Re: Floor Talk April 26
As energy policies change, it will be interesting to see how ethanol fits if at all. With electric cars running the road and fleets running on natural gas, it does not necessarily bode well for ethanol use. If South America ever gets their infrastructure even remotely close to ours, they'll bury us. What's more alarming than us losing market share is the fact we're losing market share at a time when our currency is extremely weak. What happens when/if our economy does get back to rolling full steam ahead and our currency rises?
The idea that specs run this market willy nilly and distort is nonsensical. I put this belief in the same catagory I put 'Volatility is your friend' years ago. First, the effect of speculators regarding value over any length of time has never had any proof, nor have I seen anyone try and document this. I've read the opposite in fact. Do I believe the market is always right? No, because it isn't. It's never had a crystal ball.
On this same site there was an article in March stating that grain contract volume for the CBOT was down 40% year on year by last March. That is plenty of evidence against the belief of specs 'making' the market. And people still believe that speculating has enough reward and little enough risk they are playing huge sums of money to make money? Think again. The CME is desperate to get people to play it's little game.
US wheat has already experienced the 'competition' of falling market share and rising competition. Because of expanding economies and dietary requirements around the globe there hasn't really been any fundamental changes in the value of US production. Even though we are a 'residual' supplier it is more a geographical issue. We are generally furthest from the buyers with an ocean on each side. But we are consistent in quantity, quality and various classes of wheat. And higher volumes of exports are almost always correlated with higher prices. This the exact opposite of the ideology of 'competition' when it comes to food (even in the industry there are few who understand that food economics are not parallel to industrial economics).
Wheat has always been the most global of commodities. Ukraine doesn't have our advantages - and never will. Strong importers with strong economies (like China) tend to have internal prices set much higher than market prices to encourage domestic production - and still they depend on us and others. In a demand economy market share isn't necessarily important. If it was so easy to develop alternative product then it would've been done centuries ago. Understanding this issue gives you an advantage in the market.
Re: Several points
In August, the 2011 corn crop was pegged at 153 bushels per acre with 12.9 billion bushels produced. After this report, corn shot up to around 8 bucks a bushel. Today, the corn crop came in considerably less than 153 bushels per acre as well as total bushels produced. Yet, prices are roughly 25 percent lower than back in August.
Decatur IL, posted a 40 over basis this week which is said to be a record for this time of year. Why so much disconnect between cash prices and futures prices? I know it can't be related to spec. and hedge fund money! Cash cattle traded this week roughly 9 bucks higher than the futures. I know this can't be due to large funds pulling out of ag. commodities going to equities!