On Thursday morning, the USDA's Crop Production report was the center piece of the trade. The report had nothing really negative but the market acted as if they information was already discounted. The highs of the session were very early and the market closed on its lows, not a pretty picture. Beware of a market that does not go up on bullish news. Ending stocks in wheat were lowered 16 million bushels to 696 million bushels, but are still over twice as large as last year's ending stocks of 306 million. This is in my opinion why we have had trouble rallying the wheat market on the frost scare. There is just too much wheat around in the US and the World for that matter for the trade to get too concerned with a potential 35-50 million bushel loss.
The report showed ending stocks of corn to be very adequate @ 1.7 billion bushels. This was a small reduction from last month's report so again a friendly number but not a surprise. Unfortunately, the corn market did have an outside reversal and closed near the lows. An outside reversal is a technical term describing a market that has a higher high than the previous day and closes on a lower low. We reversed off the resistance @ 4.05 that we just could not seem to penetrate. Corn closed off 14 cents on the week and ended on a sour note. This does not alter my view that is as readers know not crazy bullish but constructive. The corn market would have to close below 3.80 to turn shift the pattern down. I believe that the market will consolidate and be supported on this break. For the traders among, if the market gives us a chance to buy weakness on Monday, it is worth a shot to buy May with a tight stop @ 3.80. I do not think the bears can pin the corn market until the farmers get the corn seeds in the soil. We are pretty wet most places and cold. Probably two weeks of good weather is needed in the west to get the soil temps up and the soil stable enough to go farming. So far it has been too early to get excited; however, the weather must start to turn more friendly or the market will become agitated and nervous.
The cash corn market in PA is very well supplied. Across the country, farmers are holding fairly large supplies of corn and the buyers seem to understand. Demand is off; remember that 2Q corn demand was the 2nd weakest in 7 years. I do not see much here to comment on except that farmers should be selling or actively discussing a marketing agenda. (With Keystone Commodities of course) If we get the corn planted and off to a good start which right now seems miles away the market will feel cornered with adequate supplies and a big crop on the way. Right now, farmers should be 75-80 sold for old crop. Wait to make additional sales on a breakout above this pesky 4.05 ck9/ 4.35 cz9 area.
USDA cut ending stocks in beans to 165 million, down from the prior month. 165 million is a very tight carryover and suggests that soybean market will remain backwardated ( nearby premium to deferred futures prices) The research that I read suggest further cuts to come as sales today are 90% of the total USDA projection and we remain competitive with SA. The soybean market opened up very strong posting the highs of the session early, but closed on the lows. We did not have an outside reversal as we did in corn, but the market was unable to extend on the bullish news. Hear scuttle about prolonged wet will force more acres in beans. While true, that is not the driver. Tight stocks are the story in beans and meal, not next years ending stocks. In fact, 09/10 US ending stocks will nearly triple on a good yield assuming the USDA's acreage guess from 3/31 is accurate. My broker, The Linn Group is very supportive and friendly to the soybean market due to the burgeoning soy demand from China. Argentina's internal issues have undoubtedly augmented our export sales, nonetheless there is real demand and growth for ag products in China and that is a story that has had significant shelf life. The demand for soy in China is growing, misunderstood, and understated. The trend is from the lower left to the upper right of the chart!
Friday's poor performance should setup a short term correction in the bean market. The market should slow down as Friday's highs will be resistance going forward. Support should come in @ 9.85. A close below 9.80 would turn the trend lower. Farmers with substantial old crop supplies should be very attentive to the trade. Taking on Jan highs will not be easy and may be impossible. We look like we are going to stall, set a stop under the market and let you be taken out. To clarify, I am not bearshish, but I am not crazy bullish at the current levels. We are coming into weather and planting which opens the door to anything, but "discretions is always better than valor" in this business!
A word on the stock market for those following along
An excerpt from the best book on trading I have read to date Reminiscences of a Stock Operator by Edwin Lefevre, a compilation of interviews with Jesse Livermore originally published in 1923
"The law punishes whoever originates or circulates rumors calculated to affect adversely the credit or businesses of individuals or corporations, that is, that tend to depress the values of securities by influencing the public to sell. Originally, the chief intention may have been to reduce the danger of panic by punishing anyone who doubted aloud the solvency of banks in times of stress. But of course, it serves also to protect the public against selling stocks below their real value. In other words the low of the land punishes the disseminator of bearish items of that nature. How is the public protected against the danger of buying stocks above their real value? Who punishes the distributer of unjustified bullish news items? Nobody; and yet, the public loses more money buying stocks on anonymous inside advice when they are too high than it does selling out stocks below their value as a consequence of bearish advice during socalled "raid"s. If a law were passed that would punish bull liars as the low now punishes bear liars, I believe the public would save million."
Some things never change as the above gives credence to my thoughts that we are all onboard what I call "The Financial Ferris Wheel". Stock buyers beware of buying a market 28 % off its lows. I often say that you can buy anything as long as you have an exit plan. Just be careful and fight the urge that "I missed the train" urge. There are still significant hurdles for us to cross that I believe will be offer better buying opportunities. However, if you must, just know when you are getting back off the wheel before you get on or you may incur self induced motion sickness!
I will close on another one of my favorite quotes from a truly great book.
"I did precisely the wrong thing. The cotton market showed me a loss and I kept it. The wheat market showed me a profit and I sold it out. Of all the speculative blunders there are few greater than trying to average a losing game. Always sell what shows you a loss and keep what shows you a profit."
Thanks for reading. Any questions or comments can be directed to me @ (717) 4362616 or to the below email.
Good luck,
Jon Hart
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