Ready for Launch

Market recap from Rich Feltes

"Disappointing finish today with across the board closes near low end of daily range
despite strong tailwind from crude and equities. Market knows that bullish news is
in for now with Argentine farm strike, heavy western Midwest rains this week and
Fed’s new PPIP program revealed for all to see leaving board free to back and fill
ahead of next Tuesday’s crop report. Soy oil scores rare gain flat price and
product share today on potential slow down in export flow from Argentina—world’s
largest soy oil exporter.


We just received handout from Pro-Exporters meeting in KC last week. A Few
highlights are as follows:
• Known crude oil reserves keep rising—not declining. OPEC exerts greatest
influence on price when demand nearly equal to supply which is not the case
at present with backdrop of weak oil demand. Additionally, the oil
companies are reluctant to make big investments based on crude trading
over $50/barrel for a sustained period. Almost all of the additional oil supply
globally since the 70’s has come from offshore sources—not onshore fields.
• The stock of unused but potentially arable land globally is enormous
especially in S. America, FSU, OECD nations and sub Saharan Africa The US
has added 10 mil acres to major crops since 2005—8 mil acres to C/B alone.
The world has added 57 mil acres to major crops since 2005. And although
the US share of total global corn area has held constant since 1970 at 20%,
the US share of world soybean area has declined from 58% to 32%.
.
• The average world temperature has trended lower for the past 8-10 years.

Guest speaker believes “global warming” will be history by 2019 having
been “killed” by either global cooling, better science or onerous cost of cap
and trade.
• Recent World Bank report says world is not running out of commodities. The
unprecedented size and duration of recent commodity price boom due to
unusual convergence of prolonged period of low energy/metals prices that
constrained supply growth, increase in bio fuels subsidies, decline in grain
stocks, surging GDP growth in developing nations, strong global GDP growth
and dollar depreciation. Most of these factors no longer apply or are
reversing today.
• Pro Exporter painted a pessimistic economic outlook noting that as world
retreats from debt, consumer spending will retreat as well suggesting a long
term downturn with is not bullish for crude oil. Obama stimulus will not spur
consumer spending. Japan in 90’s is the pattern most likely to repeated in
the US—i.e. sluggish growth closer to 0% than 3%.
Administration/Congressional preoccupation with fixing “carbon footprint”
will undermine growth.
• Pro Exporter’s 83.8 mil acre ’09 US corn are forecast prompts 9/10 stocks of
1.540 bi bu assuming 09/10 corn ethanol use of 4.014 bil bu vs. 3.556 bil bu
corn ethanol use for 08/09. Pro exporter’s 12.407 bil bu total ‘09/10 US corn
use is nearly 100 mil bu less that USDA’s Feb Forum forecast. Pro exporter’s
US corn carryout’s for the next decade do not drop below 1.4 bil bu and
surge to as high as 3.3 bil bu by Oct 2016.
• Pro Exporter’s 78.5 mil acre ’09 US soybean are forecast prompts 9/10
stocks of 0.529 bi bu assuming 09/10 bean use of 3.050 bil bu vs. USDA’s
Feb forum forecast of 3.073 bil bu.
• 5/08 US farm bill provides cellulosic ethanol tax credit of $1.01/gallon in
addition to generous incentives to producers to establish and transport biomas
crops. Pro exporter is adamant that cellulosic proponents have
underestimated cost of cellulosic acreage, cost of transportation and storage
of biomass and economic feasibility of converting biomass to ethanol. Pro
exporter concludes that “current policies on cellulosics are unlikely to
change—we can only wait for reality to intervene”.
Bottom line—upside momentum of last 2 weeks is unlikely to be repeated in final
week prior to March 31 report although sharp price corrections, other than wheat,
prior to next Tuesday are also unlikely"


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Greetings from Mifflintown on a sunny cold Monday. Last week the Fed's decision to increase its purchase commitments for GSE MBS and GSE bonds linked to mortgage lending caught the bond market off guard and the gold shorts. Gold rallied $ 60 per ounce in an afternoon and the dollar was decimated. The little advertised or understood fact about the purchases is that they will be made with excess bank reserves. It is not printing money to complete the purchase. The US and the world are in a strong deflationary spiral. On the contrary, all I hear from the tv is talk of inflationary fears and commodity purchases hedging off the inflation risk.

The dollar's weakness will support commodity prices, but there is risk in thinking the correlation is 1. A .78 dxm9 does not mean that anyone will buy US origin soft wheat. However, a .85 dollar makes beans leave in size. All things being equal, weaker currency will support commodity prices, but strong demand and shrinking supply is the only real driver in town and he is still missing. We cannot support higher prices for grains without significant demand.

The local corn market in PA is oversupplied. The animal numbers are down and the on farm stocks are still large. Basis is down 20 cents in the last week and 1/2 on the back of the 50 cent rally. From my sources in ethanol business, profitability is very negligible for the best operators, nonexistent for the late to the show. Last week saw Valero buying a chunk of Verasun's assets which label as bearish for the industry. probably causes more consolidation.

The Argentinian problems keep the bean market supported as does the dryness here and abroad support the wheat market.

We bounced off the .618 fibonacci retracement in May corn which should cool the corn market off a bit. I think farmers can sell into this rally in corn and beans and I would be looking to price some n/c wheat if you have not done so. As always, I hope that I am wrong and grain prices build on the lows and make a spring move. For the feeders and the consumers, I hope that hand to mouth buying saves them money.

We got the rally that we were expecting in the equity markets, now we will see what we can do from here. Technically it should be a little harder sledding. The dollar is still a very difficult market to predict, but I am not in the camp that we are heading to zero. The Pro Exporter's comments above concerning the crude market are very interesting to me. From a trading perspective, I am not sure that it matters, but it fits my bias that there is more oil around than anyone wants us to believe.

If anyone has the time, pickup a copy of the recent National Geographic and read the section on the Athabasca (oil sands) region in Alberta, Canada. This is where 10% of our oil supply comes from and it is an interesting article. Most do not know that Canada is the US' #1 crude oil supplier. A little know fact.

That is it for now. Next Tuesday the 31st is the USDA acreage report. We also have option expiration this week.

Good luck,

Jon Hart