Marketing thoughts in my head

[Jim Meade / Iowa City]

River close at Muscatine will be 8 Dec.  After that, beans will be in the doldrums till river open in March.  It usually doesn't pay to hold beans over the winter as there is insufficient carry.  It's getting hard to get trucks.  Local buyer says there is a lot of beans moving that were forward sold at anything from mid 9s to high 12s.  I'll probably sit on my beans this year with the understanding I may have to hold them to May/June after SA harvests.  I don't like to hold any grain till fall.

My guess is the ethanol tax will not be extended or will be extended at a low rate.  According to Iowa State guy, corn could take a 50 cent dump in the short term.  July at the money puts are 68 cents.  Why bother?  Sell the board, forward contract or ride it out.  I don't want any more money in 2010 so don't sell for delivery now (I could defer income but that has it's own risks).

Local buyer says southeast Iowa farmers are forward sold into a short crop and they are bulled up hard.  Buyer hasn't bought a load of corn in a week.  Very little voluntary corn sales.

Buyer says farmers not thinking/talking about ethanol tax extension as they are not selling anyway.

Longer term outlook:

World economy is fragile, will be lots of dollar volatility.  More danger of global trade tensions.

U.S. politics will get into gridlock soon.   Government by administration versus by legislation will continue to grow.  In other words, bureaucrats and judges will call the tune because we can't elect politicians who can/will compromise for the greater good.

Production will be on the edge of meeting demand, weather will play bigger than normal role in volatile markets

Funds will stay in commodities

Bottom line for next six months- timing will be important.  Taking a profit will be important but so is not leaving any money on the table (greed vs fear).  Seasonals will be a consideration but not a sole basis for marketing.

My short term major decision is whether to hedge against the ethanol tax situation and if so, how and how much.  I figure I have a couple of days to act - not longer than mid next week before market builds in a level.

[kraft-t]

Jim   Probably the biggest factors for my previous sales were good prices and anxiety about the economy. Not that I expected a total collapse of the economy but that I worried about the financial insecurity. I could envision regular negative reports that would chip away at prices. Staying long in either the cash market or the futures market is not for the faint hearted. Especially when excellent prices are right there in fromt of you.

I had to chuckle about one of our participants here mentioned checking the overnight trade at 2:30 AM. I can sleep well if its 3:00 AM or 10:00 AM. Meaning, that I still watch the markets but am no longer consumed by it. So there is some comfort in having made the decision to sell and getting it behind you.

I'm not recommending anything to anybody but merely telling you what factors influenced my decision.

[Mizzou_Tiger]

tell me why the ethanol blenders credit is really important.  I agree a short term shock will occur, its the natural reaction.  Ethanol is mandated to be blended, and frankly because it is also a replacement for MTBE which is outlawed by many states its not going anywhere.  The bigger issue is this tariff, and there again we will likely need to supplement our current supply to meet future mandates.  Also, most countries that would export to the US have there own ethanol demand and food/feed demand as well, not a huge benefit for them to ship product to one country and come up short in their own.

Don't forget about the DDG component.  Ethanol industry is pretty stable and the weak plants were washed out last go around.  Unless the demand for raw ethanol goes away, which I don't see happening anytime soon, ethanol plants will be just fine without the credit as they don't get the direct benefit anyway, they just get the demand driven by it.  As pointed out earlier, the demand is there unless the mandate goes away, and because the mandate is EPA/air quality driven along with trying to wean our country off foreign oil, its not going anywhere.

You are right about timing, it will be everything, more so now than ever.....

[nwobcw]

Ya kraft t it was me checking the market at 2 or 3 am.  Unfortunately it wasn't because of my concern of the market but rather my unusual sleeping pattern.  Well, come to think of it there is no pattern.  Even the dog doesn't want to play at 3 am.

[marketeye]

Jim,

Allow me to contribute some thoughts on your thread. Actually, these are thoughts of a grain trader that is on the CME Group floor, but trades strictly electronically. And I would be interested in what your thoughts are about how this 'professional' trader is thinking. In his own words:

"As a conservative trader, I backed off from the grain market as we went to fill the gap left by the October crops report. My style relies on previous price by volume history to form trading hypothesis and we had about 50 cents of price with no recent data. It becomes awfully challenging to manage risk at that point. If you observe corn, you can see the day session volatility exploded as we went into the gap, sending the Average True Range (a volatility indicator) to 20 cents or ~4% day to day movement. Veteran market participants might remember when corn had a smaller range for the year!"

He adds, "After filling the gap and facing liquidation selling, March corn had no problem retaking it's moving averages. Wheat has it's bull mojo back, after recent crop issues surfaced in Australia and Canada. Technically, beans still look the best of the three. Fundamentally, the demand for beans from overseas will remain strong. Did you know that Soybeans were the most valuable United States export to China in 2009, topping civilian aircraft equipment, engines and equipment and semiconductors? My technical thesis is that we consolidate into the new year while the market digests the recent volatility, observes crop progress in the Southern Hemisphere and get's comfortable with these higher prices. Goes without saying now, the dollar will continue to influence values."

Mike

[Jim Meade / Iowa City]

In my opinion/guess only, the ethanol blenders credit is important in the short run because it will cause an exaggerated dip in the market.  How deep and how long?  If quite deep, there is a speculative sell opportunity.  If quite long, it may affect my spring/summer marketing.  In the long run, my guess is the ethanol credit will fade into the background.  The more volatility we have because of weather and demand, the sooner the loss of ethanol credit will be lost in the noise level of trading.

Just my opinion.  I don't pretend to be well-informed on this.  But, I do think that I need to carefully consider my trading stance for the year right now so I can address the likely contingencies.

So, I will probably hedge corn and let beans run.  I suspect beans will hold or regain strength  in the shorter run than corn.

I agree that the ultimate effect of loss of ethanol credit will not be very major.  We're talking weeks/months, not months/years.

I was told at ISU that the marginal ethanol plants that had hard times before will again.  The bigger, more efficient ones will make money.  The ISU guy showed a chart that showed ethanol is making barely any money over the tax credit right now.  It was quite profitable earlier.

[Jim Meade / Iowa City]

Mike,

There is always a fair amount of asymmetry between what "traders" see and how producers view the market.  It's days versus months/years.  We agree there is volatility.

The sense of the ISU crowd is that China may be moving toward becoming a net corn importer but for now avoids it if possible.  So, I don't factor China into corn demand except peripherally.  Australian weather is an issue, isn't it?

I'm not sure what the trader's definition of risk is and whether it coincides with mine.

I wonder why China is not buying crush and ethanol plants?

[Palouser]

As a producer I find the trader's reasoning based on technical issues alien. But, he's trading paper, not grain, and the two are very different. He's highly leveraged - I'm not. Volatility could take him out while the same conditions would only mildly keep me interested.

The idea that the market will 'consolidate' after the new year is purely a technical point of view. Unless this current outbreak of reassessment - specifically wheat - runs up further than I anticipate by the end of the year I expext the true fireworks to be in January of February. The reason being that speculation about falling  inventories could peak without any possible assurance of what the physical outcomes will be the next season. End users will be looking at their hole cards and remembering the mistakes they made in '07-'08. Just a small dose of problems in SA and it hits the fan.

[Jim Meade / Iowa City]

Another question on ethanol is how many paper gallons of ethanol are on the books now?  Those are gallons that can be traded but needn't be processed so no corn is needed to make them.  They could be especially important if the industry thinks that Republicans might reinstate the credit.  The scenario would be that plants would not buy and corn, drive the price down, make headlines, and try to get the credit reinstated.  Possibility?  I have no clue.  Just another thing to think about - or not.

[jec22]

I think the train has left the station.  We can't stop higher grain prices, the weather cycle has changed.  It could not have picked a worse time to do with the economic global debt crisis.  It will end, badly...not this month, probably not in the next year.  The failure of the debt commission, adds more gun powder to the blow up.  I could not sleep at night if I used the board...cash only for me...and debt is the four letter word I avoid.  This whole thing is way out of my league.