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hardnox604008
Veteran Advisor

Not impressed

As always, nervous and uncertain but can't be impressed by a +6 in corn and + 17 in wheat.

 

That is in the face of the inevitable first of the month risk squeeze over on Wall Street. Crude is up $2 in the face of horrendous fundamentals and wheat can only go up .18?

 

Dumb money is hanging all over C and W. But it is Big Dumb Money and not to be sneezed at so we'll have to see. As the saying goes," when elephants fight, smart mice stay in their holes."

 

Of course emerging fundamentals will have a big say. Everyone has to make their own take on early yield evidence and for myself just haven't seen enough to form a strong opinion.

 

I do think the downside on grains is limited here with the caveat of a general financial liquidation, unrelated to whatever the fundamentals say. And I do think the odds of that sometime this year are high although don't know when. That is why I continue with a defensive stance. Good crop, good profit, I'll live with it.

 

FWIW, h

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13 Replies
Palouser
Senior Contributor

Re: Not impressed

On a day to day basis grain futures say nothing. And know nothing. The physical fundamentals are much more important.


The next EXTREMELY important data is corn yield. Screw financials. More than two bu of variance the wrong way and we are going for a ride. So far I see way too many reports of yields that are less than expected to be comfortable with the status quo. Yet it is too early to peg a trend.



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Canuck_2
Veteran Advisor

Re: Not impressed

I like that comment about grain futures say nothing on a day to day basis.

I agree early reports on yields are not good to peg a trend on. Too often the first fields harvested are early for a reason, they died earlier than the healthiest crop.

Talked to a grain merchandiser in Ontario this am, her comment on a recent tour to estimate yield in soys was they counted lots of 4 bean pods that did not have four mature beans in them.

Now I just got a report from Lambton county of first soys off and yield is 15% lower than they expected. Too dry in August is the reason they gave and I only got 50% of average rain in August.

Leaves dropping fast in this heat so we will soon know the truth of our yields. I expect 15% higher than averageSmiley Wink

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hardnox604008
Veteran Advisor

Re: Not impressed

http://www.agweb.com/Hussein_Allidina_Head_Of_Commodity_Research_Morgan_Stanley/

 

"And Hussein, you're saying that on the one hand, there's a fundamental explanation for why oil could rise. But also, there's one that has to do with trade flows, correlation with the overall risk trade or risk aversion trade. Why is correlation a bigger factor right now?"

 

Hi P,

 

I remain convinced that the (excruciatingly difficult to assess) factor of funny money and risk flows remains essential to analysis, whether I like it or not.

 

For the bull camp, MS is THE playa in crude oil hijincks (not Goldman), so maybe they know something I don't.

 

But I'm also very comfortable with what I've said before- commodity inflation- particularly now in energy and food- is ultimately deflationary.

 

If da boyz try to front run the idea that the world's central banks will print money to lift economic activity- they will kill it with $95 crude.

 

Doesn't mean they give a **bleep** if there is money to be made and they can pull it off.

 

Best, h

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ag678
Veteran Contributor

Re: Not impressed

I think you are right when you say that a couple of bu could change things dramatically, but these outside markets could effect prices  much more.  I think all you have to do is look back to 2008.  Take corn, if the yield is a couple of bu less all it tells me is we probably will have to cut usage.  If you look at todays prices I would say you would slow corn usage at $5.00.  That was the mistake many including myself made in 2008.  You looked at stocks saw they were thight and figured you would slow down usage at a certain price say $5.  What many didn't figure on was the ethanol guy was still making money at $7.00 corn and would have been encourage to expand at $6.  The cattle guy was making money with $7 corn the dollar went lower everyday which didn't pass along the total price increase to importers.  

If corn yields are down the market will probably go to the point where someone loses money using it.  The problem is we don't no where that point will be in the future.   A big part of determining where that point will be is based on fuel, currency, livestock and ect.  Just look at the ethanol industry, I have heard they can run anywhere from 70% to a 110% capacity and can make the switch overnight.  only a 10% reduction in ethanol grind puts 500 million on the balace sheet pretty quickly changing the fundamenals. 

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highyields
Senior Contributor

Re: Not impressed

What i found out is that if early corn is less then par the later corn won't be much better.  If early corn is good then later corn is even better.  

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Palouser
Senior Contributor

Re: Not impressed

I do believe that deflation is a theoretical threat. I do believe that it is impossible to predict at this point where we ultimately go. But I'm speaking more long term. I don't see sudden jolts. True, a black swan could show up. But the system has been under stress for some time now. From a monetary point of view iI'm not overly concerned.

 

Grains are on a different cycle, namely annual. What we have is what we got and policy doesn't back fill much. Corn and soy have their industrial components that are bigger than in former times. But feed and food go to the wall before there are cut backs. And ethanol hedging was a fatal flaw last time. Strategic and tactical mistakes tied to paper did the most damage to some of the biggest outfits. Ethanol producer hedgers were trying to read the teas leaves and lost focus. The cut backs came later. I don't think we will repeat that process as in 2008.

 

Currently I'm not worried about ag markets. If things explode then it will be time to set a timeline on the results. Right now it's a matter of watching corn production. I think it's too early to go into a shell. It's time to be watching.

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ray h.
Senior Contributor

Re: Not impressed

    I talked to a guy who has a brother,wheat producer in Alberta,very concerned about the wheat ending feed!

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"Jury Duty"
Senior Reader

Re: Not impressed

The Linn group came out today at a little over 160 bushel/ acre!!! If those numbers come in...... We are moving higher and I would guess not just a little.

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highyields
Senior Contributor

Re: Not impressed

This is september wrong time of year for a major "bull run" in the commodities.  

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