Monday, January 5, 2009
Trying something new for 2009, feedback welcome
I will be making an effort to post updates here atleast weekly on what is happening in central pa grain markets, maybe a few words on the macro view of agriculture and anything else that I feel needs to be said. The below is the Friday market review from my futures broker. It is a informative review of the last year. It has been a very strange year with the volatility unprecedented in our long grain trading history. Markets responded to the fundamental loss of world wheat production with a rally that carried to $25 a bu in spring wheat and $13.80 in KC and 13.30 in Chi. This stretched the wheat hedger so that he unloaded hedged positions as fast as he could. What was considered a tenuous tie between futures and cash got stretched even more---basis bids got really weak and eventually disappeared totally. No one wanted to bid for deferred shipments due to the cost of carrying hedges on grain bot $8.00 below the current levels. Some hedges were replaced with long puts to stop the growing margin calls from markets that were moving $1.00 a day in some instances. This action forced the move to change the wheat contract---finally adopted late in the calendar year increasing the delivery locations and raising the storage charges for the first 5 months of the year. The corn market had a different driving force with the move to increase ethanol production. Profitability had grown as the energy markets rallied on tightening supplies around the world. Everyone became familiar with the term “Peak Oil”. As the high cost of row crops and energy drove up food prices all around the world there was a huge cry to fix the problem. Ethanol unfairly got a lot of the blame for inflationary food prices. When the US Gov decided to act they went right at the source of the inflation---speculation in the energy market. I will write more as I see how this works and I see the response from all of you..!!
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Tomorrow morning Informa will release update acreage estimates, In Dec they reported reductions in wheat corn and cotton and an increase of @ 5 million acres of beans. With retail fertilizer prices heading south, not clear to me that we will get the reductions in corn that were expected? The index funds are still net long w/c/b. The open interest continues to come down whether the market is up or down with tells me that we are not enthusiastic about the markets and traders are turning apathetic.
ReplyDeleteIt is amazing to me that the trade is holding up so well with the dollar up and US origin grain being so uncompetitive. Black Sea fw @ 110 and corn @ 125/t vs US origin corn @ 177/t and soft red wheat @ 214/t.
Another point of interest on the economic front, there is estimated 8.85 trillion with a T of cash on the sidelines, 74% of the stock market value and the highest since 1990. Some day the herd will find a hole in the fence and lookout. Certain that they will not know where they are going, but they won;t be able to control themselves for ever. Much talk today that a percentage of the govt stimulus will be in the form of tax cuts which supported the us dollar. The bet is that we have taken our lumps and the rest of the world will have their day in the rate cutting barrel and this will support the dollar which may be bearish commodities in 2009? This is the wildcard as I see it for 2009!!! Just so happens that the dollar will be the best of a very bad bunch?
I am having trouble jumping on the upswing in crude. Dollar up, crude up--hmm--Last week crude rallied 23%, the most since August 1986. The demand for oil is still on the decline from that date that I see, but one cannot get in front of these markets, a lesson learned from 2008. We have to respect the markets are thinner and less fluid and this will make bigger swings. US govt also annouced that it will be stepping in for a fill up of oil. With the economy in the toilet, not sure why they would be stirring in that pot. When they quit buying to fill up the spr, it pretty well marked the top of the market, so them coming in may mark the bottom? I am sure that they have figured out that cheaper energy prices is a huge tax cut for main street.
From a trader's perspective, one cannot be willing to chase any of these markets. I see the upside and the downside limited save for another black swan event. Buying strength and selling weakness has been exactly wrong and I bet that trend will continue well into 2009. This is the market that challenges us to buy weakness and sell into strength and this is a hard way to make a living.
Enough of that, I am still in the camp that farmers should be using this opp to sell some cash grain hoping that I am wrong and the worm is turning for the better. If one stuck a gun to my head and asked me how much grain I would have marketed, 50% corn and 35% beans. If we bounce to the gap @ 4.50 ish March futures I would let the market have another 15-20 percent. Remember to have your gun loaded ready to go because this market is quicker tan ever, and opportunites are here and gone quicker that we can react so get your plans made and your orders in!
Good luck,
JH