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| Typically, I am a bear trader & normally prefer the short side of any market. However, we are on a different horse; historic shortages with little margin for error or problems. In the short run, I am greatly bothered by the switch in sentiment following the crop report. This market has gained a lot of new & large speculative longs based upon some wrong timing ideas in my opinion. With the exception of wheat, quite frankly, in traditional terms it is too early for the market to focus on acreage. We are in the final stage of the harvest of soybeans and corn! I sense producers have become too bullish and the large speculators are now wondering why they are suddenly long when we are months distant from hard decisions on soybean-corn acres.
In reviewing acreage, I believe the USA stocks requirement to ‘buy-in’ acres, in order to achieve some minimum comfort, equates to 67 wheat & 74 soybeans, the increases coming out of cotton and corn acres. We are going to get some wheat acres by default. The crop report suggests some of these marginal acres devoted to row crop last year lack the facility to produce top yields unless conditions are perfect.
The regression intercept for last year’s corn-soybean acres relationship was corn price x 3.777 minus -2.244. At $4 new crop corn, it puts new crop beans at $12. Based on last year’s data.
However, we are currently in an extremely bullish environment & in the final analysis decisions will be rendered based upon the price relationship between cotton, corn & soybeans. In a contrary perspective, New crop corn futures at $3.35 equates to new crop soybeans (futures) at the $9.75 level. Logic would suggest long nov beans verus short dec corn.
In the very short run, the corn market acts as though it wants to roll-over. I am out of my July corn & plan to stand aside. I may go short depending upon how it acts on the rallies today. Several days ago, I sold Sept wheat as a quick trade, and then covered as the market began to act as though it were ready to move higher. I covered the shorts and after nearly a week of market action, the price is approximately at the same level as where I covered (at a loss). I don’t like the near term action.
Risks & Events: wheat market-I believe we are attracting acres world-wide. Weather remains the unknown. Winter kill? Spring weather? Can this market remain at these price levels absent additional old crop demand. There is no margin for problems. As a speculator, I feel we have done the acreage job in wheat. The demand picture is yet to completely unfold & is why I retain a very small position in March wheat and may ride it a $1 down, but I just have to be there. It is a pure speculation. What if weather in the next few months is perfect? The market will seldom then provide an opportunity to sell. As I mentioned the other morning, this wheat market is getting to be an old bull market. Be careful. I want to stand aside the new crop for a few days. Corn Market-the reality, we could lose acres to beans and wheat & still have a carryout of 900 M. bushels. The corn price would re-adjust to reflect this but my point is, we could well make acreage decisions based upon the “worst of the best scenario” at lower prices.
I believe, as a speculator, the deep breaks in beans need buying. Further, I believe a sharp break in new crop wheat would shake the tree and I believe we would see some producer selling. Selling which may be currently offered above this market. The corn market could well test lower levels & again need buying.
Money moves market. The flow of funds. These large funds, while of benefit to all of us in the long run, can turn on a dime, moving prices sharply in any direction & after a week or two, prices return to some normalcy. Some are involved in every world futures market. It is very difficult to adjust to this huge capital flow. The quantity of money floating through international circles is mind-boggling to me. I have a casual acquaintance on the west coast whose brother is an international film icon & his father is a legend. My acquaintance is involved in a proposed casino-resort in Central America. A $100 million project. Nervous because of the “real estate” crunch, they were shocked to be “covered up” with Chinese investors with little regard to risk, costs or collateral, just a sole desire to “break into” that geographic market area.
The overview: Demand is the primary consideration at this time. I think it is too early to try to out-think these markets, except I do think a producer should be making limited sales of some product at these levels. As I have mentioned before, this wheat market is growing a beard, in terms of age, and it is extremely dangerous to try and eke out the last dime, or the exact top. Prices constantly test sentiment. Producers, in my opinion, should occasionally remind themselves “what if everything falls perfectly into place from here on out.” Where would prices be? A speculator can have a change of heart every few weeks, a producer is obviously not in that position.
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A Couple of Things
