Market Monitor 415

By Marlin Clark

Blame it on the Bassa Nova

Every once in awhile something happens in the grain markets that finds me frozen in amongst tearing my hair out, laughing, or crying. That was me at 7: 30 Monday morning when I looked at the overnight trading from the Chicago Board of Trade and saw beans down forty-something, corn down 12, and wheat down 16 cents.

It wasn't the prices—we have gotten used to the volatility the last couple of years. It was the reason given—swine flu. You've got to be kidding! Makes as much sense as blaming it on the Bassa Nova, if you remember that old song.

I remember swine flu. I had it fall quarter of 1968 at Ohio State and missed a history final. I am not sure about the year, but I am about the final. I was too sick to get out of bed, but not as sick as I was when I saw the grade from the make-up exam. Those profs have no sense of humor about having to go the extra mile, and the makeup always costs you a grade.

Oh yeah—I also remember that I did not get swine flu from pig.

This is the reasoning, if you can call it that, for May corn futures down to 3.67 and May beans bottoming at 9.90 overnight Monday. The "swine" in the swine flu would get people to buy less pork, cutting demand for corn and soybean meal. You can't make this stuff up.

Now, I heard Dr. Bernadette Healy tell Bill O'Reilly last night how you really get swine flu, and it has nothing to do with swine. To paraphrase my favorite third-grade joke, some people think it's swine, but it'snot! (Is that word in the style manual, Miss Susan?) She put it in a more-socially acceptable manner, but the answer was still the same. Some of the stuff in a sick person's nose ends up in yours. Use your imagination how this comes about, but it probably has nothing to do with the last time you kissed a pig unless that pig was an ugly girl friend with a stuffy nose. That actually reminds me of my favorite sixth-grade joke, but I will show some discretion. Darn little discretion, but it is there, nevertheless.

The silly season on the Chicago Board of Trade did not last long. During the day we traded beans down 22 cents or so. We actually closed down 35-1/2, at 10.04-3/4 though, so it was a sick (I couldn't resist) day. May corn ended up down most of a nickel.

The overnight Monday-Tuesday is mixed. Corn is down another 2-3/4 cents at 3.69-1/2, but the beans are up most of a dime, and the wheat is back up over a nickel after a 24-cent loss from the silliness yesterday.

The real problem is, the market is not silly. Prices actually did decline as a guess as to the reaction of a silly consumer. That is a different matter. And, the fact that it could decline this easily is an indicator of how weak it is. May corn futures are now 47 cents below the recent high, back to the same low we made a week ago. May beans have now lost 89 cents of the 2.35 gain made between the first of March and the middle of April. The wheat is bouncing along now on the same low it has made three other times since early March.

BTW--If you just have to hear the best third-grade joke, give me a call. If you actually sell corn on this break, I will throw in my eighth-grade joke, too. Or, I may save it for another time I am desperate for a column.

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

Market Moment for 4/23/09

By Marlin Clark    

Remember today. Today the bean rally faltered, but the corn gained. Today represents a change of mood.

Since the USDA Planting Intentions Report nearly a month ago we have had a strong bean rally and a corn market that went along for the ride. Last week the corn could not even ride the bean coattails and fell off 47 cents from the futures high. Now, in four days this week we have got 21-1/4 cents back from the Monday 3.60-1/2 May futures low.

So, today, Thursday, we gained 7/1/2 cents on the May corn and lost over eight cents on the May soybeans. Why? Planting delays, or fears of planting delays. Fears that the corn acres get smaller and the soybean acres grow.

Take this one to the bank fast. While sources are telling us the corn is going in fast out west, the market is still reacting to the Monday afternoon USDA Planting Progress Report that says we are behind in corn planting. Maybe we are, maybe we are not.

Corn Crashes, beans hang on--4/21/09

Corn prices crashed on the Chicago Board of Trade the last week, even as soybeans tried to hang on to recent highs.
Last week I made the case that this was, after all, a bean rally. The corn was being dragged along, and corn prices were showing signs of faltering.
That view was confirmed this week with a major decline in corn prices that demonstrates a severe divergence between the two commodities. Ever since the March 31st USDA Planting Intentions Report, the fundamentals have been pointing toward better bean prices and worse corn prices. In fact, corn did go higher for a time. That time is over.
Cash corn prices locally have declined about 60 cents in April, with most of that in the last ten days. At one point Monday we hit 3.60-1/2 on the May futures, 47 cents below the April 2nd high. We traded above $4.00 May futures eight days in a row while the soybeans were gaining $1.76 in less than three weeks. We lost a third of that soybeans gain in the last two days, to a 10.12 low overnight Monday, but are now at 10.22 before the Tuesday open.
In addition to the futures losses, basis has widened 10 to 15 cents as there is very little local demand for corn. The futures loss of 47 plus 13 cents or so basis decline is a 60-cent cash change in price.
I have been turning down several trucks a day for a month because the feed mills in Central PA are jammed. At the same time, the farmer attitude is that they will think about selling cash corn at 4.25 to 4.50. Unless there is a major fundamental change, this is unrealistic.
What is the next fundamental change? Well, we are already talking about delayed planting. Locally we had a dry spell in March, and have seen ground stirred off and on since then. Now we are stopped by rain again, with more rain forecast.
The fear of delayed planting got some initial strength yesterday. The first USDA Planting Progress Report was released Monday after the close. The trade was hoping to find ten percent of the corn in the ground. It got just five percent, when 14 percent is the five-year average. Last year we had four percent at this time, and went on to make a huge crop.
A 20-cent or so break in bean prices Friday might have been a weekend profit taking move, or might have been a reaction to the Dow declines of the week, after six weeks of positive Dow action. Since the beans have been trying to support the corn prices, the bean decline made it easy for the corn to make new recent lows.
Overnight Monday/Tuesday we have recovered modestly on corn and beans. Maybe we have put the lows in again on the delayed planting. Bullish export news is helping. Mondays export report from USDA is pointing toward record soybean exports.

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

Spring has sprung the bean prices--4/14/09

I’m sure we all remember that immortal poem. You remember the one—you learned it just after “roses are red.” It came to me as I walked the dog this morning. “Spring is sprung, the grass has riz, I wonder where the flowers is.”
Maybe not Wordsworth or Longfellow, but it fits the season. My Persian Lilac is showing green buds. My earliest maple tree is budding. There is a vase on the coffee table with three kinds of daffodils. I like the ones with the orange centers best, but that might just be the Ulster Scot heritage showing.
Wheat fields have turned green, and the lawn is not far behind. The wheat is prettier, because it is the first harbinger of spring here in snow country, and it doesn’t make me think of work I need to do. My mover has come back from Fred Shohayda’s shop ready to go and is sitting under the Ohio State grill cover, waiting.
The snow melts, and we have a monochromatic landscape except for the wheat. Grain markets have been monochromatic since the March 31st USDA Planting Intentions Report. This has been a soybean rally, primarily, and the last week in corn futures has reminded us that corn has just been along for the ride.
Monday was a good example of that, and the overnight into Tuesday has reinforced that attitude. The beans are trading on their own now, and the corn is staggering. Monday the March soybean futures got back to the new recent high of 10.30, repeating the April 9th high. That is now $1.33 above the low trade the day before the report, quite a move! It is nearly $2 above the recent low of 8.38-1/4 just back on March 2nd. It is also getting close to the congestion point on the chart back in January in the 10.40’s, with the high of 10.69 very briefly on January 12th. That came from a reaction to the USDA Inventory Report.
The soybean surprise from March 31 was that we were going to plant several million acres fewer soybeans than the trade had anticipated. At the same time, we were only going to cut corn acres one million instead of the three million a lot of traders anticipated. The main surprise was that bean number. The secondary surprise was that the corn still went higher, following the beans.
March corn futures made the recent low on March 2nd at 3.44-1/2, then bounced to 4.03-3/4 by the 23rd. Anticipating bad news, the traders took the March to a low of 3.76-3/4 the day before the report. On report day we zoomed to 4.06, then made a recent high of 4.07-1/2 on April 2nd. That was a 63-cent gain in exactly a month.
March corn traded eight consecutive days above $4, but that is over. Monday we made a low at 3.83. Now comes the time when we have to decide what corn is really worth. The more times it trades at the same level, just above $4, the harder the ceiling on the charts becomes, and this is starting to feel like a hard ceiling.
You can always tell when the top is in. That is when the farmers all move their targets higher!
And, just to add insult to injury, the hardest job this spring is not buying corn. It is finding a home for it. I have turned down 40 trucks in the last two weeks just because the homes are all staying full of local farmer corn in Central Pa.
Marlin Clark trades producer and elevator grain for Keystone Commodities from an office near Andover, Ohio. He welcomes your comments at 866-293-4433.

Bulls on Notice

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 2^nd 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

jon@keystonecommodities.com

 

 

 

 

 

 

Markets move higher after USDA reports

Market Monitor—4/7/09

By Marlin Clark
Markets move higher after USDA reports
Grain markets have made new recent highs in the last week. The USDA Prospective Plantings Report, followed by friendly export reports, have helped fuel some bullish enthusiasm for the grains.
As we discussed last week, the corn acres were down, but not much. The big surprise was in the soybeans, which ended up with acres several million smaller than expected. The results have been dramatic, especially in the soybeans.
The recent, if you think of January as recent, high in the May soybean futures on the Chicago Board of Trade was the $10.69 posted on January 12th. That was followed by a $2.30 plus drop in less than two months. This acreage report is the primary factor in rallying us back nearly all of that. Since the May low of 8.38-1/4 on March 2nd, we have gained to as high as 10.09 by Monday the 6th—a gain of over $1.70.
The soybeans did not make a steady gain, having gained from the early March low to 9.81-1/4 by the 23rd, then losing 16 cents before the report gains. Tuesday’s overnight is just even, however, and the trading Monday did not hold the 10.09 high. We are currently at 9.94, 15 cents off the high, and looking for reasons to go higher.
The January high that we keep looking at in corn is 4.39/1/2. We lost most of a buck off that by the first week of March, then rallied to 4.03-3/4 on March 23rd before the report. I was surprised by that, anticipating a lot of corn acres. When the report came, we made a new contract high on report day, March 31st, at 4.06. April 2nd we got up to 4.07-1/4 briefly, and we touched that again this Monday. We are currently trading a nickel below that.
Corn is a sale now. The bullish beans are helping corn more than the acreage report for corn. That cannot last forever. New crop corn futures are higher than current. December futures are trading 4.34 overnight.
The next big news is planting progress. Reports will start soon. Planting may be delayed, as it should have started in some areas, and we have snow instead. It is too early to talk about delays for real, but that is what will run the market now. First it is planting progress, then the actual planted acres.
As I mentioned last week, USDA has a record of being accurate on the corn acreage estimate, but not the bean acreage estimate. The beans seem to be more driven by weather issues. The corn gets planted in all but the worst years.
The USDA Prospective Plantings Report has given us one more good chance to price grain. Respond to this now or regret it later.

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

Unsettled Markets

Greetings Tuesday morning from a both windy and cold Mifflintown. The markets continue to chop around. I was pretty impressed yesterday with corn's ability to hold off weakness from the outside markets. I believe that the battle lines are fairly well defined in the grain market. We have seaonal forces being exerted on the market versus the poor feeding and ethanol margins. Seasonal weather and production uncertainty against economic weakness.

The dollar has a bid that has pushed crude oil back from its highs last week. As you may all wonder from time to time why I talk about the crude market, or the S & P 500 . The above chart is a daily of crude and corn and the S & P 500. Take note to how well all of the lines fit into each other, the market gets sick and returns to health in unison. If we believe that the worst is behind us economically, then more demand lies ahead and the market finds a "bid". Conversely, should we have another round of bad economic news that brings fear back to the market, people will either stop buying and or start betting against the market. I realize that weather and production concerns will trump the above correlation, but I believe that we must keep an eye on the outside markets when making plans or decisions. No matter how hard some fight this linkage, we are at the end of the day all on the same ride.

What do I expect to see today?

The overnight markets were a little weaker trading off a stronger dollar and a soft tone from the financial market. This may lead us a back and fill consolidation pattern as we approach the report on Thursday.

Short week with Good Friday has volume very light. This can make markets more spastic and unpredictable, especially with a report Thursday.

I think there are plently of dip buyers out here, this should support the market on any pull back. From my desk, the risk is to the upside in the short term. Feeders should be buying in coverage and farmers be slow patient scale up sellers. Prices will be supported until '09 US crops are well underway.

For those trading, buy any 20 cent pull back in the July- Nov spread, long N- short X for a lottery ticket. Stop out on a close below 50 cents.

Good luck,

Jon Hart

Who let the bull out?

Happy Thursday from dreary Mifflintown. The crop report is out and behind us. Now it is the market's job to convince farmers to do what it wants. Right now the market is hunting bean acres and adding some risk premium as our carryout is not burdensome. I just put some new charts on my website this morning pointing out the technicals as the market sets up to make a charge higher. As I stated and state again, I am not crazy bullish, but friendy. We are having a feel good rally as the market is trying desperately to convince us that the worst is behind us. Remember it is the markets job to take as much money as possible from the majority of participants. Right now, the stock market is courting us into thinking that the light at the other end of the tunnel is not a train coming the other way but sunlight. We shall see. J

From the bear camp, I point to continued abysmal feeding margins in hogs and cattle. Ethanol margins are now nonexistent and this is the real sore in the corn market. This is why I believe that the rally should have trouble getting real legs. Real bull markets stem from strong demand and our disappearance is off 10% y/y. I realize the stocks to usage ratio in historical terms is tight; however, virtually none of the buyers of corn are making money and this is a problem for the corn bulls. Yesterday the big news of the day was EPA's announcement delaying their decision on higher ethanol blends until next year. Minus one for Sec. Vilsack. Pro Exporter released their 9/10 stocks @ 1.691 billion bushels which is on the higher end of the range.

Trade consensus is building for the acreage reported by the USDA will be the smallest reported of the year save for major weather and the market is going to bring in an additional 2 million acres. High prices are the best fertilizer for big crops, low prices act as a retardant. Low prices forced acreage on the fringes to be taken back out of production. Remember last year we were hunting for every last acre available for row crops, this year we can afford to idle some of these acres. This is as Martha Stewart says, "is a good thing".

So what do I expect:

I expect grain prices to continue to drift higher as we enter the planting/ growing season. Users should have good coverage for the next 90 days.

Look for the energy complex to break out to the upside on a convincing close above 58/ barrel.

See top side resistance for corn @ 4.25 futures, 10 beans and 5.60 wheat.

Have a great day!

 

JH