What do you have faith in?

[jrsiajdranch]

For almost two quarters now in the finacials and commodities we have been told by those who profess to "know",  things are getting better.  Employment is just about to go up. The housing mkt is about to strengthen. Gold is a poor predicter of the things to come. the business cycle is about to turn positive. The interst rates will be mangaed and any negativity that may come from a risng interst rate will be mitigated by an increase in liquidity. Tax revenues will increase into the treasuries of all sizes of goverment. Your long term investments will increase in value and exceed old highs as we hold for the future growth.

All of these things have been alluded to by some official talking head or a person who is supposedly in the "know".

This week it has been intersting to note how wild the markets have been!  Wide swings in everything but over the week mostly not much different ( I am speaking in a generality here I know some things are down sharply on the week. However most things closed off their lows.)

So here is the question it's the end of may Corn In NCIA looks great.  Beans do to. The hay has been put up in good fashion cattle and livestock in general have recovered from a really crappy winter. Right now going forward we have the makings of a good production year. 

What is the thing or things you are putting your faith in to make desicions going forward either in mkt the commodities that you grow or making investments for the future when you are not growing commodities.

As for me right now I am looking at these mkts. and not sure I can put much faith in any of them. I can't grasp right now what are we trading Fear of  an economic collapse or fear of an oversupply so burdening us that we can not grow out of it for some time.

I am not looking for direction I know which way I am headed and feel fairly confident that the course we are on in our farming operation is the right one.  I am just looking to hear or read what you guys use as reliable sources or trends that you use to make your desicions going forward. 

I know the backyarditis might come out a little in these post but I also know we must trade what we know. JR

[JOHNTHERED]

I have faith in God. I think that a lot of the 'recovery' as it seems in commodities and in financials is coming to a pretty sharp halt. I look to short term interest rates as a general guide, right now the entire world's recovery hinges on access to cheap money/credit. To me it seems like we're replaying 2007 all over again in the commodity markets where there is far more downside potential than upside and I feel like Friday confirms that. If you look at short term interest rates they're starting to rise as tensions mount across the globe (N. Korea, Iran, Greek finances, etc.). In most commodities we saw a very sharp rise off the bottom, corn fell to 3 dollars and eventually went back to 4.50, nearly a 50% increase; crude oil went from about 35/bbl to nearly 85/bbl. I don't care what anyone says with prices like that and the world mired in a recession like it was it seems like people are running out in front of steam rollers picking up pennies again. How can you say that the business cycle is about to turn positive, why? I think even the Whitehouse is saying we'll have unemployment rates above 9% for all of 2010, that doesn't seem like the type of environment that fosters growth. It seems like the type of environment that will bring about savings; using credit for growth is like planting a weed, using savings is like planting a tree. Right now I feel like it's best to have money in the bank. If the recovery is as strong as Bernanke and Tim would like us to believe then why is Larry Summers talking about a second stimulus? We haven't even used up the first one yet! If we're in recovery mode why do we have to have interest rates at near zero? I believe that a lot of the cheap money and credit is going to be used in a perverse way to really drive and push markets faster than they should normally move whether that's to the downside or the upside, and it will be a big 'risk off' period. The people in the 'know' are supposed to be cheerleaders, it would almost be anti-American for the President to say 'we goofed and now the economy is going to stagnate.' His approval rating would plummet faster than the DJIA. I think we see another correction but the difference now is that credit worthy strong companies have proven they can survive and they will survive, those hanging on by a thread will go under like they should have.

[timetippingpt]

Your concluding line....   "but I also know we must trade what we know. JR"

My life experiences would suggest that nothing could be further from the truth. Everything that "we know" is already in today's price. Price will only change when some new information that "we do not know" is revealed. Plus, virtually every great trader (and I am not one) will tell you that they never "know" much of anything.

Yes, we should all invest in businesses that we "know" intimately, but trading, that is a different animal.

OF course, we all KNOW that the debt pyramiding will make the western civilizations all look like Greece someday. Just like we knew that mortgages for 120% of value would crumble the mortgage industry someday, now past.  What we don't know is the exact timing or events that precipitate investor realization and actions that trigger the problem.

Trading is more a game of probabilities, which by definition means that you accept and "know" virtually nothing.

fwiw

[jrsiajdranch]

I thought maybe that would bring out something!  Ken what do you trade then?  Don't we all trade something we know? Maybe it's calculated maybe its fundametals or technicals but it is something we know or at least partially know right?  JR

[Palouser]

You say, "I can't grasp right now what are we trading Fear of  an economic collapse or fear of an oversupply so burdening us that we can not grow out of it for some time." Seems like a fairly limited view of economics.

I try to 'INVEST' in growing a crop best suited for my area using the best practices, and best suited for my economic circumstances that I have fairly solid knowledge will be in demand and will be consumed. To the best of my knowledge all the wheat, barley and legumes I have ever grown were consumed within a short time of being grown. I have no expectations that will change. We've had much higher relative supply and prices in the past and the average farmer in average circumstances survived.

There is no kind of certainty in markets in the short term. I've never seen any and never asked for any. I do watch the fundamentals of supply and demand and the important events in the physical markets that I serve or may affect those markets directly. I do consider the futures market as more of a side show than anything else. They have already proved they have limited vision of physical fundamentals even when the physical  trends are fairly clear - and the day to day action seems like pure fluff in the short term, and less as time goes on. Technicals are like the man who wears two watches. He never is really sure what time it is.

To my knowledge, 'trading' of any kind has never affected my operation much. No doubt the insanity of Wall Street came might have close, but face it, circumstances have been fairly kind to agriculture the whole time. We avoided cratering and the 'big one', perhaps barely. No one can guarantee that there is no possibility of it happening still, but as time goes on, so does the likelihood it will, in my estimation. I will probably continue to grow grain and legumes for the global markets. I see no reason why that isn't the best option for me. I might try something else at some scale, but in my area there are few choices that seem to fit our weather and climate that as rewarding.

Keep in mind, whatever we grow this year, and whatever the price, it might not be enough for the market by next year.

[jrsiajdranch]

John the red I didn't mean to imply that I believe what any of the know it alls are saying!  I belive we have to many things going aginst us to look toward a recovery of any  size I just don't understand How the markets are going to be able to work through this one.  I watch things like the gold mkt and the stock mkt going up at the same time and wonder who wins? 

Yea short term rates are going up and Goverments around the world are borrowing in the greatest round Robin ever seen! 

SO the point of my post was what are we trading?  And how do you muster the belief of the system in which you trade?

Taking to milk (what I guess I understand the most) We look at some of the fundimentals and see a huge divergance from the real world price to the happenings on the CME. And then the technicals seem to be real cloudy.  I keep asking my Dad what he thinks and he says most guys haven't figured out the cause and until they do no one with any power can fix this.  Mostly he says once we stepped in and mitigated the natural forces of the mkt oh yea well before 2008 then we set ourselves up for the inevitable crash. JR

[jrsiajdranch]

Palouser you obviousley haven't been in hogs or dairy cause it's been a disaster!  And yes Wheat may have takin off of it's own will but corn could you say had some market skewing help, Right? JR

[Palouser]

I do agree that the nature of hogs and dairying is different than grain. Markets are different and you can just about guarantee your production knowing the number of units and the amount of feed. Structurally it is a different set up than growing grain. At least in the medium run.

The outcome of the grains is dependent on what alternatives there are to farmers for wheat - or corn. And the ultimate production due to weather, in the short term, and government policies in the longer term. The most productive part of the corn belt will grow corn regardless, but at the margins wheat, beans, mustards, beans, etc. are alternatives. It's true in Canada, the EU, India and other areas. Therefore production varies. The investment in the outcome changes too in some areas - as in the amount of fertilizers used, common in developing countries.

China will be dependent on soy imports. They have already made the decision that they don't have the resources to satisfy the demand through domestic production. Part of that is they know the Americas have the capacity to supply what they need, year in and year out. That may become the rule for that portion of corn they need above domestic production in the future.

I guess what I'm saying is that I see relative stability. The macro economics won't alter the balance of grain production or consumption to any significant degree. Any abundance that nature gives us in any given year will probably be offset by the dependence on that abundance and a change to less ideal conditions later.

We can't see the future. We can attempt to buy insurance, whether on the board or otherwise, but consider it a cost - no more, no less.

[jrsiajdranch]

Palouser I have great respect for your point of view I think you are looking at this thing through the prism of years of wisdom and experience. I am not.  My years in this industry at the tender age of 38 put me somewhere in the lower third of the guys ages who read and post here. I look back at historical things to see how the future might react. I guess that was the nature of my post yesterday. I look back and I see historical averages which have been clearly violated and going forward we are defiantly in uncharted waters for our Government's reactions have taken us into a new direction of Fascism which is wholly the fault of the populaces unwillingness to experience pain.

I see especially livestock sectors which have been overridden by large collaborators from finance and their particular industry trying to Say the cycles are dead. And for awhile they have been able to overcome or mitigate the cycle through shear volume and relationships clear through the food chain. However now they have a house of cards which is crumbling and instead of letting that house fall, they have weekend the foundation of an industry.  

I am asking then aren't there times when you look at these markets and you say I just can't believe these things are going to go well in the end?  The follow up question I ask myself then is how do I position myself for the reality?

As to another oversimplification isn't all trading by the masses at some point traded on two basic emotions Fear and euphoria? And may be it can be ruled down to one emotion fear. Fear that I will arrive to the party to late, fear that I will miss the party. Or fear that everybody's been partying and I better catch up? Truly oversimplified but where talking about the American public and I think simplification is needed for them. JR

[JOHNTHERED]

JRS

I think the best thing to do is to define a timeline and work around the timeline.  For example I think Gold will continue to be a better bet over the stock market as long as interest rates remain at zero and nothing changes.  I don't think our leaders really want to try to fix the problem because fixing the problem would mean a lot of pain; I think it would be like 2008 again and most of them would rather try to bribe their way back into office with promises of stimulus.  Tackling this problem is something that takes a leader willing to lead the charge (that also means likely to lose a re-election because of the pain caused); currently the tea party and independents are throwing out elected officials left and right but still very few on capital hill get the message.

Here's exactly what I look at: libor, US treasuries, the dollar, crude oil and China.  Libor is widening and that sort of unease means people are less likely to take overnight risks, US treasury rates are sitting pretty low so people are less likely to take on longer duration risks too.

A rising dollar means a few things i) it's a safehaven since we've never defaulted ii) it means interest rates should be going up.  If the market isn't getting paid interest there's a way to get that, by directly increasing the value of the currency at the expense of other goods.

Crude oil and China are a little bit the same and a little bit different. They both have the growth story attached to them, so if crude is going up and China is going up then people are believing the growth story. Crude also influences ethanol prices (which influences corn), China is sort of a yardstick of success for the recovery. China has all the money, the population and the cheap labor if they can't make things work out there, then there's a good chance they won't workout there either.

Then I start looking at the fundamentals for corn: crop size, yield, carryout, growth progress, weather conditions, feed and use etc. What I see is a pretty weak bull story and decent bear story.  The bears may not take the market for another month or two, or maybe it could happen in a few weeks but I think there is a lot more downside risk than upside risk so I put myself in the position accordingly

Looking ahead I think there are a few important things to think about: June WASDE (this has always been a game changer for the market), the EPA on ethanol blending percentage, livestock prices, and the Fed.... they're gonna have to raise rates there is no way that will be good for commodities. But overall I remain optimistic I know that sooner or later the market rights itself and I believe that the level of political cohesion necessary to pass trillion dollar legislation is starting to fracture and it can only be a good thing when you stop spending money you don't have.