Making an informed marketing decision requires knowing what bulls AND bears are looking for in price action. We’ll share our key thoughts on each market – followed by a verdict. So… grab a cup of coffee and let's dig in and sort it out...
CORN
Karen’s Thoughts: This week had a lot to do with what commodity markets “can” do – as corn did what appeared “impossible” to many just two weeks ago. There have been years with big carryover levels that imply an “impossible” situation for higher prices – yet prices rise anyway. This is why getting your head too hung-up on one aspect of market fundamentals can fog your view of the big-picture. “Other” factors could impact (and have impacted) corn prices in a positive way: 1) Export sales are on pace to hit USDA expectations. A recent weekly sale of 2.157 MMT wasn’t anything to sneeze at – it was huge! Even though Japan continues to be our biggest buyer, it’s interesting to see South Korea showing up as key importer. This could indicate that China may be running tight on exportable supplies. 2) Weather conditions in Argentina have led to concerns that corn yields may fall short of expectations. 3) Falling U.S. corn acreage estimates for 2006. 4) MONEY FLOW. Don’t underestimate the flow of money coming into commodities through new investment tools, as a brand new exchange traded fund is now available which encompasses crude oil/heating oil/gold/aluminum/corn/wheat. This new product makes it difficult to forecast the impact of new money flowing into commodities. Scott’s Thoughts: Last week I mentioned that a series of daily export sales reports from USDA suggested that demand was on the mend. But I didn’t dream those daily sales would translate into the huge weekly export sales report that USDA released January 26. The tally for the week ended Jan. 20 was the largest weekly sales total in more than a decade at more than 2 million metric tons. This is proof positive that foreign buyers saw “value” in U.S. corn prices on the recent price dip. While this doesn’t eliminate the chance for a price correction, it does signal futures don’t need to revisit the December contract lows again anytime soon. Speculative buying also has played a key role in a price recovery for corn, as a fresh round of index fund buying invigorated corn market bulls in recent days. Now, factor in dry subsoil moisture levels in some of the Corn Belt as we think about spring planting and we could find ourselves with a very “interesting” corn market. I’m excited that this potential weather premium will provide my clients with a great opportunity to build new-crop hedge coverage at very attractive levels. This is the time to get strategies in place… are your strategies ready?
Our Corn Verdict: We’ve been enjoying gains on the reownership strategies we executed a few weeks ago for clients. Market action has also been working in our favor on the strategy to capture the carry in new-crop December futures. And corn is rapidly approaching our targets to build new-crop hedge coverage for 2006 and 2007. Call Karen or Scott at 1-800-262-4643 to get your marketing plan rolling.
SOYBEANS
Karen’s Thoughts: We’re at that typical time of the year when bean prices chop – chop – chop to finish out the month of January. Last year bean prices hit the chart bottom as we ended the month. Last year had a lot of similarities to this year in how it was viewed that beans “couldn’t” go higher. Then, February arrived with a sudden wave of higher prices. My point: Don’t assume price strength is unachievable in the bean pit. There are still plenty of factors that that could suddenly appear in beans to scare market bears and start a new wave of buying at any given time. This market is acting like it may be poised to start a new run. How far any rally can extend will likely be determined by the amount of money flowing into the pit! Scott’s Thoughts: A lot of market prognosticators have been quite frustrated with the bean market in recent days, as it just refuses to drop like they have been persistently predicting. In spite of big carryover and sluggish demand and rains in South America, the bean market has avoided this widely forecast collapse. This is starting to remind me of last year, when bean futures thumbed their nose at all the fundamental experts who said futures just “had” to drop. Instead, the market seemed to be very aware that last year’s South American production would prove disappointing… even when the experts hadn’t figured it out yet. This year, it appears their crop should be in better shape after recent rains. But I can’t help but wonder if the current round of rains will translate into a surprisingly large Asian rust problem for Brazil. Could that be why futures remain well supported on breaks in spite of big carryover estimates? Bottom line: Make sure you are keeping your marketing alternatives open in the bean market, as futures seem to be indicating that carryover will be tighter than USDA’s forecast of more than 500 million bushels..
Our Soybean Verdict: Be ready to take advantage of some “fun” price swings in bean futures over the next several weeks! We’re working with clients to harvest gains on new-crop hedges and we continue to rebuild reownership on old-crop inventory in bull-call option spreads after cash sales targets were hit in early January. If you are sitting on cash bean supplies, keep in mind that bull-call option spreads can be built cheaper than the cost of storage. Call Karen or Scott at 1-800-262-4643 to work on strategies.
WHEAT
Karen’s Thoughts: Concerns about the winter wheat crop is centered on Texas and Oklahoma where crop conditions have failed dramatically with every week that passes without drought-breaking rains. Kansas is in better shape, rating their crop as “normal” for mid-winter. Wheat has amazing capabilities to “come-back” with spring-time weather, but a southern Plains’ recovery doesn’t seem likely with the degree of damage hitting this year. Another closely watched area is Russia and the Ukraine, where winter wheat kill is slashing crop estimates. The winter wheat situation is watched close due to the competitive world export market. Wheat may also become a darling in perspective of investment money coming into the markets this winter. That could become a price positive factor. Scott’s Thoughts: Fund buying provided wheat with a fresh price surge in recent days as the market struggled to digest the influx of fresh speculative money. Fundamental support also emerged, as export demand showed signs of improving and the southern Plains wheat crop continued to suffer under drought conditions. The challenge is to keep the export demand alive even as prices rise. Without sustained demand, futures typically collapse under the weight of foreign competition once the speculative buying has run its course.
Our Wheat Verdict: Weather fears have limited selling, allowing speculative money to spark a significant rally in wheat. Call Karen or Scott at 1-800-262-4643 for strategies to take advantage of this volatility.
