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12-09-2010 11:59 AM
What do you think about Friday's USDA Report? Here is a thought or two from a grain analyst. In his own words:
"The report will not have the final US grain production numbers as that will be on the January report. This report has world production adjustments and adjustments to the US ending stocks inventory. This is the grain expected to be left over at the start of the new marketing year of September 1, 2011 for corn and beans and June 1, 2011 for wheat. It's a critical pricing number as it is the driving force potential on acreage shifts and near-term increase or decrease in demand.
My basic thinking is with trend following and index funds holding a huge long position out of the growing season and fat with profits. We should see a month-end correction and possibly a December year-end correction after the report. The size of the correction is based on several outside factors. Should we see a similar monthly and year-end correction on crude oil, metals and stocks on the huge fund portfolios."
12-09-2010 02:10 PM
Mike........I think that the end users would like for that scenario to play out........ The only problem that I see is IMO..... The demand for our corn and beans is to high and needs to be rationed...... If there is a sell off...... Then we go higher down the road...... p-oed
12-09-2010 03:19 PM
This is an important point that I think needs to be addressed in this 'New Age of Marketing' (should I copywrite this term?). As a practical matter. It also may indicate a paradigm shift that hasn't sunk in yet - and it would be intersting to get a floor traders view on the following.
Why in hell would the producer CARE about a correction????????????????? AND why should an end user take comfort in a correction???????? We've seen it before. Paper and physical do NOT have to agree. I don't have to sell my commodity during a 'correction'. I'm confident that the world inventories and events will reinstate the trends that reflect the marketing issues of PHYSICAL. If so, 'corrections' become almost entirely a 'paper' event. It does not increase or decrease supplies and it may have little bearing on the competition for physical grain.
OK. What am I really saying? I believe we are on the verge of a permanent break and seperation between 'paper' and physical as far as producers are concerned. It could be an historical realization. It may take a while to sink in, but I believe it already is.
12-09-2010 05:54 PM
pal, wouldnt the seperation you speak of be shown in basis levels for the big 3? i know wheat has a basis question at this time, do you see the same coming to corn and soy? to follow wheat in this regard? or are you saying something else that i am not following correctly. d7
12-09-2010 06:52 PM
Usually I stick to the idea of 'basis' at the delivery points approved for settling futures contracts, because there the difference in basis is comparing apples to apples at a place that is supposed to be the standard. However, basis in other areas is also reflective of this, though there may be some regional variation over time.
I sell my grain based on cash, and my market does not have the basis game most other markets have. The closest there is to basis here is how SWW compares to SRW futures contracts (the usual meaning of basis out here the few times it comes up in a conversation). I'm more inclined to look at cash SRW at NO compared to Portland SWW. In any case, I'm oriented to cash. I could care less what CBOT futures do, and our market doesn't respond much to Chicago anyway except for very generally.
If I were selling SRW for export, I'd be looking at NO cash as a guide, or the export outlet that serviced my market. If the CBOT doesn't reflect that reality, why should I care? If a 'correction' in Chicago happens that affects my market that I think is counter to physical trends globally (assuming the 'correction' is down), why wouldn't I hold up any sale that might be pending in my plan and wait for Chicago to get it out of it's system? Whatever Chicago does in any given day, I believe that physical pulls futures back in line with reality. It may be a separate reality, but it's going to track.
Here, we might move 5¢ for every 20¢ in Chicago, or maybe not that. Maybe even go up.
12-09-2010 07:53 PM
Yes, cash market prices are what matters to the producers bottom line and we time our sales accordingly. There has always been a separation between futures and cash and it often becomes larger during times of large price swings. Not grasping what the revelation here is I guess?
12-09-2010 08:25 PM
If anything, I guess it's that all the fund money pouring into commodities may make futures more volatile and track physical cash less than before - but who really cares? Futures isn't in control of physical.