"No one could make a greater mistake than he who did nothing because he could do only a little."
- Edmund Burke
Commentary
The soybean market continued today to be the price leader of the US grain complex as unexpected, late season demand from China supported prices last week and the IGC lowered stocks overnight (see next comment). The logjam in South American soy and grain exports continues, with Brazilian ports reporting that some 3.9mmt of vessel loadings are still waiting. China has started to shift cargoes to the US, and additional US demand is expected this week. Thursday's US sales report is again expected to reflect a strong US sales pace for wheat, corn and even soybeans. However, in fairness, the US soybean export sales pace is just 82% of the expected total vs. 86% normal for this time of year. On the other hand, US corn sales are 70% of the expected total vs. 65% normal for this time of year. The fact that China bought US old crop corn last week and yet prices still finished lower is somewhat disappointing to market bulls. South American weather is losing its importance as crops mature and the harvest pace deepens to the south. Overseas, Chinese cash corn prices are reaching record levels in many markets, which could spur additional interest from both private importers as well as state stockpilers.
The International Grains Council lowered their forecast for global soybean output in 2012-13 by almost 4% overnight. Global production is forecast at a three-year low of 246.5mmt, down 7.6% from 2011-12 because of lower output in all major producing regions. Brazil's soybean output may fall 8% to 69.4mmt (72mmt Feb USDA estimate) from the record reached in 2011-12; down 3.3% from the IGC's earlier forecast, it said. The IGC lowered its forecast for Argentina's soybean output in 2012-13 by almost 10% to 46mmt (48mmt Feb USDA estimate), down 6% from last year's actual production. Paraguay's production may fall by 40% to just 5mmt, it said. Meanwhile, demand is strong. Although the IGC lowered its forecast for China's soybean imports by 1mmt, at 56mmt, it would be a record, up 7% from last year.
If famers do plant more corn acreage than forecast in the Outlook Conference, it will be imperative that either export demand, led by China, rise, or that the blending wall in ethanol is lifted. Brazil recently announced plans to spend $38 billion on sugar cane production expansion to fuel increased ethanol production by 2015, which could further erode what has become our largest ethanol export market. At the national Renewable Fuels Conference in Orlando last week, Ag Secretary Vilsack urged attendees to soon register their E15 blend with EPA, so that the fuel can be legally used at stations around the country. "If we're worried about the Straitz of Hormuz or Iran, one way we can be less stressful about this is getting E15 in the tanks and cars across this country. I'll encourage my sister agency [at EPA] to approve those registrations as quickly as they can," he added. With EPA's approval last week of health effects testing data for blends of 15% ethanol (E15), the ethanol industry moved one step closer to allowing the fuel blend in gasoline. But the process is far from over, panelists explained on Thursday at the Renewable Fuels Association's (RFA) annual conference. In 2011, the agency finalized its waivers allowing for 2001 and newer vehicles to run on higher blends of ethanol up to E15, and also released a new label that must appear on gasoline pumps that dispense the fuel blend. However, the fuel has not yet been registered with EPA, and therefore cannot be legally sold. With ethanol futures now about $.90/gallon below gasoline, if a shooting war starts in the Middle East, that spread could widen even further, making E15 even more desirable.
The most supportive item in the corn market continues to be basis/spread strength as farmers apparently are pretty well financed and not inclined to sell at levels that we've seen in the past. A Dow Jones News article over the weekend noted that a new phenomenon is underpinning corn prices: prosperous farmers. Having benefited from high prices last year, farmers are becoming more choosy about when they sell their corn. Right now, some are opting to stockpile some of their harvest, rather than sell it, a decision analysts say is helping keep corn prices relatively high. Farmers now hold about 64% of the nation's corn in storage, up from 62.7% a little over a year ago and the highest in two years, according to the latest quarterly government survey. This is causing an unusual supply squeeze in parts of the Midwest, driving prices higher for grain processors, livestock ranchers and ethanol makers. The added cost could pinch buyers' profit margins and spur them to try to pass the added costs onto customers. The stockpiling has upended the usual price cycle for corn. A shrinking debt load among U.S. farmers also is contributing to their ability to hang onto corn. Last year, the total debt of all farms added up to 10.5% of assets, the lowest level since 2007, according to the USDA. Debt as a percentage of assets is significantly lower than a decade ago, and the proportion is half that of 1986, when it was 21%. That mountain of debt triggered the 1980s farm crisis, as farmers who had borrowed heavily as property values soared faced foreclosure when the prices reversed. Farmers have 12.8 billion bushels of total grain storage capacity, according to the latest U.S. government figures, up 10% from 11.7 billion in 2006. The current capacity would hold last year's entire corn harvest.
March 1 is almost here, and typically grain prices perform much better in March then they do in February. Look for prices to by rising into mid-month after corn and wheat get first notice day out of the way on February 29. Wheat, corn and beans held their January lows in the month of February. That is a friendly technical development that implies price strength into summer. The US dollar will drop profusely in March if it fails to hold the 78.50 value and that is friendly commodity prices.
US Dollar Daily Chart
Corn
Corn has ground sideways in February, respecting the daily downtrend line I have shown all month. Tomorrow looks to be another key opportunity for that trend line to be breached. 658-660 is resistance if that occurs and then the next stop is 672-675.
May Corn Daily Chart
Beans
March beans achieved the 1290-1300 target we had set for it with May contracts target ten cents higher on spread value. Soybeans have a head of steam on them and look to extend this rally. A close above 1315 for March and 1325 for May implies an extended run. Last day of the month / first day of the month typically creates a short term turn at a minimum, so one could expect a setback for a while sometime next week.
May Bean Daily Chart
Wheat
May Minneapolis wheat, which currently is already the spot month for elevators, severely tested the 785-790 value today before recovering sharply into the close. Whether the USDA is correct on the additional HRS acres will take months to confirm. Seed salesmen in the Northern Plains will tell you that corn seed sales are up substantially not wheat. If wheat fails here, it would technically imply a break to 670-680.
May Mpls Wheat Daily Chart
Live Cattle and Feeder Cattle
Friday's Cattle On Feed report was deemed friendly (Estimates: On Feed 102.5%, Placements 98.5%, Marketed 100.5%.....Actual: 102, 98, and 102 respectively). As is typical, it became the Cattle On Fade report, as they sold the steady / better opening. These reports have held very few surprises the last several years. Cash cattle traded steady from the previous week (128-129) late on Friday. At midday, choice cutouts were trading $198.75, inching toward the $200 BSE spike high. There's a lot of concern in the trade whether or not consumer demand can sustain a move over that mark, although it would seem to be inevitable. Packer margins are $30 per head in the red. Today was 3 days down for April Live Cattle. Tomorrow's buying (or lack thereof) could be an indicator of the next short term (or intermediate term) direction.
April Live Cattle Daily Chart
August Feeder Cattle Daily Chart
Gold
After breaking out from the 1764 region, gold is doing a 2-day setback that should end by tomorrow. Upside objective on the short term should be a challenge of the November high of 1808, which then gives us a target of 1805-1810.
Gold Daily Chart
Crude
Take a look at the chart below and you will notice the $20.00 break in crude oil that occurred after the Fed announced the end of QE2. From there, crude oil stayed under 104.00 until they started creating money to bail out Europe last week. Look for crude to challenge 114.00 in the coming weeks and higher levels by summer. It is an election year, and since we have a dysfunctional Washington DC, the only player in town is the Fed, and they only know how to create money and debase the dollar in your pocket. The Fed have 97 years of experience doing that well.
April Crude Oil Daily Chart
02-27-12
Link (in blue) below to view the latest market prediction interview on KFYR - TV:
For January, March, April, and May Feeder Cattle...Covered 100% of production buying puts and selling calls. Covered the calls in the December break near $1.00 for most.
NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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A word to the Wise
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.
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