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Frequent Contributor

Is Rays ship about to come in?

Is our friend Ray about see his windfall?

Todays action in the corn market started to feel like he may be right soon.

 

All fall we heard how us unsophisticated Farmers better get all our corn sold at the harvest lows, as "it was obvious that it was to go much lower"

 

Well, mostly has gone up since then.

I was starting to feel sorry for poor Ray, thinking about all the margin calls he must have been making.

 

Maybe now it will be his turn to have some glory.

Time will  tell.

 

Actually, come to think of it, we haven't heard from him lately.

I hope he is well.

I sort of miss his commentary.

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24 Replies
Senior Contributor

Re: Is Rays ship about to come in?

Thanks for your concern, all is fine. I hope things are well for you too.

 

You haven't heard from me lately because there is nothing to say regarding corn. Its a moribund market, you can have more fun at a funeral wake than you can trading corn. The market is stuck in a range between $3.70 and $3.80 for March 19 delivery, and the funds are the only big players, moving the market 10 cents either way. 

 

The fundamentals and technicals still say the market is stupidly overpriced. Supply outstrips demand, but the suppliers are willing to gamble that by storing grain in their silos and elevators that somehow that will stimulate demand in a world heading into a global recession. At some point the cost of carry will make the storage proposition untenable and hugely unprofitable, and then the floodgates will open and corn will move down significantly. That's how I see it and until something in the fundamentals says I am wrong I am gonna stick with it. Sure, its taking longer than I would have liked, but I don't care when I get paid as long as I get paid. 

 

We had some excitement today, as the Brazilian crop numbers were a bit smaller than expected, which gave the algo funds a reason to squeeze shorts. Two days from now the buyers from today will be selling. That's how uncommitted the market is.

 

For me, its been boring, I am not winning or losing, just waiting., As you know from my prior correspondence, I was short December at a little over $3.70, covered it all just before expiry just below $3.60, and sold half of what I had on in December into the March at $3.70. So I have less than what is a half position for me on at the bottom of the recent range, which is now absorbing about half of my profit from December's position. I am still waiting for the dummies to spike the March 19 into the $3.90s, so I can sell the rest of my position there. If it doesn't happen, at least I am in the game at what I believe will be a good price in the long run. If the market makes a new high in a front contract above the last major high at $4.1225 and settles above there for a couple of days, then I will fold up the tent and maybe even go long. What I would really like to see is a move to just over $4, and then a huge downturn, because it would confirm that a fifth wave has begun in a triangle formation that has been building for a long time., Were that to happen we would proceed to below $3 and I would go on vacation courtesy of the corn market. 

 

So anyway, that's how I see it and what I am doing, I have been spending more time in other markets that have more trade in them. I think crude oil is about to make another big leg down pretty soon, and same for Gold. The coming recession will dictate the action in most of the markets once we get past January, and I think that theme is the one to follow to make money in 2019.

 

Best regards...

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Esteemed Advisor

Re: Is Rays ship about to come in?

 

Breaking News....

 

Ray said "fundamentals and technicals say the market is stupidly overpriced",

 

Since you were speaking about corn, there is virtually no actual evidence to

support your statement. Corn has been in a bull market since 2016 (higher highs and higher lows),

carryout has dropped or been stable despite simply perfect growing conditions,

demand is rock solid, basis is tightening despite forced farmer movement for cash,

long-term technical and psyche readings are all similar to prior lows NOT

prior "stupidly overpriced" moments. 

 

Your statement is what is normally heard from someone on the bear side after

a 6 year decline bemoaning the fact that the market never went as low as it was

supposed to go. Plus you are taking as fact an assumption that we will plant

more corn acres in 2019. While a nice story, the economics don't support that

at this moment, the input price spike for corn doesn't support it, the cash flow

challenges don't support it, and the new 3 mil acres going to CRP don't support

it, AND most farmers know that after 4 perfect corn years in a row that the

WEATHER is variable and likely to change!!!!!!!!!!!!!!!!!

 

It is just an assumption and one that is clearly already in the price.

 

Back to your regularly scheduled programming....   Smiley Very Happy

 

 

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Senior Contributor

Re: Is Rays ship about to come in?

Maybe you're right. But from what I see, nothing has changed. From all available information, production per  acreage and world stocks continue rising year after year, and price peaks continue making lower and lower highs.The market has built a symmetrical triangle since June of 2016, and you have had only one major low that has been higher than the prior major low. A symmetrical triangle in a secular bear market, which what corn has been since 2012, almost always points to a new and significant continuation downward to new lows, which would take corn back to its range of the 20 year period between the late 1980s and 2006. And you have what appears to be a good-sized recession coming with at least disinflationary if not deflationary forces accompanying it. And to top it all off, if the fundamentals were as bullish as you want them to portray, why is the market giving you a chance to buy it 50 cents off the last major low ? Unless you are the only guy in the world who knows something no one else knows, the price should be a lot higher,

 

All of these factors historically result in lower prices for agricultural commodities. 

 

But hey, maybe this time its different. If it is I will become quite bullish, because there will be a long way up to go. But right now, the market and the fundamentals are saying that corn is stupidly overpriced, and the greater risk is that we see corn below $3 before we see it above $4, or more importantly, above $4.1225, the last major high for a front month contract,

 

We'll find out soon, because this coming recession should start to sink its teeth into the global economy sometime during the first six months of 2019.

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Senior Contributor

Predicting recessions

Economists have predicted ten of the last two recessions. Hard to put much credence into those type of "predictions".

 

My gut feeling is that either inputs are going to take a nosedive, which certainly could happen but I am not seeing it, or corn acres are going to diminish and most won't shoot the moon and use all the magic dust to get those last ten or fifteen bushels per acre. I am not planning on selling any corn for less than $4.25 December 2019 futures.

 

Beans are more likely to wander about in a range below $10, until something sparks them. Hard to replace the Chinese market share over night but.....the same mouths around the world are eating, and if China is getting protein from some other source, there still has to be some sort of void being created from who those other sources would have fed, right?

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Senior Contributor

Re: Predicting recessions

Simply put, economists miss recessions because they try to drive a car forward while looking in the rear view mirror. There are very clear forward-looking indicators that tell you when the US and global economies are about to head into recession. In fact its easier now than ever since there is such strong linkage and correlation between the major economies of the world. Suffice it to say that when the crude oil price gets slashed in half =over the course of three months, as happened during the last quarter of 2018, you know you have a severe downturn coming. The global economy probably hits a wall and tumbles by the middle of 2019 if you look at the economic reports. But since those reports always have a lag time to the actual economy, the recession probably already has started, which is what the decline in equity prices and the drop[ in home sales and home prices is confirming. 

 

In terms of corn, I have to laugh when I hear predictions that acreage is going to fall. I could understand it if there was a reasonable alternative, such as another commodity enjoying a huge upswing in price. But that is not the case now. What is the case is that the price of farm acreage is ridiculously high relative to where corn prices and thus corn revenue are. I don't know why prices are this elevated but they are. And due to the elevated prices to buy, prices to lease are elevated as well, as those who paid the high price to buy the acreage seek to capitalize on their investment. Bottom line is that there are a lot of farmers who will plant right up to the property line because they need all the revenue they can muster in order to make ends meet. This has been the case for at least the last few years, which is why production has roared and silos and elevators remain well-stocked.

 

On top of that, the last few years of corn prices in the $3 to $4 range has given large consumer nations the chance to stockpile corn at favorable prices relative to the prices seen during the last ten years. Look at China's stockpile of corn, they front-loaded their purchases for the next three years during 2017 and now will not be nearly the buyer they were for at least a year or two. 

 

Which tells me that you have a market that is over-supplied and thus over-priced. Sure, you may get that $4.25 for December 19 corn, and you would be wise to take advantage of it. But if you do, take a picture of the price on your computer screen because you might not see it again for a while. Markets tend to regress to where the last major rally started from, so in the big picture, the rally to $8.43 in 2012 started from a 20 year base between $2 and $3, so that's probably where the market returns to sometime during the next few years. That movement would be accelerated by a recession, especially a strong one. The same mouths would be fed, but the disinflationary or outright deflationary forces unleashed by a good-sized recession would make it cheaper to feed those mouths.

 

One other point regarding what you wrote, and I have been saying this for a while, I don't think the tariffs erected by the US and China will have much of a long term effect on agricultural prices, for the reason you cited. The same people still have to eat, and if the grain trade between the US and China declines because of the tariffs, then there will be middle man enterprises that facilitate the trade through third parties. The effect will be that Chinese consumers will pay more for their food, adding to the overall economic slowdown in China. Chinese capital investment will suffer as a result, which will add fire to the global recession. The middle man enterprises facilitating the grain trade will make the profit from the loss to Chinese consumers, and the price paid to producers in the US probably will be little affected. However, since prices declined on the advent of the tariffs, as the middle man operations get up to speed there would be a gradual increase in grain prices from the lows set at the onset of the tariffs. 

 

And indeed that is what happened in 2018. The tariffs caused corn prices to drop from just over $4 to a low at $3.29, and since then the market has been slowly moving back higher. The market probably has returned to an equilibrium state by now, and going forward the factors that will drive prices will return to the supply/demand dynamic I discussed above.

 

One final thought, which I also have made repeatedly, is that from a technical perspective, the price action of corn since 2012 has been negative, and until the market can settle above its last major high closing price for a front month contract (which now stands at $4.1225), the market will remain bearish. Which means that you don't need to expend a lot of energy on trying to decide where the prices are going. As long as the old major high in a front month corn contract is not violated on a closing basis, then producers should be more aggressive sellers. Should the price move through that upside resistance point, the that would be the time to become hesitant sellers. I know a number of producers who have followed this type of marketing campaign and they have done very well. But there are even more who haven't, and they will provide the selling pressure when and if the market starts dropping again. This is the principle coined by Soros of reflexivity, that trends tend to continue ever the more forcefully because those who are the wrong way in the market add fuel to the fire as the market moves more and more against them.

 

Anyway, those are my thoughts about what you wrote. Personally I am not all too pleased with the conditions in the corn market, because a lot of people get hurt in bear markets. Bullish markets are much more fun. But there;s nothing that any one person can do about it other than to be extremely cautious when prices are in a long term downward spiral. Its painful to hear about people suffering financially, especially when the writing was on the wall and there was a way for them to have protected themselves against what the market was telling them. In bullish markets, no one has to care about these things. So my advice to everyone now is to be careful, the risks are building in a lot of different markets, we haven't had a good-sized recession in ten years, so when this one hits it will be rather nasty. While its good to have an upside objective as a producer, its probably even more important to have a downside objective as well. As in at what price does the market go down to before I realize I will not see my upside objective ? And then if the price gets there, do not hesitate to pull the trigger, because the first cut is the deepest and the first loss is the cheapest.

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Honored Advisor

Re: Predicting recessions

Just wondering out loud, but have "things" gone so far that there will no longer be recessions, only 3% growth or a depression no middle ground?  Around "here" we had crappy yields and crappy prices, but talking to a guy the other day 60 miles to the east in limestone and irrigation country.  He said "57bu NGMO beans and $10.50 price", they would`ve done better had he not sprayed Zidua when they were too big.  Well as good as that plus 194 bu NGMO Viking corn, he`s still going to have to sell a farm.  Man, if I had yields and prices like that, I`d be going to sales to buy machinery.  There`s money out there, fertilizer was spread, tiling like crazy.  

 

JMO but if or when a deal is made with China, we`ll quickly see much better prices and we really do need a drought...my tile keeps up a lot better during a drought   Smiley Happy

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Senior Contributor

Re: Predicting recessions

I think the China thing is wayyyyyy overplayed, Yes, if there is a deal there will be a knee jerk reaction that will last a few days. But then we will move right back down to where we are now, because by this point, there are enough middle man enterprises that are in place to facilitate the trade of grains between the two countries, and the rise in grain prices during the last half of 2018 evidenced that. I would love to see a nice spike in all the grains on news of a deal with China, because it would be a gift sale to be able to take advantage of that pop.

 

With corn in particular, the best information we have right now is that they are stockpiled up the wazoo for the next two years. They were the buyers who held the market up in 2017 and the first half of 2018, and now they have some ridiculously high inventory, so high that many people still don't believe the number is true. 

 

You raise an interesting point about boom and bust relative to recessions. Surely, it seems everything else in financial and agricultural markets now tend to go to extremes, even many aspects of global cultures. So perhaps economic cycles will be the same way. When you consider human nature, extremes seem to be the rule rather than the exception. We love or we hate, we're either working full tilt or we're deep in sleep, our governments go right and then left, our economics are either in rapid ascension or in spiraling downfall. We create artificial structures to prevent these extremes, like laws and checks and balances on governments and central banks to prevent businesses from making foolish mistakes. But in the end, the same way the universe tends to move towards greater chaos, so too do we as parts of that universe tend to go towards greater extreme and anarchy. So maybe the time is approaching where the deck has to be cleared, where all the mistakes of hubris and greed reverse into one big calamity, followed by a new way to seek stability. I doubt that we can ever rid human nature of its innate desire to do the wrong things at the wrong times, but I also doubt that we ever will be wise enough to realize that fact of life.

 

And so if we can be sure of anything right now, its that we have built a lot of excesses across many sectors of life and economics, and we probably are due for a huge kind of correction. Everyone lives through at least one depression and revolutions tend to happen every two hundred years...so its probably a good time to be a contrarian. I hate to think it, but perhaps this coming recession will be the straw that breaks society's back, perhaps the advent of new weaponry leads us into another global conflict, perhaps the intransigence of our political class rips the country and other countries apart. None of it will surprise me. Since we cannot avoid it, maybe we can prepare for it. I know that there's a reason why Americans have been stockpiling ammunition like its going out of style, and the advent of food products that can last for long time periods without spoiling certainly feeds into the prepper mentality. 

 

All I can say is that should tat time occur, I hope I am short the stock market. It won't make a difference to my financial wealth because the money earned probably won't be worth much. But at least I can starve in peace, knowing that I was right about what was to come even if i couldn't do anything to prevent it from affecting me.

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Honored Advisor

Re: Predicting recessions

There is a political party that is predicted to do well in the 2020 election, the litmus test to be in that party is medicare for everyone, open borders "ya`ll come!" and free college and not a one of `em has a clue how to pay for it.   Currently "the party of no" occupies the senate and white house, but `the party of no` as mean as they are will leave a $25 Trillion nat debt to the 2020 incoming gumdrops & lollipops party....4% interest times $25 Trillion= $1 trillion per year in case anyone is keeping track.  If the actually overly generous `party of no` makes it to  2020 I don`t know how the Gumdrop & lollipop party will keep 1/10th of their promises.

 

 

Seems like there`s always a last minute gimmick that keeps things going another 10 years beyond the point of no return.  It`ll work until it doesn`t if beef prices are tied to the stock market, I guess I wouldn`t be making plans for one of those fancy cattle confinements.

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Senior Contributor

Re: Is Rays ship about to come in?

Rayfcom, isn't a symmetrical triangle a neutral signal when it comes to technicals? According to investopedia it is, which means a breakout above means a bullish market and a breakdown bearish, in other words we are in a neutral consolidating trend. Flip a coin when it comes to looking at technicals alone when it comes to charts.
When fundamentals for the American producer come into play on the supply side of the equation when it comes to profit or loss, the argument for a continued bear market becomes less probable due to less future supply. Remember that no producers are forced to plant every year, they choose to, and many are at the point of really giving it a lot of thought. Yes many have bills to pay but that is also a choice in reality. So I guess my question is this, how long do u think it will take for a lot of producers to decide that the fianancial risk and the work put into a crop is not worth the reward? In the end I think that that would be the real question to answer for an arguement of a continued bear market versus a breakout and the start of a bull market in ag commodities. I would also think that this would be the same for crude oil. The well owners will not continue pumping below a certain price. A lot of that has to do with number of barrels of production per day at a certain site. The lower producing sites will cease pumping until prices improve and rise back to a profitable level. Although ag producers tend to hang on longer the principal is still the same.
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