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Mizzou_Tiger
Senior Advisor

The real shock and aw...............

will come when final state yields for IA and IL come in.............they are severly overstated in the report which could equate out to another 200M drop in production just in those two states...........

 

they keep dropping demand and feathering production to keep the gap close...............one of these days that will not work..........

 

2012 acreage battle is here...........and for all those that thought this was 2008 all over again...........not looking that way, because this is a fundamental story of short acres and long demand.........2008 was all AIR............

 

the acres chart and trendline versus average yield charts I posted layed it all out, however sometimes its a see to believe kind of thing............

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10 Replies
DW11
Veteran Contributor

Re: The real shock and aw...............

And for the states that don't count, between South Dakota, Ohio and Kansas, I think USDA has overstated production by 150 million bushels.  That's the bullish side and I'm with you on that side of the equation.

 

Now the demand side is what I'm worried about: global economic turmoil, US debt spiralling out of control, European countries on the verge of default.  I think the only way out of this mess is inflationary which would be good for grains, but the bullet you never see is the one that gets you.  China has money to spend and they are shopping for US commodities, so that is very good support.

 

I'm afraid that demand can contract faster than we anticipate if we push these prices too high in the near term.  For the 2010 crop, many endusers covered their needs with $4 and $5 corn which allowed them to purchase $6 and $7 corn and make an affordable blended price.  For the 2011 crop, that blended price is going to be $1 to $2 higher at a minimum. 

 

Ethanol is the huge wildcard.  If the ethanol industry continues to lose the propaganda war with Big Oil, who knows what kind of damage could be inflicted out of Washington besides just the loss of the blenders credit and tariff.

 

I'm thinking I should be ready to establish a floor price for multiple years on X% of anticipated production.  Timing is everything.    

 

 

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roarintiger1
Honored Advisor

Re: The real shock and aw...............

Demand has to contract.....the supply just simply will not be there. If buyers of corn slow their purchases and just cut back on their production soon enough, they might be able to stay "in the game" through this shortage. If they don't micro-manage their businesses, they will be out and likely not return.  Farmers took their turn at this for about 20 years in the 80s and 90s. Those that made it through that turmoil are being rewarded now. Going through those years farming was no picnic and being on the other side for a change is something, (no matter how short-lived it might be) that feels pretty good.

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Artifice
Senior Contributor

Re: The real shock and aw...............

and the good areas look EXTRA good.

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marketeye
Veteran Advisor

Re: The real shock and aw...............

DW11,

 

On China's demand, a trader pointed out yesterday that if you look at a chart, you'll notice that the market rises when it gets closer to $6 and hits a ceiling as it gets closer to $8.00. Ironically, it's near $6 when China buys and it's near $8 when they stop buying. Not sure if this is anything, as a hedger or speculator, you can make market decisions upon. But, there does seem to be a pattern there, I guess.

 

Mike

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DW11
Veteran Contributor

Re: The real shock and aw...............

Thanks Mike.  That kind of reinforces what I intuitively felt about the ebbs and flows of the demand side.  It probably speaks to basis in my area as well because a significant amount of corn goes to the west coast and on to Asia out of my back yard so to speak.  What if corn goes above $8 for a significant amount of time?  Do the Chinese stop their hog expansion?

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Mizzou_Tiger
Senior Advisor

Mike.........

so answer me this...........is demand really being rationed all that much if its nothing more than a game of cat and mouse............IMO we just started to see it happen with $8 plus, but we really don't know what effect it really had as there was a lot of talk, but as soon as things pulled back a little it was game on.........

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Palouser
Senior Advisor

Re: The real shock and aw...............

I think the trader's comments regarding China are illustrative of the trader's blind spot. The pattern or relationship becomes more important than actual fact and circumstances.

 

The overall picture, through thick and thin, is Chinese domestic development and increasing the level of quality of life there. Justy as in soy, China keeps buying. They are very good tactically in purchasing and PR - but their trendline is not dictated or stalled due to a particular price.  They have a 13% tariff to keep internal prices high, and an auction system based on the large reserves they keep on hand to keep inflation in check and end users guessing. It also prevents hoarding.

 

China will not stop herd expansion ansd won't quit buying corn based on price in any medium or long run. Maybe a variation from week to week or even a month but, the supply line to China is kept full. No just in time deliveries.

 

A trader may not understand that the industrial model of margin and expansion does not apply to China at the commodity/food level. The trader needs to look at longer range charts and understand the Chinese system of commodities.

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RDrr
Contributor

Re: The real shock and aw...............

In the 70s beans went to $ 13.00 & corn $ 4.00. Inflation considered, what would be the equivalent prices today?

 

Central Ohio crops look good, but late.

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chipster22
Veteran Contributor

Re: The real shock and aw...............

There is an inflation calculator here:

 

http://146.142.4.24/cgi-bin/cpicalc.pl

 

Did the high prices happen in about 1973?  If I'm right about that then $13.00 would equal $66.03 in todays dollars.

 

$4.00 corn would be $20.63.

 

However, I believe it has been shown though that throughout history that the real value of commodities has continually declined as higher yields, better processing techniques, etc., have driven down the prices.  So, just because they reached those prices once, doesn't mean they will ever again.  Yet, I would never say never.

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