Monday, July 15, 2013

Opening comments 7-15-13 15 billion production??? What!

Markets are called weaker this a.m. with follow up weakness from Friday’s markets.  Latest weather forecast and carryout/production ideas are not helping anything.

In the overnight session Corn was down 7-8 cents a bushel, soybeans were up 2 in the August contract, November soybeans were down 5 cents a bushel, KC wheat was down 9 cents, MPLS wheat was 6 cents lower, and CBOT wheat was down a dime.  At 8:15 outside markets have the US dollar up a couple hundred points at 83.320 on the September futures, crude is down 50 cents a barrel, gold is up 4 bucks, and the Dow futures are pointing towards a positive 30 point start for the stock market.

It’s about weather and the funds right now.  Funds are simply not buying the present story that many are trying to pitch.  Funds have moved to an area that they haven’t been for some time.  Check out the latest CFTC report recap here.

Bottom line regarding the funds and money flow are two important points.  First off their trend has been sell for an extremely long time.  How long can that continue?  Not sure but it is scary.  The other thing on funds is when they get to an extreme we open the door to a reversal.  Have the funds sold enough for us to be near a reversal for some of the grains like corn?????   A little early to tell as we don’t know how short they could get.  But with the funds short corn it does open the door for them to buy; we just need  catalyst and right now at least at this very moment weather isn’t that catalyst.  

In regards to weather most are now looking at the 6-10 and 8-14 day forecasts; most of these lack areas that are well above normal for temps.  Yes it is forecasted to be warm but not much more than typical.  Now I realize that some of the shorter forecasts are for plenty of heat the next few days with not much moisture; but the market seems to take more focus on the deferred forecasts that seem to change hundreds of times then the nearby and present weather. 

The market will be watching the crop conditions this afternoon and export shipments this a.m.

One thing I have noticed is a couple local ethanol plants mentioning some down time for regular upkeep.  Enough to effect anything?  Probably not but it could be a good scare card with the huge inverse that is out there between new crop and old crop.

I read the Van Trump report this a.m. and I thought he had some good thoughts as to what some in the market might be thinking.  He lists one possibility that is simply scary.  Don’t get too bearish from what he says; but take note that some have opened the door to higher production.  Many producers haven’t really even considered that as a possibility; maybe they are right?  But I think the correct thing in marketing is to realize that there are way more possibilities then we give credit for many times.  The difficult thing should be what is the probability of the different possibilities and how can you weight them out.

Below is from the Van Trump report.

“Corn bulls who have been riding the recent "weather train" may soon find themselves running out of track. For some producers the crop certainly needs a drink, and the next 2-3 weeks will prove to be mission critical for those who are in harms way. But with a "mild" forecast for most, I suspect "weather premium" will start to be carefully monitored and more heavily rationed. If the rains come like many are now forecasting, and conditions continue to improve, talk of a 14.5 to perhaps even a 15 billion bushel crop may soon start to circulate. Keep in mind with a projected 89.1 million acres "harvested," a 169 bushel average yield would puts the US corn crop over 15 billion bushels.  I am NOT saying this is going to happen, but as long as traders believe there is still this type of "potential" it will be hard for new-crop prices to gain a ton of longer-term traction to the upside. To change the markets overall "psychology" we are going to need to hear rumors and thoughts of new-crop ending stocks falling below 1 billion bushels. Which means we need to essentially start hearing talk of a national yield falling to sub-145 levels. Form where "crop conditions" sit today, that seems like somewhat of a long-shot. We will need to really heat up and rainfall will have to essentially be shut off for the next 2-3 weeks in several of the big production states for this to play out. There is no debating the fact it will be all about "weather" the next few weeks, and I am certain the bulls will win a few battles, but in the end I have this hunch the US corn crop is getting bigger NOT smaller. My opinion is that producers should continue to keep hedges in places but leave the top-side open just in case "Mother Nature" deals us an unexpected bullish "wild-card." Specs should continue to look for small bullish victories (or rallies) as an opportunity to establish more longer-term bearish strategies.”

Not a lot out else out there today.  It will be about weather and the funds; but we are also back near levels that might interest some more demand.  If that demand happens to be China that would be a headline and if I was a fund and all of my fund buddies were short and I started to see China in buying I might get a little nervous.

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