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Mizzou_Tiger
Senior Advisor

Big..........

jobs numbers this AM.............

 

so question for the bears...........since many of your hopes seem to dangle on this idea demand is dead...........

 

does a US economy that has been putting together solid numbers for nearly 6 months or longer now mean more demand..........

 

or does that little trick only work when you wanna take demand down...........not up.............

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5 Replies
rayjenkins
Veteran Advisor

Re: Big..........

MT...you often make a reference to "demand being dead"

 

could you clarify what that really means to you??

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roarintiger1
Honored Advisor

Re: Big..........

Ray,  I wish someone at the USDA would explain that as well.  Might be some interesting reading.

 

FWIW, I would think that lower prices on grains from here on would mean demand construction,  not destruction.

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Mizzou_Tiger
Senior Advisor

Re: Big..........

Ray, I break this down in two ways..........and both interact with one another........

 

First is the WORLD use of aggreate course grains and oilseed usage............PAGE 8 and PAGE 10 of the WASDE report..........09/10, 10/11, 11/12............the total WORLD use is increasing every year based on this report..........

 

http://www.usda.gov/oce/commodity/wasde/latest.pdf

 

So when I hear Europe is going to implode and China is dead and India is burning and Japan is not floating anymore.............and all this leads to less demand...........Frankly I get frustrated............consumption of these raw commodities on a world scale do not go away on an annual basis..........and according to this report is increasing every year no matter the economic climate..........

 

And I have asked several times on here for someone to find a better way or set of numbers to quantify the total world usage of these raw commodities and pattern them on an annual basis against global economic events............if the WASDE numbers are even close it shows that in 09/10, one of the worst economic times in recent history, demand held up and increased year over year............

 

So on a world scale, its pretty black and white............"demand is not dead".........its growing..........there is no rebutal unless other evidence exist............maybe using the statement "demand is dead" is too harsh, but again demand isnt even flat, its going up.........at different percentages, sure, but most peoples bearish argument revolve around demand shrinking..........because we know supply is tight...........

 

NOW on a domestic level its slightly different if you look at only that data set on a limited basis...........we know that the US overproduces our needs............and we rely on other uses and exports............so that adds in some gyrations and flux in the system............however, when the rest of the world goes other places for their raw commodities instead of the US, it only puts strain on those systems BECAUSE THE WORLD CONSUMPTION is increasing...........therefore, perfect example is what is going on in the black sea region with wheat and SA with corn and soya............those areas may limit exports and hence the USDA recent revision to increase corn export numbers............demand for US commodities may not be the first in line, but on a world scale that demand will drive our sales at some point............because grain is produced on cycles, the price for the first 90% of supply is an educated guess based on the likelihood or unlikelihood the last 10% will be needed.............however as it becomes apparent the last 10% will be needed..........the last 10% becomes very valuable compared to the first 90%..........

 

So in not so many words...........supply is the one that has to break this market, not demand............

 

EDIT: and if I could rant alittle more............this is why I get irritated when things get spun into a story that has little merit...........the very reason all other run ups in grain thru history have ended with a sharp downturn.........and this one has not yet (seriously $5.85, that price is above the run up in the 90's) is because we were able to punch huge supplies the next year............in essence supply was able to overcome demand............however that cycle is doing a half life routine..........20's to the 70's to the mid 90's to the late 00's to 11...............we are now firmly into a couple year cycle...........thus we could have some downturns..........I echoed this in a post not too long ago, that 2012 might look similar to 2008 for awhile (similar, not the same), but we will swing right back pretty quick...................

 

and dont get me started on acres...........and total capacity, you know my stance on that with corn..........and while we try to squeeze a few more bushels out of a heck of a lot of acres...........soya and wheat will quietly work down supplies till we see a situation where things swing...............its a rob Peter to pay Paul cycle..........

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unlgrad
Senior Contributor

Re: Big..........

Ray, how is it going.  Lots of work over here by the Missouri River to reclaim some ground.   Looks like 10% of it may be lost for good, will know more by spring.   Our production was down in this area, how was your area for corn production.   Lots of ground going to go into corn at this point if weather cooperates this spring.  Extremely dry to date, but best time to get a drought,.    20% chance of that not changing.  

          Crop Insurance is going to be very high enrolllment in this area after last year.   Unfortunately, until all the levee's get repaired, some won't be able to get insurance.    So, was your area a garden spot this year or down in production compared to previous years.  I know you are busy, so if you get a chance......

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GoredHusker
Senior Contributor

Re: Big..........

I would rethink my position about cheerleading this thing with stronger economic news.  The dollar has fallen in value because the words QE3 have been mentioned.  With stronger than anticipated economic news, QE3 has been diminished.  I'm getting a little nervous in here considering the #1 enduser of corn is ethanol.  We have the highest ethanol stocks since they've been keeping records.  Without QE3, it's quite possible the dollar rallies through year end.  A higher dollar will keep a lid on oil which will in turn keep a lid on ethanol.  Another thing to watch is meat exports.  Our beef inspections were the lowest since the first quarter of 2010.  The sales of beef were horrible.  The only thing propping up the beef prices right now is the fact that the by-products are near or at all time highs.  These will retreat rather quickly if the dollar strengthens.  I just got news that a local ethanol plant is shutting down for an extended period of time. 

 

The problem we're faced with is we could head either direction in a violent way depending on what news comes forth.  I flexed my hedges on new crop corn with half being pulled at 5.50 and the other half at 5.40 back in December.  I've put them all back on now because there's just too much uncertainty.  A stronger economy reduces any chance of QE3.  Without QE3, the dollar rallies.  A rallying dollar causes crude oil to retreat in price which will also cause ethanol prices to retreat.  Historically, corn prices decline with a rallying dollar. 

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