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06-09-2011 11:32 AM
The questions about the future of grains, long and short term, seem to be multiplying faster than answers can be found. The answers will be supplied, but only after some time, and the answers might not be what we want or expect.
An example would be wheat, which I arguably know best. Global wheat trade rests on the ability of exporters to have supplies to ship. Regardless of what end stocks might be projected it must be in the right places to be transported. At this point the supplies of the major exporters are not assured, other than there will be some unknown amount, due to obvious trends like dryness, too wet, etc. On the other hand, corn worth more than some wheat classes? This implies higher feed use for wheat as an easily transported food source in world trade. Barley supplies (grown in northern and dry climes with short seasons) seem destined to drop in Canada, the US and Ukraine (and EU?).
And China's drought lingers in the background, extent unknown.
Corn will determine the extent to which grains take a firm direction in the next month or two. Weather extremes in corn country could make for a lot of squirming in the near future. I don't see a way out of this unless the corn belt becomes the Garden of Eden the rest of the summer. I have never been so uncomfortable about grains. This too shall pass, but I'm not sure I want to see the ending. Call it intuition, or just unconscious calculations that can't be resolved yet. I'm just glad I am not one of the chief economists at USDA trying to put together a report.
06-09-2011 12:22 PM
I certainly don't blame USDA. And I don't see they would have an agenda at this point. They had numbers and a report based on those numbers was put out. It's the conditions that are questionable. There can't be anything conclusive said about the outcome, except that things are going to change.
06-09-2011 12:42 PM
"As a side note...........USDA will likely now start playing with demand numbers..........they know supply is puked.........they also know high prices will not promote more acres and only make things go higher putting the cabash on cheap food policy........look for demand outlooks to be slashed..........."
quote is in last paragraph of thread..........
They did exactly that, cut demand on domestic and world stage in different forms or fashions..........the one thing that did surprise me was being forward about corn acres............I figured they would wait till late June report..............HOWEVER THIS IS LIKELY an even more bullish set-up..........when the USDA flinches its usually to set up for something even more bullish (how they have played it since August 2010, really June)...........we will likely see more reductions in supply for corn..........and soya and wheat are in the wings............they took it one crop at a time...........wheat production will likely be revised down in NA, in hopes European wheat is better than thought thus creating a wash in the end without spooking the markets............unfortunately we will likely not see a reduced soya production number both on acres or yield until late this year...........so soya will just have to wait I guess.......but it will really set up a battle for acres in 2012 when wheat likely bids hard, corn is obvious and then soya.........
remember China has gone the way of course grain production, not near as much soya..........they are relying on NA and SA...........and if soya hang about $13 something, demand will not be rationed at all................not to mention the acres war will be lost..........
06-09-2011 12:56 PM
With the USDA lowering the harvested acres on this trip is agood indication they will keep lowering it. You haven't even seen the flooding coming down the Missouri River yet. Most of those are planted acres and will not be replanted.Final acres will come after a couple of snail pace surveys.There could be an 87million planted acres when said and done If you are a holder of old crop you can hold on right up to new crop as there isn't much early planted and basis is still narrowing or out east a bigger plus. Alot of big players are about to get blown out of the water. BIG rains are coming look at a 10 day forecast
06-09-2011 03:26 PM
The simple fact is demand cannot be larger then available supply. I don't think the USDA is really playing with numbers it is just a fact that the pipeline is not efficient enough to have a zero carryover. I'm not sure its even efficient enough to be lower say 500 MB. What do you think the USDA should put out a negative carryover? I'm not saying that we couldn't get to some astronomical price to make sure we don't run out but not having available supply rations anything faster the price, which may be the case in the near future.
I think one can always find reasons to back up their argument like you seem to do everyday, but its not what you know that hurts you its what you don't know. Just like the statement that all swans are white. All it takes is for someone to find one black swan and you are wrong. Some times it is a lot better to spend time trying to figure out how you can be wrong then coming up for reasons why your right all the time.
Every time I think corn can only go higher, I just have to stop myself and ask if I was buying it what would I pay today. Even if I thought we should be at say $9 I would need a little margin for error, which means that I better sell some today in case I am not as smart as I think I am, which is a lot.
06-09-2011 04:46 PM
I believe USDA follows a methodology. I do not believe they are arbitrary. There is wiggle room, which in wheat tends to be located in 'feed and residual', a derived number and not directly measurable. I have seen that radically played with In SWW, but it is a minor part of the equation in most instances.
To a degree the report numbers are a 'zero sum game'. Try to be overly optimistic. or overly pessimistic early on and you're going to get caught hard down the line. USDA is largely professional bureaucrats in the civil service. Only the top people are political appointees. The middle echelons don't necessarily have any loyalties and aren't gaining anything by covering up wholesale shuffling of numbers.
It'/s too early in the growing season to need to play with numbers. The questions can hang out there. Nobody needs to be blamed. The next two months will determine if this is all going to work out. But I think the risks are great at the moment.
06-09-2011 05:51 PM
well, the bulls got a steroid shot this morning. next target for july corn is 8.32, go thru that and its 9.20. a word of caution, from an E-wave angle, we are in ending patterns on both corn and beans. we have achieved the minimum in corn and not yet in beans(need another contract high). so stay on your toes here. the trap door could be hit in the very near future. fwiw