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jrsiajdranch
Veteran Advisor

I thpought this deserved it's own thread.

WHy is that that on 3-31 all of you guys believed the report and today you don't? HHHMMMM?  THe report isn't lieing it is te;lling you that subsidized demand (E plants) are doing so well that they can operate in this enviroment.  They have absolutley outpaced the livestock sector They are the new number 1. The future is bright for the corn farmer from here on out till the goverment gets it's monetry policy under control. 

 Today the consistent thing has been a lower dollar it is still lower as I type. at 75.295 -.515. 

 

  Gold has moved up by 16 dollars and silver has started it's run topping over 40. Do not sell anything unless you need to have cash flow. This market has a lot of upside. I have been saying this since Jan.  Sorry to toot my own horn here but somebody hasa got to! HE HE

 

ALmost done planting alfalfa. I'll put up the pis this weekend. Have a good day.

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14 Replies
Palouser
Senior Advisor

Re: I thpought this deserved it's own thread.

JR, there were a LOT of questions regarding the report ands there still are. What perplexed me was the idea there was a 'bubble' in the corn market and it would soon burst when we knew from the outset that ending stocks were likely going to be a problem and as the numbers evolved we KNEW there was going to be a problem. Luckily, SA bean production appears to be higher than originally anticipated, otherwise I think it would really be hitting the fan. So the 'monetary policy' is still out in la la land in terms of explaining this market IMO.

 

As for ethanol. It is a drop in the bucket as it relates to monetary policy though it is a real factor for usage. It would be fair to say it IS part of an energy policy started when corn was cheap, and there is no doubt whatsoever that it has affected both price AND production. A change in energy policy could have an affect on ethanol much greater than monetary policy.

 

But, I think you get my angle. I won't continue to post the other side of your argument. I just think your interpretation of the market is too narrow. That's not the same as saying monetary policy has no affect whatever. It does. But it isn't a main driver over supply/demand/inventory factors. Certainly the price of corn does not correlate closely with the index value of our currency or our money would now be junk.

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NDf
Senior Contributor

Re: I thpought this deserved it's own thread.

Jr I don't thnk you can compare the two reports the WASDE is a future projection while the Stocks Report was  actual reported inventory. I think the trade relized a lot of things have to happen for the projections to come true. Boy JR. you must be rolling in the  funny money if you've been long since Jan. or are you just subsidizeing your dairy addiction.

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ag678
Veteran Contributor

Re: I thought this deserved it's own thread.

While I think supply and demand is the driver the fed and monetary policy is the fuel.  Why do the oil, cattle, hog, cotton, gold, silver, corn, beans, wheat, ethanol, and a handful of other commodity charts look remarkably similar to each other starting in August while the dollar chart is the opposite.  While there are probably a few fundamental reasons I can think of one thing that happened exactly at the same and the was Bernake announcing QE2.  I read an interesting article with the manager of California state pension fund he basically said that with bonds at such low rates they can't invest in the typical mix of bonds and long equities or they will run out of money so they have to look at using leverage and using alternative investment strategies.  I wonder how many other investment funds can't make it if they don't take on enormous risk.  In an environment where people with billions of dollars are using leverage to get better return how does a bubble not start to form.  Look at what happened when the Yen went up for two days after the Japan earthquakes you blew up about every commodity market I can think of, think a few large funds were using the yen carry trade to buy commodities and got killed by the currency exchange.  Btw almost everything shot right back up the night the central bankers told the world they wouldn't allow the Yen to go any higher.  Although I would say supply and demand also kicked in when there were large purchases on the dip.  Lot of things going on its really hard to figure out what things are worth and causing the price movement.  I will say ever sense people started investing in commodities as an asset class it has been more difficult for individual markets to react the way they need to.  Its hard ration a single commodity when you have a lot of money that is buying it as well as everything that uses it in the same percentage.  When a commodity like corn is so tight why have margins for the users of corn stayed the same of gotten better doesn't make any sense to me.

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Palouser
Senior Advisor

Re: I thought this deserved it's own thread.

My point is if you are looking at grains as a bubble you are going to be on the wrong end of the marketing stick - pure and simple. Why? Because bubbles burst at any time. Bubbles connote a value unrelated to the physical fundamentals in something like grain commodities. Therefore the only sane course of action is to sell and get out before the collapse, which is unpredictable by nature. Any 'black duckling' like a tsunami or economic policy will wipe it out.

 

I'm saying the above position given the physical fundamentals at this time of the marketing year is ludicrous. You can be for or against the 'supposed' monetary policies (many descriptions being down right paranoid/conspiracy nuttiness). I'm saying the monetary policy explanation of corn right now is almost immaterial. Corn does have a strong relationship to oil, and oil a big reflector of geo politics. In any case, gearing grain marketing to monetary policy fears guarantees not keeping an eye on the ball, because this corn market isn't going to burst until supply is assured.

 

Yes, things like economic news and tsunamis will rock the marketing boat, but that does not mean fiscal policy is the driver in the grain markets. And if liquidity is the issue then it should be economy wide, and it certainly isn't. And as you probably know, I'm not a believer that speculation is more important than physical fundamentals although I believe sudden moves by specs can roil the market before the fundamentals reassert themselves.

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jrsiajdranch
Veteran Advisor

Re: I thpought this deserved it's own thread.

 Palouser said"    I won't continue to post the other side of your argument."  Well I wish you would I enjoy your thoughts may not agree on everything but I think that both of our sides have merit.

Maybe what we are talking about is which came first the chicken or the egg.  Are we fundamentally tight on grains? YES!  Does that mean it justifies this price? NO!  I was farming in 96 we got down to about a 4% supply 20 days or less supply.  I was buying corn that year to. We had to get corn trucked in almost 200 miles to get it. I remember writing the check for 6.03 a bushel for that corn. Funny thing was by Oct. we were back under 3.  That was a true demand rationing pace. 

The next month we will certainly switch to a weather market. However where this market launches from is much higher due to Inflation than supply demand.  Just watch out I know lots of guys who have corn contracted for 2 dollars under the new crop bid right now. If this thing goes south quick (which I think it will weather wise) those guys will be having farm sales this fall instead of reaping another once in a lifetime windfall.

This is another year where bins are paying big dividends.

I gotta go gonna look for a vertebra republican now.

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Palouser
Senior Advisor

Re: I thpought this deserved it's own thread.

Since you're getting to specifics to talk about I will reply.

 

Find the CPI calculator and enter the proice of corn and adjust to this year from '96. Sounds like the market is dead on in a price comparison. Remember, there was little fund activity compared to now - which may buttress my contention that fund money doesn't change the balance from what physical fundamentals might indicate except in the short run as funds react to what they react to..

 

But comparing price in October to earlier in the marketing year doesn't compute when new supplies are coming in or assured that will change the balance. Whole different fundamental ball game. If that kind of situation occurs this year corn will drop just as much - but there really isn't much room for sudden new production over what we need to have now. The prices now are due to usage not short crops.

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Palouser
Senior Advisor

Re: I thpought this deserved it's own thread.

Punching in your $6.03 yields $8.53 in 2011 dollars.

 

http://www.bls.gov/data/inflation_calculator.htm

jrsiajdranch
Veteran Advisor

Re: I thpought this deserved it's own thread.

PAlouser I hope I do not ramble to much this morning in responding. We had very bad storms come thru last nightDidn't lose power but for a few minutes and no damage done to any buildings that will be to hard to fixSo it was a short night.

 

I am sure I have done a poor job of explaining what I mean by the dollar is the driver. And that certainly supply demand has something to do with it. This whole treatise may seem long winded but I hope I get it right.

First we have to look at supply. You are right there are some very serious flaws with the wasde report. First it's feed usage number is to high. Not because of lack of numbers of cattle but it does not reflect a fundamental change in feeding that has happened since 2007-2008. We must realize that with ethol production forecast at 4.2 billion bushels of corn this year we have an additional 1.2-1.5 billion bushels of corn from DDG's. This number never shows up anywhere that it is actually cutting corn use by the beef industryso if we take the 12.6 final crop number for total corn we must ad on another 1.2 billion for this years crop use as it does get used just like corn. so that gives us a number of 13.8 billion bu

Since this number has never been added on in any USDA reports we can safely assume that we would be justified in adding it on here at this time to the 675 million number of Fri. That gives us 1.875 carryout. That means the pipeline stays full and that all the animals get fedThis is the number I use personally that says the price of corn does not reflect the true S/D number.

 

Demand is being rationed.

Egg sets are do to be down this year. as well as turkey and broiler productionDairy numbers are gonna get hit hard here very soon, The weight of the feed costs are undueing balance sheets every where right now. Along with some very poor forward contracted milk which is significantly lower than the market. AS soon as South Korea gets a handle on the F/D disease the pork market will take a serious hit and the beef market will get beat up again in the domestic marketThe Livestock sector is rationing demand. They just can't outpace the ethol grind. But like I said in the previous paragraph ethol is putting out a feed source that directly competes like corn especially in finishing rations.


Because of our weak dollar importers are loving this marketThe currency trade is a huge reason for the rest of the world coming to our doorsteps to buy finished product as well as raw material.  ( Why do you think they are buying our gas and diesel and not refining their own crude?)  The importers have no reason to not buy our product currentlySome of them are into a two for one deal.

I am having a heck of a time putting this post up. so I ahd to make it into two.

 

 

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jrsiajdranch
Veteran Advisor

Re: I thpought this deserved it's own thread.

Here is the second half.

The 96 example that you and I are throwing around is needing context.

First I say the price had to ration demand. From my numbers above we do not need to ration demand. We may need price in NC to spur planting but that is yet to be seenBut the inversion in price is to wide to say that the price is demand driven planting. If it were I contend that the new crop would be higher than old crop.

What do you notice about eh price of the gold in this table for 96THe low was 367.40 the high for that year 416.25 Just a little over 49 points different in the whole year. We can trade that swing in a weak right now.  

 

YearAverageLowHigh
1975161.03128.75186.25
1976124.82103.50140.35
1977147.72129.40168.15
1978193.24166.30243.65
1979306.67216.55524.00
1980612.74474.00850.00
1981459.75391.25599.25
1982375.80296.75488.50
1983424.12374.25511.50
1984360.36303.25406.85
1985317.27284.25340.90
1986367.94326.00442.75
1987446.07390.00502.75
1988436.77389.05485.30
1989380.79355.75417.15
1990383.59345.85421.40
1991362.26344.25403.70
1992343.95330.20359.60
1993359.82326.10406.70
1994384.15369.65397.50
1995384.05372.45395.55
1996387.87367.40416.25
1997331.29293.00367.80
1998294.09273.40313.15
1999278.76252.80325.50
2000279.06263.80312.70
2001255.95293.25271.07
2002277.75349.30309.88
2003319.75263.80363.58
2004409.35373.50455.75

 

 

 

 

Another thing to look at was the price of gas that year as a measure of inflation it started the year at 1.27 per gallon and ended the year at 1.40 a gallon. not much inflation there.   

http://www.eia.doe.gov/emeu/international/prices.html#Motor

 

As to the dollar one of the charts that I like to look at is this one

http://mykindred.com/cloud/TX/Documents/dollar/

Look at the erosion in the dollar just since 96! NOne of these three things Gold,oil. or the dollar moved higher with the move in Corn the corn price was rationing demand The rest of the economy didn't "heat up" the stock market wasn't on a tare either like it is now.  

 

So while I may be narrowly fixed on one leg of the three leged milking stool I feel it is the one which ios the most out of wack right now and it is therefore the one that is drivng this market the hardestThe dollar is not going to get stronger in a significant way this year. therefore the price will continue higher and as it does the weather scares will be more vigourousley traded and that will casue for much higher highs. ANy pul backs should be bought and then resold going higherIf you focus solely on production this year you will miss the real driver. Hope this explains my position. And thanks for the debate as I really enjopy this discusion.       

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