PA Grain Summary

The last post was almost a week ago and much has happened. Chicago spot price for corn is down 50 cents from the high on 1/20/09. Basis has strengthened since then, cushioning the blow for Central PA farmers by about 12 cents per bushel. The mills are much more aggressive than they were 10 days ago as the bad weather and soft markets have kept the corn lines a little shorter than usual. Supplies of corn in the east are very adequate, but ownership for the users is a problem right now. When all of the mills are buying in the last @ 35% of their needs hand to mouth, slow movement can send the buyers running for cover.


One of the more challenging things that I have to do is try to explain the markets to people in a way that makes sense. My objective is to cut through over abundance of information and market noise and have a clear consise recap of the grain markets available to my customers. A week ago we saw some fundamental changes in the market that looked very positive only to have the door temporarily slammed in our face. That is unfortunately the market we have right now and that is the business we are involved in. Weather markets are full of head fakes and false signals and this was another prime example.


The corn market is concerned that the government report out next Tuesday will again increase the ending stocks of corn, getting closer and closer to the 2 billion bushel threshold. I doubt we see that big of a jump after a 300 million unannounced increase last month, but one never knows. The futures are sitting currently @ 3.64, about 8 cents north of a pretty important low put back in mid Jan and also back in mid Nov. If 3.55 is given, we are possibly in for another 25 cent slide. If the "center" holds, we may bounce back up towards the 3.73 gap, but we should run into significant overhead resistance in the 3.70-3.75 area. A close above 3.80 would be significant.



The below is an excerpt from Dan Hueber's cycle letter. He has some excellent points and it is in my opinion worth reading and rereading.


"It is becoming more and more difficult to separate the good news from the bad. Today it was reported that the 4th quarter GDP of the United States was a negative 3.8%. Bad news right? Well not really as Wall Street had been anticipating a drop of 5.5%. Also this morning, Exxon Mobil reported a record profit for 2008 of $45 billion. Good new for their stockholders? Maybe not as the 4th quarter profits were down 33% from the previous year. Are the various components of the economic stimulus plan going to encourage a recovery or create new problems? This all brings to mind what is referred to as the Paradox of Thrift. It is a theory of John Maynard Keynes, the economist who has been out of favor for the past 30 years or so but has certainly seen a renewal in popularity. Basically, the theory states that too much saving is not good for the economy as if we do not spend money, it restrains growth which, limits
new jobs and so on and on. Of course the flip side is the fact that we as a nation have been saving far too little and the orgy of spending and borrowing that we have seen over the past few decades, contributed tremendously to the current state of affairs. Is saving more the elixir we need to cure our ills or should we keep spending to simulate growth? There is validity in both ideas and actions but also negative consequences for each. Similarly, will the government stimulus plan actually provide the right boost for the economy or will the deficit spending just compound our problems for the future? The answer to the questions if this is good or bad lays in the future but it is undoubtedly a yes in both cases. Realistically we always have these paradoxes to deal with, and everything that happens, be it in economics, science, nature and everything else, carries within it both elements of good and bad. It is when we choose to ignore the bad and only embrace the good, that we will be blind-sided as has been the case in the financial realm recently. One reality I think we must accept is there is no single entity, party or economic theory that holds all the answers and on a greater scale it is all a huge experiment that evolves in huge cyclical swings. It is my job to hopefully identify them and help us all to look with clear vision for what to look for ahead."



It is my hope that our legislators would read the above and take a deep breathe. By doing nothing atleast we do not invoke law if unintended consequences. We are in dire need of leadership, let us all hope that the people that were called to this task are up to it. I believe it was Benjamin Franklin that once said that we must all hang together, or most assuredly we will all hang separately. We are all in this mess together and I implore Washington to sit up straight and listen and think rather than posturing and pissing on each other's shoes. This is simply too big and too important not to spend some time and get it right. There are plenty of great economic minds that could and should be tapped, but unfortuntely the politicians do not see the need to ask too many questions. They are all too busy trying to see who might be in their way.

Cheers,

Jon Hart