Double Bottom?

There is an old trading adage that says that one should be buying when the public is cryin'. We are testing the lows made in Nov in the stock market and so far they have held. Another axiom of trading and of life is that we everyone is thinking the same thing, someone is not thinking. We may be setting up for another leg down in all of these markets, but my money is on a bounce, maybe a big bounce. The fear and angst is so thick you can cut it with a knife. Market sentiment is overwhelmingly pessimistic with no one predicting anything other than pain, agony, and despair. The TV stations are selling gloom and doom, but we are at a time that I encourage you to hit the mute button and take a moment. I have learned one thing in markets and trading that comes to mind when thinking of the banks and the problems attendant to the equity markets, things that can't go on forever won't! Citi and BAC can only trade to zero.

On a positive note, the grain markets held up pretty well on a very grim day. Beans closed up a dime, while corn 1 and wheat down 9. The question remains in all of our minds, will the weakness in the equities chase the grains into another leg lower testing the lows made in early Dec. I am starting to see some give up selling from farmers who need to move corn, and just don't want to wait any longer on Mr. Market. There are mammoth bushels at the farm trapped above the market and any 20-30 cent bounce would instigate some aggressive selling from the producers. I have been rec. to farmers to sell basis and wait for the bounce, as any rally will immediately soften the basis in central pa as much as a dime, maybe more. Bean basis is very steady, no supply disruptions in what I believe to be a soft market. Wheat demand is also very tepid in PA as the mills have ample supply already booked and there are virtually no spot bids for wheat. This is not a normal phenomena this time of year in the soft red market, but this is not a normal year!

A couple random thoughts as I near bedtime in Mifflintown.

• If you are considering a sale of corn on a basis, you may also consider a stop underneath us @ 3.43 ish May. This will protect you if we decide that we have to go check out the Dec lows. If we do and hold, buy some calls with the money saved.
• The trade of the day was shorting March corn @ 3.60. This market is trading in a 3.60-3.40 range looking for direction. Look for a breakout of that range.
• Corn has held up better in the sell off than beans and wheat. Another leg down may be led by corn?
• The crush closed into new highs this afternoon which should help processors clear inventory and boost bean demand.
• Believe that we still have a chance to sell into a better market, but make your plans now. Answer yourself this question, if they hit the ball to me, what am I going to do with it?
• Congress telling us that we cannot live without Citigroup is utterly asinine.
• What would be wrong with raising the fdic insurance to "infinite" that eliminates any run on the banks while reducing public anxiety and the need to debate "toxic"assets. I am so sick of hearing about that!
• I fully support President Obama and we all must hope that he can find his footing; however, I find it bizarre that prior to the ink drying on the 800 billion stimulus bill our President is in front of the camera talking about cutting our national debt in half prior to the end of his first term? This is right after our Sec of State Hillary Clinton was in China encouraging them to keep their hand up in the bond pit. It all strikes me as a little odd?
• Smithfield Foods announced a complete restructuring, cutting 1800 jobs and closing 6 plants. Also hearing rumors of them pulling production out of PA completely. Not sure of the details or the validity of the latter, but at face value it does not bode well for demand for feed in PA. The barns will be repopulated over time filling in the gaps, but only after the pork margins improve.
• Last year was a very difficult year to manage through, especially if you were on the business end of the rally now evidenced by Pilgrim's Pride, Verasun Energy and countless others. Now Smithfield, the largest pork producer is reshuffling the cards. This reminds me that this is a zero sum game. Cheaper grain prices while ugly to the producer should help restore health to the balance sheets of the companies that we depend on to buy and pay for the crops that we produce.

Good day and good luck,

Jon Hart

Weekly Market Letter

Today we will witness the signing of the 789 billion stimulus bill. For better or worse, it is the strategy than will be employed for the moment. Through it all we have witnessed the equity markets and the commodity markets sink and challenge the lower end of the trading range. The market does not like the stimulus plan. I am not an economist and not qualified to pass judgement on the bill, but I go on record saying that I felt Washington rushed the plan forward for political reasons. I am suspect that the plan is insufficient in size to really stimulate. Certain that the amount of money being spent will soften the blow, I just find it more than unusual that the ultimate answer to our economic woes is taking on more debt as that is how we got here in the first place. In closing, might it be useful to ask for an economic summit involving the President's economic team, the Chairman of the Fed, academics, economists, private equity, past fed governors, et al. Summon them to the task of presenting the taxpayers with a number of potential plans rather than relying on Capitol Hill's collective wisdom. Perhaps it would also be useful to call for an investigation of the economic collapse. An independent commission with the sole purpose of understanding and reporting on the short comings of legislation, lack of enforcement, illegal or fraudulent activities, the size and scope of the problem and publish it for all of America to see. I doubt that this will happen for a variety of reasons, but if we are truly interested in learning from our mistakes and holding those people or institutions accountable, then we must demand more from ourselves and from those that we elect.

Moving on to the grain market, all of the markets are under severe pressure today as sliced thru support and technically have the markets on their back. The fundamentals are back seat to the pressure coming from the outside markets. The dollar has a bid, gold is moving to be the second reserve currency of the world, oil is cheap and getting cheaper. Grains do not have a story right now big enough to fight off the overt bearishness.

Things to keep in mind, the lower grain prices go, the quicker we get the meat, milk, and egg industry back to health which is very important. Plus, the ethanol industry is benefiting from fewer plants running, an improving gas crack, and corn going lower. My point is that lower prices will bring in demand, but it moves much slower than the farmer still holding onto last year's production. Look for grain to chop around until we can get into March days and start talking about planting intentions etc. There and then we might find a spark or story but we will still be in a bear market.

JH

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

Market Monitor by Marlin Clark

Commodity Coaster still headed down

Maybe I should just go to bed on time, and bypass the office. There I was again at midnight last night, sitting in front of the computer, watching the overnight trading on the Chicago Board of Trade. Corn futures were up a fraction, and “Turnaround Tuesday” was ready to roar.
This morning reality has set in. Corn is down over four cents, soybeans are down nearly 12 cents, wheat is off four cents, and I really needed more sleep.
When the electronic trading started a few years ago, it was a competitive curiosity. Commodity exchanges in foreign countries with other time zones had decided to trade “our” commodities. The Chicago Board of Trade developed an experimental trading that was all electronic in an attempt to keep the business.
The thinking at the time was that speculators and hedgers needed to be able to lay off or take risk more than the three hours and 45 minutes that the Chicago pits were open. Apparently there was demand, not just for the trading times, but for the technology.
To make the overnight work, market orders were eliminated. All trading was at a price. The physical technology to take the orders and fill them went through some development. As a result, the electronic order taking was extended to daylight hours. Now, most of the volume of trading is done electronically, and the pit trading is the small market.
Also, as the trading has gone electronic, a greater percentage of the trading seems to happen at night. Time was that the trend never changed over night. There was never enough volume. Now there is serious trading at night, not just orders being filled that were a little late for the day session.
Last night I watched trading that was a little positive in price and thought that the last six days of trading might have finally resulted in a bottom. Corn was up until Monday morning a week ago, then has been down every day since. Ditto the soybeans, where we were down 30 cent for awhile Monday.
I am beginning to wonder what it takes to get back up to new highs. Those last six days have us Tuesday morning down 36 cents on March corn, to 3.66-1/4. Soybeans are down 62 cents, to 9.47 March futures. March wheat futures are off 22 cents, to 5.60.
At these prices, the producers seem frozen, unable to rationalize the prices with the expensive fertilizer and seed that went into the crop. The users, meanwhile, show little inclination to develop demand, as there is no reason to buy ahead. The market keeps getting cheaper.

Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.