This Reporter's Notebook

[marketeye]

I have a number of notes on my desk from conversations with market participants. I just thought that you might find them interesting or be able glean something from them. Otherwise, they just clutter up my desk and dust begins to pile up. Grab a cup of coffee and join me for a minute or two. Consider this a 'Reporter's Notebook' offering vs. a well laid out, orderly story. Essentially, I'm cleaning off my desk and didn't want to throw these thoughts away until you had a chance to see them.

--First, the mood in the countryside is changing. One analyst says that he is not surprised that people are arguing more, that attitudes are turning sour. "When prices are high, like they were there for a few years, people think they are geniuses at marketing their crops. But, when the low prices arrive, it's time to blame the government, their broker or advisor. And as far as high rents, it's the farmers themselves that create this issue.
Also, a report from the northern Corn Belt region, reaffirmed that the farmers' attitudes are waning. Why? Well, like one farmer says, usually a summer rally comes to the rescue of lower markets. Or, a frost, or some other weather event. But, this year's inclement weather events were not widespread enough, period.

--I asked this analyst if he is ready to buy calls, right now. He said, "I'm ready to go to the beach and sell calls for awhile.

--Yet another analyst really made my forehead wrinkle, during a recent conversation about the outlook for this low price environment. Technically, it looks like we could be in the below $3 range. Fundamentally, you see this volatility when you have big crops and comfortable balance sheets. Separately, he says high rents will have to start adjusting. Rents are inelastic. Now, here comes the troubling part of his comments. He sees the timeframe between 2006-2013 as an anomaly. Why? We built out ethanol, it's a mature market now. Really, the biofuels are mature. And in the last 10 years, 170 million crop acres have been added, globally. This means we are offering 1.7% more grain each year, to the world. He goes onto say that we are outproducing the world's caloric intake. And here comes the big boom: He sees the low price environment lasting between 5-10 years. "We're back to farming for the government program and hoping that a weather event bails us out," he says.

--Now, I hope you saw my video interview with David Hightower, The Hightower Report. If not, he says not to believe the multi-year low price environment projections. , Here are a few of his thoughts:
 
When you walk forward the fundamentals for the corn market, they are friendly: Lower Argentine crop, China's crop has problems, at 50% lower than last year in some places, it fits into the ethanol and feed-use equations, and half of the production that has come online since 2008 is in undeveloped countries that can't produce corn at these price levels.
For soybeans, it's not too late to buy puts. You might have another $1 down in soybeans.

Looking forward, globally, fishmeal is unsustainable. It's 10-times as high as soymeal, but if they don't have it due to El Nino later this year, combined with this idea from folks saying a multi-year lower trend is ahead. This means soymeal could be highly sought after in the next year.

--Notes from a trader indicate that at this point, the best scenario for higher profitability, lower prices into October, giving you the chance for a bigger gov't check, followed by a rally next spring. At these prices, farmers can get an extra $70/acre for corn, and $30-$50/acre for soybeans from the government support.

--Kyle Schrad, FC Stone Int'l, reminds folks to watch the U.S. Dollar. As it strengthens, it will make U.S. commodities less competitive on the world market.

--Bill Tierney, AgResource Chief Economist, says he is not sure where the bottom is, regarding the soybean market. "With trend yields in South America, plus the carryover projections, here, you could see Nov. 2015 soybean futures at $7.50, during the 2015 harvest."
Bill also reminds folks to not look for less acreage in South America. "They don't plant fewer acres. They will apply less fertilizer and look for cheaper seed. But, they don't cut back on acreage.
Barge rates are at record levels, rail rates are at record levels. Rail demand will not be met this year. So, importers and farmers will pay for these higher rail costs. As a result, this reduces the competitiveness of U.S. ag exports.

--Yield Reports: Southcentral Minnesota farmer did a corn yield check, recently. He is saying 160-180 bu./acre. One Michigan farmer, east of Saginaw, expects 200 bushel corn, and 60 bushel soybeans. He also reports that area elevators are worried about storage.

--Question: In your area, what are the diesel prices running, right now,  that you can lock in for next spring?

 I'm done. Now your turn. What do you think about anything here. And how does this information compare to what you are hearing in your neighborhoods?

[Palouser]

Variations in productivity due to weather will trump all of the above. Always has, always will. Weather variation is almost impossible to forecast in a way that allows readjustment during a cropping year. Market reactions to variation is also almost impossible to predict in that time frame as well.

[jrsiajdranch]

Why would people be argumentative at these price? Milk I'd still north of 22/cwt culls with a little grease at above 75/cwt. Fats above 140 on the hoof hogs are still up there. Corns cheap bean meal is coming down. Looks good to me!
And why no mention of currencies by these " analysts" especially high tower. The dollar closing in on 85 is huge.

[BA Deere]

As God as my witness, I don`t know where this big crop is.  Gurus are falling over themseleves 13.5 billion... 14 billion...15 billion bushel corn crop..2...3 billion bushel carryover.  If you were somehow were sequestered for the past year and were just taken for a drive around northern Iowa and southern Minnesota, you wouldn`t think there was anything spectacular coming.   It was mostly planted 2 weeks late, wet to leach the nitrogen and too dry to fire the dry spots to match the drownouts.  I don`t know, but it must be areas that we`ve previously written off as crappy ground is really shining this year.  Going out to the Clay co. fair on Highway 18 it looked crappy, coming back on Highway 9 it looked halfway decent.  Maybe the Allendales, FC Stones and Pro-Farmers had their surveys more weighed towards the Highway 9 route?  🙂

It is what it is, if most gurus believe there`s a elephant in the refigerator, that`s all it takes regardless if there`s footprints in the Jello or not.  🙂

I think if a guy first gets his debts and bills made current, then focuses on cutting costs in 2015, there after, inputs will certainly have to more come in line with grain prices.  It just seems to me with all this talk of 290 bu/acre corn and 80 bu/acre beans..the seed companies are ALSO getting big yields for their seed productions, so they should pass that saving on to us...right?

[Caveman]

Hi Mike!

I'd bet you wrote this post seeking opinion from US farmers, but as I read it, I realized some of the comments spoke of south american production and the intentions of the SA farmers. Considering I get to speak with argentine farmers on a daily basis, I thought I'd let you guys know what's happening down here in Argentina.

Regarding corn and David Hightower's thoughts, he's probably right about a lower argentine production. With these prices and the investment (both money and effort) corn represents compared with soybeans, farmers are less likely to sow corn. Add to that the fact that the inflationary context in which we live and lack of devaluation increase the cost of carrying grains from marginal areas (northern provinces).

The Rosario Board of Trade estimates a 16% area reduction for this campaing. With that in mind, we might be closer to 21M tons, than to the 23M announced by USDA. Still, it's a bit too early to call total production with certainty. Sowing is about to beging for corn to be harvested in April and this last few years we've been sowing longer term corn and corn over winter harvest, which is sown by December.

About soybeans and Bill Tierney's comment, he's certainly right about one thing: we won't plant less acres. Farmers here may not know about finance, marketing, etc. (not all of them obviously), but they sure know about farming and that's exactly what they'll do. 

And when they need to cut cost and risk as little as possible, soybeans are their choice. 56M tons for soybeans, and a bit more if wheater goes as usual, ain't something far fetched.

Both these comments are to be read with the actual context. If weather or macroeconomical situations change (or if our goverment decides to change the rules of the game yet again) this post needs to be reviewed. Like econimists say, ceteris paribus

I hope you guys find this thoughts of mine useful!

[luisvieira]

Mike,

You forgot also about less corn acres in Brazil.

[marketeye]

Caveman,

Excellent contribution to this thread. I thank you for weighing in from Argentina. It is always nice to hear from someone 'on the ground' and 'in-country', regarding the topic referring to another country. Thanks. I'm curious, you never mentioned the large soybean supply that Argentina's farmers are sitting on. I have heard that most of that supply is owned by 'land owners', not just farmers. Is that correct? And if that is the case, does that change when that 'wall of soybeans' will be dumped on the market?

Thanks,

Mike

[marketeye]

jrsiajdranch,

You're right. There should be more mention of currencies. But, I did mention that the U.S. Dollar is strengthening. And, in that case, the U.S. commodities become less competitive on the world stage.

Mike

[Clayseia]

I haven't talked to anybody in a sour mood lately.   But, it's our first big crop in a long freaking time here.  Nobody cares a whole lot that corn prices are low, unless they are bidding on big-ticket machinery.

[marketeye]

Clayseia,

That's great to hear.

Mike