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| A couple of things.
From my view, as I mentioned earlier, these markets are technically vulnerable for the next couple of weeks: March options expire next Friday. China came back to work last night & the common opinion is they will be comfortable for a couple of weeks. Conversation about livestock deaths & etc. The SA crops are not of a concern at this moment. And, we may also have to absorb some fund liquidation at the close of every day.
However, this does not change my overall opinion. Demand has to be shut off and the surprise in a few weeks, again my opinion only, is demand will again resurface-as I‘ve said before, in this type of market, I think there are buyers in the wings who’ve waited for price declines and have waited.
I am trying to determine the timing to enter long corn/short Chgo wheat. In my view, the current $4 to $3.25 relationship will not persist as we get further along late this year and into next year. Our Ethanol corn use will be 3.2 b bushels this year & with 5.7 billion additional gallons of capacity coming on stream by mid-2009, the usage could advance to between 4.2 & 5.0 billion.
We need trend yields the next two years in corn.
The Corn Belt is known as the Corn Belt because our weather is perfect for growing corn. And, our producers are expert at growing corn.
Within the world scheme of things, we are the big boy on the street in terms of corn, we have strong competition in oil seeds & wheat production is gaining ground in most arable parts of the world.
I think we have entered a period, of a 3-year minimum, maybe longer in which we are shifting resources to the best use. These higher prices will attract acreage from those countries which have some reserves of available land.
Additionally, I’d had to re-adjust my view of a few weeks ago, in regard to corn. Bring my thinking out of the stone age. However, I do believe, at some point, in this next three years the plug will be pulled for awhile. Point is, when. Traditionally, in years of tight wheat supplies the prices can firm up again in June and July.
Fact:
We are going to have to liquidate some livestock. Most likely cattle. Eventually, once thru this period we will see new highs in cattle.
Fact, bio-fuels are not going away. Regardless of all the fretting and worry, it is an industry in growing pains will shake out where necessary and will fall into stronger hands, in some cases, existing oil producers. The industry will continue to draw controversy.
The industry, under the current set up, can absorb high priced corn to a much greater degree than can the livestock producer.
We are in a recession. & that is the real concern; how to keep the consumer funded. But, over the past 50 years I've heard all the stories, all the viewpoints & all the folks rushing to protect themselves & we are still here....I remember folks sweating about the dow jones when it was bouncing around 600. Corn was close to a buck & beans were $2.25.
In the last historic market, an old fellow who owned a bunch of elevators related to me “Son (was not a son, but a lot lot younger than was he), when people are either scared, or like now, when nobody really knows the true worth of anything, that’s when you make real money.” I am not so sure about that in this day and age, but I think there is a lot of opportunity ahead.
Credit spreads are widening & TV cameras are on a variety of personalities, which I believe are posturing to once again place the bill for this mess onto the shoulders of the taxpayer –which continues to point to inflation sooner or later & believe one more time our chestnuts will be pulled out of the fire.
I remain, from the speculative point of view, with considerable patience, in the bull camp
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A View
