04-27-2012 12:30 PM
And by 'market' I mean the physical aspect. Supply and demand. If you're speccing then I wish you luck.
If you make two stacks of prospects, one for 'knowns' and the other 'unknowns' the latter will be 10 times that of the former. But the 'knowns' are important.
The China corn purchase should be under 'knowns' as their pattern is consistent. They WILL buy, and when they do it will affect the market. They are tactical buyers but their strategic interest of having large reserves is the HIGHEST PRIORITY. It trumps price and likely domestic production. They aren't bottom feeders like Egypt. Their logistics are far different. Egypt can bump the market. China can electrify it - which they try not to do in the short run. That's one reason why they tend to be consistent buyers. There's no doubt the million tn+ purchase was by the Chinese government entity, not private concerns.
In the 'unkown' pile, the most important has to be this year's US corn production. There are some worrying aspects to some of the dry areas and early planting in the Midwest. It could be a bin buster if there isn't a pattern of persistent dryness developing. Continued dryness over a moderate area would blow this market to the stratosphere. A variety of modest and normal problems could strengthen the market w/o causing buyer panic. We need a bin buster. And then there are soybeans.
If you don't think these are realistic scenarios then think about the great crop of winter wheat coming on the Plains. I will tell you some of that is on the edge with lush growth that can turn brown quickly. It would be the end of the line. Meanwhile the CBOT wheat futures have wheat lagging behind corn in price. In other words, wheat is supporting feed activities. That's all fine and good. What if wheat prospects dimmed and regained the price edge on corn? Then there'd be more dependence on corn.
This is an opportunist's paradise. I don't have the faintest idea how it will all wash out but I think the risks are much higher than ever. I'm not in the camp that thinks speccing has caused a bubble in grains. I AM in the camp that thinks if there are significant production issues you will see money flow into the pits like never before. Think 2007-8, only more wide spread. That was mainly a wheat thing. This isn't a prediction. This is simply to be a reminder to watch carefully, and if you are an opportunist like me, keep your hole card ready.
04-27-2012 03:24 PM
Long ago studying commodity pricing as an AG Econ major, we came to see each crop year as full of uncertainties. The point of certainty didn’t came until harvest’s end. Over history production spiraled up as methods and seed improved. Any year anything could happen and there were no years without crop troubles somewhere. Historic crop production data is easily attainable- you might get it and see how relatively steady the production trends are.
May 1 is near, it is rare to see WW damaged here into harvest in June-July. Too wet or maybe too dry could swipe a bit off of yields. HRW wheat looks especially good this year.
Further back in time, some countries wanted stocks for insurance when a poor new crop came about. Vastly expanded logistical opportunities and vastly expanded trading partners has lessened the need for high stocks. Holding stocks is very expensive; might it be a buck a year for wheat? In 5 yrs you have lost the nominal value of the commodity. Has to be weighed, but few will spend too much $$$ like that. TheUSdoesn’t choose a stock level, price and the market dictate.
Index Fund length hath provided an unbelievable era of spec premia which producers have collected. A rich Mom inGreenwich CT, needs to be long commodities for some reason, the ensuring price rise feeds into farmer’s hands. The REAL risk may be that era passes. Sure is a nice income transfer I liked to see.
From here, everything that can happen will happen, but why would wheat get brown now other than its natural color change to maturity, brown?
04-27-2012 04:27 PM
Every year tends to start with uncertainties. Some, like Ukraine this year, turn into minor disasters early on and then are matters of recovery. It is the threat of questionable ending year inventories in one area or another that become lightening rods. The typical role is for the top exporting countries to act as the flywheel for stability. Lately the dynamics have changed as super exporters like Brazil and Argentina balance out the demand from super importers - like China. The danger is if S American production lags the trend and then N America does the same. Tension in the physical market builds. Chances are that N America will have a good crop if not a super one. As long as that is unkown there is risk. China counters that with internal reserves. Until a later time in crop development in the US the tension will remain and intensify, or not, w/ conditions. An average or lower crop will be a powerful stimulus to the market.
Where you and I differ is you tend to push seasonals. When you are wrong on that you get blown clean out of the water in terms of income in addition to the lost opportunity. I will not play odds. I wait for opportunities based on production trends - as demand is usually fairly consistent pattern for food. A person wanting to spec with a seasonal bias is just fine w/me. I won't do it. Since wheat is now priced as feed there is little downside for now IMO.
Winter wheat turning brown is for lack of subsoil moisture. The crop is lush and going into the reproductive phase. Timely moisture and good conditions have pushed it along. If the moisture continues the wheat could be good. If the rain stops there is wheat with no subsoil moisture to keep it going as usual. The brown spots are where the wheat is hitting the wall. If dryness is the trend wheat will shut down overnight where there is no subsoil moisture. I've seen it happen. How much is at risk isn't known by me but, I've gotten reliable reports that it's beginning to occur in some areas of the Southern Plains. The wheat tour will begin soon and by then, if dry trends take hold, the extent of the problem will be evident. If timely follow up rains continue it won't be an issue.
04-27-2012 05:17 PM
One area of real concern in the eastern part of NW KS just got from 1.15 to 2 inches of rain this morning. The wheat was having "blue outs" , underneath browning and needed this rain desperately. Kind of centered in the Plainville area, but was a fairly large area.
04-27-2012 05:28 PM
Even though the Palouse has about the best conditions on the globe for winter wheat, 'blueing' on clay ridges and thin ground are well known, though we haven't seen much of it for a few years. When you get browning there is usually permanent damage. We don't often get saving rains in the summer. However, the worst drought in Palouse history still meant 37 bu winter wheat. That was a good looking crop that just shut down in 3 days time. No subsoil moisture.
05-03-2012 11:19 PM
??Winter wheat turning brown is for lack of subsoil moisture"" where, how much, no crop any yr is perfect. Trend yields are not perfection buy avg.
"push seasonals" seasonals offer a natural edge, on avg, in this time period X tends to happens.
Wheat priced s feed, what if feed goes down or DEc corn is undr 5$. Not far away.
Wheat has been falling for a long time, a long time. When does teh findamental become clear?
Once unknowns are known, the mkt bottoms in a good year.
It doesn't then start down it is then already down.
eastern C belt. SRW looks good, out east. fwiw Ptitch,
has price alredy dialied it in ? or not even close.
05-03-2012 11:23 PM
Mr Palouser, Noted your conditions are always very good.
Why do you see production issues risk of rising? Is it equal odds, issues lessen ?
Have heard others speak as you have, exceptional times, except they fear the risk is downside. More 4-5$ Wheat, similar to the $2-3 for yrs a decade + ago. Price is egging on production.
I hope it bottomed today, but doubt it.