grow as prices decline, but bird flu could make demand growth difficult in the short run. The main price positive that bulls can point to is reduced potential acreage in Brazil next winter, but that acreage reduction will probably only take place if price pressure forces extreme pain on Brazilian producers. Our Soybean Verdict: The fundamental picture for the soy complex remains exceptionally bearish, as abundant supplies are being met with sluggish demand. Don’t miss out on the opportunity to get some bean coverage in place. Call Karen or Scott at 800-262-4643 to get price floors in place.
WHEAT
Karen’s Thoughts: It typically takes several shots to “kill” a winter wheat crop. That means that while all the hype during the winter wheat growing period may have you thinking this crop is dead and gone – it still may rise up to life - only to face yet another firing squad. The crop has gotten the needed rain in the areas which traditionally produce the biggest crop yields – Kansas and Oklahoma. But hold your breath, because it isn’t harvested yet. Also, recent hype is pointing to “too much rain” delaying spring planting in the Northern acres, and harvest in the Southern acres. So, until this crop is in the bin – watch for the firing squad (weather hype) to kill the crop again. That hype can equal opportunity for you. Scott’s Thoughts: This season seems to be shaping up as a tale of two different wheat crops. USDA’s weekly crop condition data shows the hard winter wheat crop remains in tough shape, while the soft red winter wheat crop is actually registering a favorable crop rating. To keep matters confusing, export demand for hard wheat is much stronger than export demand for soft wheat demand. Add it up, and it looks like speculative money is about the only thing supporting soft red winter wheat futures. Bottom line: If the crop continues to improve, don’t get caught “hoping” for higher prices. Fears of harvest pressure could be here before you know it! Our Wheat Verdict: Crop stress in the Plains doesn’t automatically translate into higher prices for all wheat varieties. Plus, if export demand stays weak, it can easily offset a short crop. Call Karen or Scott at 800-262-4643 for help in managing this volatility and protecting downside risk.
CATTLE/FEEDERS
Karen’s Thoughts: Recent action in cattle futures (impressive late-day recoveries) has me wondering if the traders on the floor suddenly woke up and realized that cattle futures were trading ridiculously under the cash market – in front of a seasonal demand surge. I hope this demand emerges and we find a bottom in this market – SOON. There does seem to be hope for the post-Easter spring retail buying. But we haven’t seen a sign of it yet. Retailers could scramble for supplies when we turn the corner to the grilling season kick-off in May. I also wonder if the cool and wet start of spring has tempered the retail demand we sometimes see initiated in the April time frame in other years. With massive overall meat supplies burdening retail cases, this market appears to have “overdone” the correction to the downside. We just need a good dose of demand for beef now! Scott’s Thoughts: Boxed beef prices showed the first real hints of a bottom in recent days, as increased volume sparked a small price recovery Thursday. But that doesn’t mean cash cattle prices are ready to pull out of this tailspin quite yet. Before this market can do more than post a corrective bounce, traders will need to see proof that cattle weights have peaked. While average slaughter weights finally ticked lower to start April, the 56-pound weight premium over year-ago must shrink dramatically to give feedlots any bargaining power in the cash market. Our Cattle/Feeders Verdict: Cattle prices remain trapped in a dismal spiral leaving a lot of feedlots with red ink. This is why we have stuck to the importance of hedge protection and building price floors. If you haven’t prepared for the price drop or need help developing future protection, call us at 800-262-4643.
