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| Feel frisky this morning. Finally had one evening without a phone call. No intent to offend anyone on this forum from California, but I have one friend and one business associate out there & it is almost impossible to have a less than 30 minute conversation & not just one call, but frequent calls and have long been of the opinion, some West Coasters love the telephone a lot more than do I.
This allowed a little time to reflect & try to gain some perspective.
We have discussed inflation. Therefore, unless you are a day trader, which is a tough way to make money, and producers –in my opinion should be looking at the longer pull- the short term variations in the price of gold & the dollar, again in my opinion, have little influence –as inflation has arrived and is most likely to continue.
Items to consider:
An increase in spring wheat acreage, in the big picture, is competing with soybeans & in some locations, other crop alternatives.
We did not put this winter wheat crop to bed in the best of conditions in some areas. I suspect in a matter of a few weeks, focus is going to shift to KC wheat.
As I made reference a couple of days ago, I feel there are yet some sleepers in this export demand. China normally supplies several Asian countries, which demand has/is gone to SA in some cases, but a certain amount will be drawn from the USA.
A few weeks ago, one of my concerns in soybeans is the known fact the Chinese are traders & could be expected to switch origins on some of their soybean bookings to SA. This has not yet happened and now feel it is not going to happen.
If you recall, since about the middle of November, country after country has either lowered import tariffs, taken action to subsidize domestic food prices, or put price controls into place. This is not bearish. The world needs food.
While a declining crude oil market which could decline to $80…some folks think $60…who knows? But that is also a market subject to risk premiums if some world event erupts. Should the crude market decline, while it might soften the demand for ethanol & bio-diesel, lower prices put a few bucks back into the consumer’s pocket, so it is a mixed bag.
We are entering the refining period when the focus switches to gasoline vs. no.2 & while gasoline stocks are large, as we approach the soon to be here driving season, the gas futures reflect carrying charges. The “crack” margin is again in the $10 area meaning refiner margins are improving slightly & if those margins begin to widen, it will reflect a slowing demand for product which will back up the demand for crude & slightly lower refining utilization.
Technically, these markets, except for spring wheat, have been choppy of late. However, some of this market action can be a little misleading as we have a huge amount of spreading in all of these markets. Nearly 25% of the corn open interest is in spreads; 30% approx. in the wheat futures & nearly 33% in soybean futures. The entry and liquidation of these trades can cause temporary swings in price relationships which can be misleading in the short term.
Additionally, those of us with the baggage of experience have been waiting for some sign of the February break. No longer convinced it is in the cards; too many unsettled issues in this market.
The other consideration to tuck away in our minds, in years of strong usage, a lot of folks are anticipating the arrival of new crop products. Wheat is not in optimum condition, will require almost perfect weather, corn is not yet planted, same for soybeans & it is rare to not “kill a crop,” as far as futures are concerned, at least once each year, some years more than one scare.
Inflation is a two-sided sword in agriculture. While we enjoy it due to increased land values, these input costs are & could continue to be a nightmare and not one of us know where that is headed. Of course higher, but how much? With the world going to attempt widespread acreage increases, some products may get even higher in price. In 1973 & 1974, some crop inputs, in order to secure a sufficient supply, required either “knowing someone” with supplies & in some cases, a brief case with some currency inside. If it were me, I would be sitting down with a spreadsheet & play the ‘what if’ game on possible input cost impacts before I would race out & sell entire crops, including 2009.
I don’t put much reliance in picking price highs, as none of us know & I take chart projections with a grain of salt except I consider myself somewhat of a technician, a prospective seller just has to watch that price line on the chart until it either reaches a personal price goal, or signals a top. There are simply too many variables at this moment. If wrong, there is always the car wash & “you still have your health” and I’ve been told that a couple of times, and while true, it is of little comfort in those situations.
My personal view, while the market lost some of its luster from the highs coming in late Friday, if we do not have some bearish surprises over the weekend, it could be a very interesting week.
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At the End of This Week
