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03-27-2013 11:52 AM
I ask the question because of varying signals and no assurance of resolution in a timely manner. Two factors involved are what I call 'Normal Production Variation' (NPV-ag?) and the 'Danger Zone' factor for the market. Predictions and projections are basically about possibilities and probabilities but have no effect in determining outcomes.
The 'danger zone' is the inability or inclination for the market (price, futures, complacency) to encourage production enough to counter any shortfall risk that Normal Production Variation will occasionally cause. The classic case was wheat - 2007. Prices remained realtively low and acres fell even while year end inventories were falling as part of a larger trend. After a certain point it doesn't matter what the market 'thinks', the planted acres and production and final result can't be affected. It's too late. The old timers on this board may remember my warnings at the time. Well, one person certainly doesn't make a market.
It has been confirmed that corn from Argentina will arrive at 'East Coast ports'. That's shorthand for Port of Wilmington, SC, a feed deficit area in good times. That's what rumored feed imports almost always mean. The rumors are almost always released to unsettle commodity holders by reminding them they aren't the only game in town - and yet it means the exact opposite - mostly. The idea is to create some surge of selling when supplies are tight - therefore confirmation that supplies are as tight as some thought. Not only does the coming crop for N America need to be big enough to supply next year's needs ir also need to be bigger than that to avoid scraping bottom on stocks. Guess what? Russia is in a similar situation. So are other areas. There is no guarantee that all areas needing production + rebuilding inventories will accomplish that. That is the risk. A severe deficit in one area affects all areas in global trading.
OK, US farmers are wallowing in obscenely good times due to good prices and our welfare queen status on crop insurance - which is simply a means of guaranteeing revenue regardless of what happens. We are priviliged (though it will come back to bite some of us). On the other hand, 35% of Western Australian farmers are unlikely to recieve conventional funding loans for operations due to two years of drought and no fall back position. And the world's biggest wheat importer - Egypt - is going through foriegn reserves at a steady pace as its economy has take a huge hit trying to move from totalitarian rule to democratic government. It will not be able to sustain imports and will require as yet unidentified financial help to sustain the effort to provide bread on the streets, even though subsidies for that bread are being reduced which may have negative effects on the political situation.
Logistically Brazil simply can't pump out enough of it's production of corn and beans to satisfy the immediate need - though Brazil could eventually meet that need if time weren't a factor. Meanwhile Canada's oilseed crush (canola) is ramping down due to falling supplies.
We have STRESS, we have RISK, and we still have hope that things will be 'normal' for commmodity production this year. So, is your perception of 'normal' average? Or above average?
03-27-2013 12:31 PM
Palouser...... I agree with your assessment of the situation...... The worlds end users have and are like locus going from country to country and buying up there reserves...... I find it to be strange as to how our markets are so lackadaisical as it relates to where we are with world supply...... EVERYBODY is looking to (hoping) for the next big crop.......p-oed
PS.....Yes I know that we are at high prices........ But we have been stuck in a trading ramge for a long time with what I would say has been very little rationing....... my point.......
03-27-2013 12:38 PM
Couple of items...
1) Imported corn will be coming into many more places than Wilmington......it's already been happening at various coastal ports and to a lesser extent, the Gulf
2) To understand "high prices", you need to take off your farmer/flat price hat and look at it through the eyes of basis traders...
+175--200 over the Sept is VERY high priced corn to that group of people.....
03-27-2013 01:04 PM
I do not disagree with your assessment Ray. But I don't think the imports do much to change the basic situation. And I do believe that a cost savings over 'basis' is understood by all sides when signing a deal. Everyone has their interests and I doubt anyone is in the dark. Unless you tell me different I'm assuming Wilmington will be the usual and biggest importer. That doesn't mean there aren't other localities on the East coast that are essentially in corn deficit areas. And I'm assuming minor trade in the scope of things. Am I wrong?
The situation still underlines my concerns for the future.
03-27-2013 01:10 PM
That is usually where the bulk of US imports come from as Ontario has ramped up corn and beans. If you look at a map Ontario is strategically located for the U.S. market. Few realize that the southern tip of Ontario is almost at the same lattitude as the north border of California.