OptionEye...Sept. 21st (745)

[ShelladyOptions]

How can we talk about the market without talking about the FOMC and money flows today.

Monday's ratings numbers weren't good.

The world economic situation is worse.

The Fed will announce some sort of disappointing money operations today and then we can carry on to the end of month grain stocks report.

Today, we start in limbo...corn and beans are a penny or two better. Wheat is is slightly easier. Oil is also easier with gold basically unchanged. All in all the markets are not giving us any direction today until we get any Fed announcement.

My view of the economy is still pretty bearish and that is clouding my views for commodities going forward. I would love to hear a debate on how the world economy and hence demand will play into the price of corn going forward.

Scott

[highyields]

What will the dollar do? Will China be able to grow enough corn for its domestic use, Will there be drought in Argentina again this winter, thus cutting their corn supply? Will the USA finally get a good growing season throughout the corn belt in 2012?  

Where will the fund money come in and go out of . 

If interest rates raise, will the funds keep the money in commodities?   I'm amazed at how the stock market has stayed up there like it has.

What I think is corn will not stay at 7 plus but I don't think it will slip below 4 either.   Eventually you'll find a year that we grow alot of corn again, eventually supply and demand equals out.   If the world slips into a recession or depression, it has to take asia down too, asia is where the demand is, asia is the key, Will China try and slow down growth this year?  

There are way to many ifs in the corn equation, I don't think anything major happens until after elections.  

[jec22]

The problem is the tail is wagging the dog.  Instead of the economy working and evolving, it is tossed daily by what is coming out of Washington, the Fed and the global debt. 

In a healthy environment, government and the fed would be mostly invisible.    Iowa went to a two year budget, something the federal government should consider.  It gives some stability.

Grains picked a good time to retreat price wise.  Corn with a six looks reasonable, unlike cattle and hogs which are making new highs, the global debt crisis must not be effecting them.   I can see why with great profits the pork ass'n needs to go to congress and ask for ethanol reduction..:)   so there are PIIGS to worry about, and pigs.

[Palouser]

The world economy does not correlate much with grain demand. Grain demand is not very elastic. IMO this is a fundamental.

Next question. Does supply determine price? Of course. I do believe outside economic issues can have a minimal affect in this equation, but if supply is thin price will go up.As price goes up demand does not diappear. IF there are alternative sources then business will tend to go there - to some degree, but that indicates price would have supply constraints anyway.

Wheat is the best example. When prices are high - we export more.

[ShelladyOptions]

Going forward it appears that the Chinese economy will continue to grow.  How long Chinese growth last is anyone guess but this morning leading indicators out of China suggest that in the short term their economy will continue to grow.  This report does come however on the heels of the IMF cutting growth forecast from  9.6% to 9.5% for the year.  Yesterday it was stated that China would be a net importer of corn by the year 2015 so Chinese growth looks to be positive going forward and based off of recent forecast will continue to be purchasers of grain. 

This being the case, and if demand continues to grow,  trying to peg the market range for corn is very difficult to do.  I wholly agree that we are in a market cycle driven by government releases, stimulus, and rhetoric that comes on a seemingly bi weekly basis.  As a result the markets have broken down from a true supply a demand market.  Outside money has come into the grain space and as a result has only added to the dynamics of the market.  Right now we are in a wait and see mode and as I mentioned yesterday I am looking at technicals to guide my way through these markets.

Scott

[GoredHusker]

Hogs are a far cry from hitting new highs.  Just a few short months ago, hogs were in the triple digits.  Dec. hogs are trading around 83 bucks today. 

[jec22]

Gored, thanks for the correction.  I do think the hog man is making good money now.  I have had more than one livestock producer tell me that you can make more money with high priced grain that cheap grain.

[GoredHusker]

All things are relative.  I ran some breakevens on some feeder cattle that sold around three weeks ago.  The breakeven was $1.28.  The futures in their relative month is trading around $1.22.  Obviously, the buyers are betting that fats either go higher or corn gets cheaper.  I haven't had much to do with hogs for quite a while, but I find it pretty difficult to believe they're making much if any money right now. 

[Palouser]

I believe China is a net importer of corn now. And also in the form of feed wheat.

I disagree that we are not in a supply/demand market. I do agree that many are attributing price moves to the outside economy, but I don't believe the underlying supply/demand aspects are affected in any material way. I would go so far as to say the exterier economic issues may have some daily reflection in grain markets but believe the big moves and trends are fundamental to grain and outweigh financial issues.

[ShelladyOptions]

By no means do I think that the principles of supply and demand have been thrown out the window, but I do believe that the grains markets have become more of an asset class rather than a pure farmers market.  As a result I think that we have seen some exaggerated moves in the the likes of the corn.  I think the consensus has been that an $8 print in corn is a bit high, but with recent sentiment coming out of China we may see it in the future if they continue to grow and step up their imports of the grains.

Scott