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11-01-2018 11:31 AM
I'll make this short and sweet, as Floor Talk already told you what you need to know. President Trump sent out a tweet this morning saying there is progress being made on trade talks with China after he spoke with the Chinese Premier. This ignited a powerful rally, especially in the bean complex, on the prospect that there will be some lessening of tariffs put up against US farm products, and all those little Chinese people will be able to stuff their faces with soybeans, wheat and corn.
Beans took the news best, at last look up something like 31 ticks on the day, Corn is up over 6 cents as I write.
As I have written before, I never have thought the tariffs would reduce demand for US farm products. Chinese will still have to eat, and they would simply buy from a middleman who would then buy from the US farmers. But the market thought otherwise, and perception often is more important than reality.
Going forward, it will be very important to see tomorrow if today's rally brought in new participants. The Open Interest numbers will tell us that. Volume today in corn is slightly higher than where its been recently, so the question is whether the rally today is caused by shorts covering or new buyers stepping up to the plate.
Technically, nothing has changed. We remain in the $3.60 to $3.70 range, and until we break either way there really is nothing to do here. Unless of course you have not placed any of your expected harvest yet. The plan is to have placed at least 20% of that harvest in this upper $3.60s area, and the market sure is giving you plenty of chances to do that.
As I have written before, I think there is a 50-50 chance to get up to the $3.85 to $3.95 area, and today's price action may support those odds, dependong on whether new buyers are coming to the market.The charts look strong today, but we have seen this movie before...a strong approach to the $3.70 area only to be turned away. Perhaps this is the move that will make it happen. Honestly, I wish the market had waited until the tariff news was a sure thing rather than speculation...especially when we are a week away from an election.
So watchful waiting is the recommended course of action now. I am hoping we get up to the $3.85+ level for I would love to have a chance to sell there. The next few days will decide the issue.
11-01-2018 12:41 PM
We'll have to wait till tomorrow to find out. This is why I like to target price zones rather than specific prices, and scale into a position. Takes the noise of the market out of the decision-making process, and at least when I am wrong and the market turns before reaching my targets, I am at least partially on board.
11-01-2018 12:47 PM
The trend is your friend, but you may have to roll your position into January to get your payday.
As I wrote above, I am not an advocate of setting a position based on the tariff issue. Chinese demand will remain constant for consumer staples, they might just have to buy from other sources. Those sources will buy from the US. The party that gets hurt from this is the Chinese consumer, because the cost of their food purchases will rise to account for the middleman fee. Which is one of the factors leading the sell-off in the Chinese stock markets, and also a factor that will slow the Chinese economy going forward.
I think people should be looking at where crops traded prior to the tariff issue coming to light, and then try to figure out how this year's harvest will change that supply demand dynamic. Trading headline news simply serves to cause a lot of whiplash.
11-01-2018 01:35 PM
By your explanation, the food prices here in the U.S. should be almost at record low territory. But I have a feeling that the middlemen here have just kept padding their wallets. While consumers here on one end and the farming producers on the other end get left holding the proverbial empty bag.
11-01-2018 02:13 PM
Crop prices are coming close to levels they were at in the last decade of the nineties and first decade of the present century, but as you have noted, prices in the supermarkets are significantly higher than back then. Labor costs have something to do with that, as well as consolidation of stores after a few big chains went under. As well as the difference between producer and consumer prices and the higher labor costs to prepare raw food for consumption.
11-01-2018 02:43 PM
And total production was lower as well. Since then demand has grown faster than production, but the spike to over $8 in 2012 caused a lot more land into corn, both in the US and elsewhere. That excess land plus better farming methods have caused supply still to remain above the present demand levels. Its been working towards equilibrium for the last six years but still has a bit to go. And during a recession you can expect to see an aberrant overshoot for at least a little while.
Bottom line is what I have said so many times before, farmers are the victim of their own success. Too much competition, costs too high, and great farming efforts all have worked to produce tremendous yields that feed the world. But at the same time, that's not the best recipe to get prices higher.
11-01-2018 02:45 PM
As a trader, I want to know at what price you will bail your position? You said you are short 1,000,000 corn bushels at $3.60.
I like to learn from other traders on their strategy.