Greetings again from Mifflintown, Monday evening. Today I learned that a gentleman that I listen to daily on an audio feed from Chicago made his last broadcast on Friday. Today we learned that Jim had been battling cancer for three years and it took a turn for the worse over the weekend. So today was Jim Conners day on Futuresline, a small 2000 person group that discuss the markets on a daily basis. I sent him an email thanking him for his insight and wisdom. As a veteran bond trader, Jim had a uncanny ability to see thru the news and the hyperbole and could set aside the top 8 or 10 things that he thought the market would care about. He was witty and smart, an optimistic person that challenged you to think independently. Jim undoubtedly sharpened my skills as a market participant and helped to understand this business . Jim will be sadly missed by me and many others and we wish him the best.
Tomorrow morning at 8:30 am the USDA will issue the quarterly stocks report and the acreage estimates. After reading and reviewing all of the private estimates, the market will react most strongly in my opinion to the bean stocks and the corn acreage number. Today the market wanted to buy corn and sell beans. We will see if this leads to the report data or perhaps it is just a head fake.
I was asked 100 times today what the report will say. The answer is and was that I wished that I knew, but I obviously do not. Tomorrow's report undoubtedly sets the stage along with weather for the next 8 weeks of trade. The 30 year seasonals point to weakness in April and then a strong rally into late June.
The outside markets were very weak today. The stock market was all sellers on the news of a possible structured bankruptcy of GM and Chrysler. To me, the market was very overdue for a correction. We simply came to far too fast and some consolidation is in order. My next bogey is a retest of the past support of 741 on the S & P.
If the pending USDA report and the stock market sell off wasn't enough, we have the FOREX market to contend with. The dollars weakness had ended abruptly, sending crude oil prices plummeting adding to the pressure in the grain trade. Trading volumes are down significantly year over year. Last year in the heat of the trade, the front month corn contract traded in excess of million contracts, today the volume was around 85000 contracts.
I will update everyone tomorrow after the report. Please call with any questions or comments.
Good luck,
Jon Hart
Monday, March 30, 2009
Wednesday, March 25, 2009
Grain Market Wrap Up 3/25/09
The nervous, spastic market continues to keep us on our toes. The wheat market gave up today as the rains and the forecast for much needed water was delivered to the hard wheat country. The wheat market is very thin and this is what happens in a long leaning wheat market that has no fundamental story except for weather. It really makes it impossible to trade in the futures pit, and it is equally as difficult in the cash markets in PA where there is demand. The w/c/b markets were all getting a little tired after 3 weeks of an uptrend. This does not turn me into a corn and bean bear, just settling in and letting the market consolidate its gains. The Linn Group wire today brought my attention to the below chart of unleaded gas.
The next chart shows the May Nov bean spread. This spread is historically very wide as we remain competitive to China while Argentina works out her troubles. We get the sense that ending stocks for beans may be smaller than the USDA reported earlier. When and if SA gets her act together, this spread will come back in, putting pressure on the nearby, possibly on the back of smaller acres here in the US?? Hmmmm
I apologize for the formatting above. I created this post in another software program and during the import I lost all of the images . I am now searching for a better format as I have had my fill of this hokey ridiculous posting app. Better luck tomorrow they say.
Unleaded gas made a good trade breaking north of 4 months of trade. Taking this market half way back puts 50-60 cents on the price of gas. Fifty cents up on the price of gas is certainly not bearish corn. 3 gallons of ethanol from 1 bushel of corn adds money back into the ethanol trade, bolstering margins. Check out the gas crack on the next chart, this is a very seasonal trade that is looking ready run.
The next chart shows the May Nov bean spread. This spread is historically very wide as we remain competitive to China while Argentina works out her troubles. We get the sense that ending stocks for beans may be smaller than the USDA reported earlier. When and if SA gets her act together, this spread will come back in, putting pressure on the nearby, possibly on the back of smaller acres here in the US?? Hmmmm
The above 5 day accumulation map tells the story of wheat down 30. This should keep the drought bulls penned up for awhile. Look for wheat to turn into the weak leg of corn and bean trades, use any rally back in wheat as a selling opportunity for producers. As of the close of trade today, I still think there is more downside to beans tomorrow and Friday while corn will probably be supported around 3.80 and wheat will try to gain footing, maybe a little back and fill. Corn users should use this weakness to extend flat coverage.
Call for individual rec's as everyone has a different position and obviously without knowledge of your position, I cannot make specific comments about same. Use this info to formulate your own opinion. I tend to think that corn has room to the topside, maybe a retracement back to 4.20-4.40 ish. Maybe Tuesday's report will be the spark needed to get this market going. Beans are a little more challenging, more of a wait and see attitude. After we get thru August, our US and world supplies turn very adequate so it is a timing and a weather trade. These fundamentals make day to day rec's very difficult as the market can become supercharged in a minute and my computer is not a fast as someone sitting in Chicago or NY.
Good luck,
Jon Hart
Keystone Commodities Co.
I apologize for the formatting above. I created this post in another software program and during the import I lost all of the images . I am now searching for a better format as I have had my fill of this hokey ridiculous posting app. Better luck tomorrow they say.
Monday, March 23, 2009
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"
Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are
reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and
are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the
recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading.
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
"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"
Copyright by MF Global Inc. (2008) 440 S LaSalle Street. The information contained in this report has been taken from trade and statistical services and other sources which we believe are
reliable. MF Global Inc. does not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and
are subject to change without notice. The principals of MF Global and others associated or affiliated with it may recommend or have positions which may not be consistent with the
recommendations made. Each of these persons exercises independent judgment in trading, and readers are urged to exercise their own judgment in trading.
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
Thursday, March 12, 2009
Market Update, More Mixed Signals
Greetings from Mifflintown, Thursday afternoon. I have been trying to stay quiet as the markets make those that talk everyday out to be a fool. Yesterday's USDA reports as I am sure you have reviewed by now were a little friendly to corn and beans, bearish wheat. The markets traded pretty aweful yesterday, starting higher and then falling to the lows by the end of the session, bearish right? Not so fast, Today we come out and start a little higher, and finish up on the highs of the day and new high closes in corn since the beginning of Feb. The above chart of May corn popping up today looking like we SHOULD have some follow thru. On http://www.keystonecommodities.com/ I have been showing for the last week the corn bean chart. We are battling back and forth and I feel like today's trade is validation that Mr. Market wants some more corn acres.
To keep things in perspective, corn is still in this 3.45-4.10 ish trading range. A couple of weeks ago we were talking the markets up as they were trying to extend. That was followed by the market being brought to its knees by the bearishness of Wall Street leaking over into the grain pits. When the stock market was kissing the 10 and 12 year lows, I commented on this line about how I thought it was constructive that the grain markets were holding up pretty well. All of this fits my trading bias right now, stock market up as everyone is still calling this a bear market rally. The higher we go, the better chance we have of pulling some sideline money back into the market. If this happens, we will have a little more than a short covering, we will have real buying and that will have an effect on our grain market.
Just so I am clear, tomorrow we could go right back down, it is Friday the 13th! But if we can hold this rally together, we will have something more to build a lasting rally on. I am bullish of energy from here, a close above 55 ish in crude will spark more short covering, perhaps we even get a .618 retracement out of it. Unleaded gas stocks are lower than we like as the refinery utilization rates are low. Refiners are seasonally gearing up for heavier gas runs while the gas crack improves in front of them. I would fill up farm tanks for planting and lock in summer needs. With ng below 4 you may even take a shot at fall propane?
If you have been hanging on by your finger nails to sell corn, you may get your chance. The basis for corn will be under pressure next week as the PA mills are stuffed. Feed demand is not all that stellar and the grain lines will be increasingly long as the market moves higher. Too many farmers wanting to cash in and get some working capital all at the same time. Bean basis is steady as the movement is not that active and demand from the SE is picking up. Basis could be very strong this summer if more beans don't show up. The PA wheat market is all but nonexistent. Dreadful!
So I look for the rally in stocks to continue as the market anticipates congress' move to relax accounting rules which should carry the rally farther that most think, bonds should keep getting hit hard as Uncle issues mountains of debt. I look for dollar to get hit to the downside which will help buttress and support all commodity prices in general. Grains should participate, look for a challenge of the upper end of the trading range to make another sale. This sounds great, let's see if we can pull it off. Right now I feel like we are playing a game of "Press Your Luck" as in we are all tired of whammies!!
This is a very spastic market full of head fakes and mixed signals. I like what we are seeing in the markets, but we have had our parade rained on in the past. Be careful of getting too bulled up on another 25 cent day. We are correcting and it is fun, just don't let the market convince you that the storm is all over.
Thanks for reading and good luck.
Jon Hart
Thursday, March 5, 2009
Now We're Gettin' to the Gettin'
Today was another dismal day on the market. I am glad that I am young and have time on my side with respect to my retirement accounts (at least that is what I am telling myself to help with the sleep) These are very sad days for Americans as we sit idly by watching our investments and life’s savings shrink on a daily basis. Anxiety levels are very high as our country is yearning for some leadership. My title tonight is getting to the getting and by this I mean that I see the financial markets accelerating to the downside that should provide the opportunity for an interim bottom. Citigroup is a penny stock and GM’s in house bean counters are finally admitting that there may not be enough duct tape and band aids to keep them from filing bankruptcy. As crazy as this may sound, this may be just what the market needs. If our elected officials will not focus their efforts on the financial industry, the market will do its job to force the issue. The market will do what it has to do to get the attention of our leaders. I am banking on them being smart enough to understand that what they are doing is not working and changing directions is what the market is demanding they do. I just hope they listen before the down hits 5000!
I believe that the push downward in the financial markets will bring the uncertainty to a head. The politicians have to be under severe pressure to quit campaigning and do something constructive for America (not just the bottom 95%, but all Americans). A mark to market holiday for the banks just may be what the market ordered. Without getting into the specifics, this would as I understand it free up capital at the banks and in short postpone margin calls. Once and if this happens and the automotive companies admit their insolvency, I could see a substantial rally that should carry grains higher into the planting season.
The grain markets all lost ground today as we watched the outside markets but I continue to remain positive as I see more of the stars lining up for a rally. Until we break out of the range, fading the trade is the only way to make money and that is the HARD trade. I look for a rally, grain farmers holding inventory should remain optimistic and commercials looking to buy for the next 90 days should take advantage of May futures south of 3.60.
Good luck,
Jon Hart
You can reach me at jon@keystonecommodities.com or 8773434278. Thanks for reading and I look forward to any feedback.
I believe that the push downward in the financial markets will bring the uncertainty to a head. The politicians have to be under severe pressure to quit campaigning and do something constructive for America (not just the bottom 95%, but all Americans). A mark to market holiday for the banks just may be what the market ordered. Without getting into the specifics, this would as I understand it free up capital at the banks and in short postpone margin calls. Once and if this happens and the automotive companies admit their insolvency, I could see a substantial rally that should carry grains higher into the planting season.
The grain markets all lost ground today as we watched the outside markets but I continue to remain positive as I see more of the stars lining up for a rally. Until we break out of the range, fading the trade is the only way to make money and that is the HARD trade. I look for a rally, grain farmers holding inventory should remain optimistic and commercials looking to buy for the next 90 days should take advantage of May futures south of 3.60.
Good luck,
Jon Hart
You can reach me at jon@keystonecommodities.com or 8773434278. Thanks for reading and I look forward to any feedback.
Wednesday, March 4, 2009
Gold Prices-- Corn and Crude
The above image is a monthly chart of the gold to crude ratio and the gold to corn ratio. As you see on the right side of the chart, gold is historically expensive relative to these other commodities. When this ratio corrects as history depicts, will the grains hold steady and gold fall tumble? Perhaps corn and crude will rise at the same time as gold falls. I do not have the answer but it is interesting to study and may be the seed of a trade. It currently takes 20 barrels of oil to buy 1 ounce of gold where the 12 month moving average is 12 barrels of oil to 1 ounce of gold. With respect to corn, it takes 256 bushels of corn to buy 1 ounce of gold. The 12 month moving average is 191 bushels of corn to buy 1 ounce of gold. As I study a chart from 1975 forward, never has the ratio held at these high levels for long.
The point here is that the excesses of last summer's grain market and the fear in the financial markets have once again pushed this ratio into an extreme. This is long term friendly to base commodities and not so friendly to the price of gold. A very related topic that I could have discussed was our dollar into multi year highs while yields on treasuries are at multi year lows. We are at extemes in many of these markets and excesses do not last forever.
In light of our government's mandate to reinflate our economy and spend our way into prosperity, large issuance of debt is a certainty and the bond market is telling us that yields may have to go higher in order to attract buyers in size. This drives bond prices lower and interest rates higher, not exactly what a failing economy needs.
The PA grain markets are very stable, corn basis remains strong in light of a weak futures market. I see this trend remaining in place until we get a short covering bounce that will get the augers turning again. Bean basis is strengthening as demand remains steady and farmer sales are very slow. Wheat is dreadfully boring, limited pricing by the flour mills and farmers are still in a holding pattern. Generally speaking, the market at large is a little more active than Feb, but people are still paralyzed by the volatility and the extremes in the market. Too many people do not have confidence in the future to do much of anything and this is exactly why our economy and our markets continues to falter. Opportunities are born out of chaos and extremes, the challenge is to find them and have the confidence to act reminding ourselves to check our emotions at the door.
Thank you for reading and please feel free to respond back on this forum or send me a private message at jon@keystonecommodities.com. I look forward to hearing your thoughts, interests, arguments, and comments. You can also reach me at 8773434278
Good luck,
Jon Hart
Monday, March 2, 2009
Ugly Monday and the Miserable M
The M spells Miserable!! To the left is a monthly chart of the S & P 500 from 1985 to the present. There isn't much more that I can add to the pictured price action and the horific pain that is been dealt by Mr. Market. There are no safe trades out here as the public is long or in cash and the lower we go the more old positions get coughed up. This is not pretty and text books will be written about the excess liquidity from the late 90's thru 2010 that has created one bubble after another, dealing pain and despair to most of the participants.
I was delighted to get a copy of the latest annual report from Warren Buffet. Wall Streeter's need to take lessons from "The Oracle" when it comes to communcating his positions and transparency. The below is an excert from his latest letter to his shareholders explaing a losing trade.
"I told you in an earlier part of this report that last year I made a major mistake of commission (and maybe more; this one sticks out). Without urging from Charlie or anyone else, I bought a large amount of ConocoPhillips stock when oil and gas prices were near their peak. I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year. I still believe the odds are good that oil sells far higher in the future than the current $40-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars. I made some other already-recognizable errors as well. They were smaller, but unfortunately not that small. During 2008, I spent $244 million for shares of two Irish banks that appeared cheap to me. At yearend we wrote these holdings down to market: $27 million, for an 89% loss. Since then, the two stocks have declined
even further. The tennis crowd would call my mistakes “unforced errors.”
On the plus side last year, we made purchases totaling $14.5 billion in fixed-income securities issued by Wrigley, Goldman Sachs and General Electric. We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus. To fund these large purchases, I had to sell portions of some holdings that I would have preferred to keep (primarily Johnson & Johnson, Procter & Gamble and ConocoPhillips). However, I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
The investment world has gone from underpricing risk to overpricing it. This change has not been minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost
equally extraordinary. Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable – in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning
close to nothing and will surely find its purchasing power eroded over time.
Approval, though, is not the goal of investing. In fact, approval is often counter-productive because it sedates the brain and makes it less receptive to new facts or a re-examination of conclusions formed earlier. Beware the investment activity that produces applause; the great moves are usually greeted by yawns."
Said well, what we need now is more to follow in his foot steps, admit errors, take responsibility, communicate a plan for renewal and stop whining about how it was someone else's fault and we are a victim of the times.
The grain markets are all closing on the lows and look horrible. I am unfortunately out of time and have to run, but lows are made with new lows, tops are made with new highs. This is very painful for the farmer with inventory in his bin. The lower we trade the more demand we stir up. This is not a quick fix or even a small pain killer, but keep it mind. We are searching for a low and a spark to avert our gaze from the outside markets. There is a story developing in Argentina in the bean trade, bean basis up strong today in SA, wheat areas in US and China are dry, and we are getting ready to go farming for real in the weeks ahead. Risk premium will haved to worked into the trade someday, just not today. That is all for now, good luck and keep your head down!
Jon Hart
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