OptionEye.....Dec. 30th

[ShelladyOptions]

The rally continues on this last day of trade before the new year.  Corn, beans, and wheat continue their steady rally to the upside as drier than normal weather conditions in South America threaten to damage the crop. This weather concern is seen by many to be cutting into previous estimates that of the global harvest and has thus driven prices steadily higher.

As mentioned yesterday I still want to see what the numbers have to say in the coming weeks with the harvest before I completely buy into these price levels.  From a technical standpoint I think that we could start to see some resistance coming into the market around 650 area.  This year end holiday rally has been steady and backed by fundamental concerns, so by all means I respect it, but I will continue to monitor the global economy to gauge global demand to see if this thing will continue to have some legs.

Scott

[sw363535]

Scott,

I was supprised the poor to average export #s did not break us to even or below.

Do you think the global numbers are becoming dominant over the US data in corn & soy, as I think they have been in wheat?

[Palouser]

You too are a believer that economic variation is usually significant to demand?

[sw363535]

Without a doubt, if the inverse is true.  I would probably add the word shifts to the end to expand the thought.

economic variation is usually significant to demand shifts. 

In a certain market demand may drop directly with economic variation.

ie.  when my pocket is half full my demand for chicken may go up while my demand for steak drops.  As my pocket gets empty my demand for meat in general may drop and increase my demand for beans and grains.

Whats affordable affects demand. same world wide.  

I am amazed at the amount of meat is exported in such a world economic problem.

Makes me think we may just be in the the beginning shifts of it. Or only the part of the world we are in is in an economic downturn.????

What do u think pal.

[Mizzou_Tiger]

notice anything about your comments...........while your demand for certain products may shift from time to time.........your total demand for course grains and oilseeds stay pretty constant, even in tough times.......

I understand conversion factors on direct and indirect consumption vary.......but so too does the world and thus takes most of that ebb and flow out..........

now heres where I probably differ the most with your statements, I believe that their is a world core demand for course grains and oilseeds, and that core demand slowly rises over time..........imagine if you will that line being a solid line trending upward on a small slope............now imagine an oscillating line that follows this solid core line..........this is the demand you speak of, where it might shift from day to day, month to month, maybe even on a yearly basis to some extent..........

the overall trend is more demand, no matter the economics............and that oscillating line are the ebbs and flows, but they still follow this uptrending demand line...........

now what if we are in a period when that oscillating line is actually at or below the solid trendline............yet we are still really tight on supply...........now what happens when that oscillating line swings up, and it will at some point............where will supply be then.........get my point........when that oscillating line swings up on an already increasing solid trend line against supply that is struggling.........

EDIT:  why do you think the export numbers were bad???????????  You and VR puzzle me on this.........wheat is ahead and nearly at targets.........corn is pacing with last year..........soya are catching up and actually getting close to target too........

EDIT2:  not sure if optioneye is ignoring me or working on those numbers..........but I would love to see numbers that show total world course grain and oilseed consumption has sustained drops in demand when things roll over economically..........in theory we killed demand in 2008 and 2011........does it have 9 lives or what cause it keeps coming back for more...........

[sw363535]

I see and understand the idea of ever increasing demand.

How much is increase in actual usage and how much is currency devaluation(or gov't denied inflation)

I would suspect that half of the angle of climb in "the line" is inflationary.  Maybe most of the angle of climb.

I like your thoughts but that rise in demand has to have a reason-----population??, industrial usage?? lack of other resources to use??  Inflation????    Something supports it and if it is inflation and devaluation as I suspect some of it is, it may not last forever.  We been fueling those for a long time.

[Mizzou_Tiger]

Don't confuse consumption and price.........this thing is bigger than a bread box and too many people have blinders on...... As for increases in consumption........many things.......population, rise of society in emerging markets, industry, etc.........

[sw363535]

Potential is certainly there.

Asia looks to me to be the hub of economic growth and activity for generations to come.

While europe continues its decline and we get past our 75-100 years in the spotlite and follow them into the pit of laziness.

I think there is an eb and flow centerd around labor and work energy that elevates societies into world leadership.

I would say Asia is the prop under your rising line as long as we deal with tons of usage and not economic value.

And u may be right, that prop has the potential to carry the line a long way.

[Palouser]

It is critical that one separate demand from price. Perhaps the word 'consumption' would be more clear, though it is in most senses equivelant to demand.

Food and feed (in the chain of producing food) are the #1 proirity of humankind in trade. Demand for food on a global scale is increasing by  population increase , a linear increase, and by higher quality diets, a geometric increase. China's huge impact in food demand is more the latter.

Increasing prices for food, generally speaking, have little bearing on overall grain consumption. There is no meaningful inflation at this time (inflation is a general economic condition). Increased grain costs in themselves aren't inflation, it's a reflection of demand.

Increased cost of grain does not reduce demand due to its priority to consumers. I would guess most global  food consumers are not eating on the basis of excess wealth to spend. They are eating on a cultural and basic need to eat basis - with almost no change from year to year on an individual basis. Demand is generally inelastic for food. This is the #1 imperative for understanding global food trade. This conflicts with the industrial model of economics. Not understanding this means one cannot get a true grasp of the grain markets. It's also why the inventory of grain on an annual basis is THE metric to pay attention to. And why 'outside' economic factors are't as relevant as some think they are. It also explains the 'contradiction' of why the U.S. generally exports more wheat when it is expensive - not when it's cheap.

Keeping in mind the above, IMO, when you hear analysts say that this or that global economic factor may change demand - I will say with certainty that is wrong, generally speaking.

[Palouser]

Population growth is generally thought of as mathematically geometric. In the case of China the increase in consumption is greater than the population factor. This both a policy and the resulting explosion in the economy. However, it doesn't necessarily imply that if the economic growth slows (meaning it is still expanding, just at a slower rate) that a slow down in grain demand will occur. Due to the low dietary baseline from the beginning and the inequality of classes the government is trying to even out, and the likelihood of civil tension with any reversals of diet, I think one can guarantee that food demand in China will not slacken regardless of outside or internal factors unless they were truly catastrophic.

The truly industrial use of corn means there is a side to demand that is not entirely food based, except that DDG's are, and it is significant.