"Life can only be understood backwards; but it must be lived forwards."
Søren Kierkegaard
Commentary
Since last year we have brought up several times the 800 year tree ring cycle that predicts 21 years is the longest span from Midwest drought to drought and that this year is the count. And to top it off, we had believed and predicted that the reason the February lows were higher than the January lows was one of the clues for concern for this. But Europe blew up our perception in April and May and that trashed our projections. Well, USDA's meteorologist this morning issued a statement this AM comparing the 2012 and 1988 droughts. The estimated crop loss in 1988 was pegged at $78 Bil and pointed out that losses today could be larger.
Traders are keenly aware that it's "now or never" time for rain to rescue the US corn crop, but they are also equally aware that the corn balance sheet can give up 800 million bushels of production and still have a billion bushel carryover. If poor weather continues well into July, soybeans should regain leadership as the soybean balance sheet has no margin for lower yields and could conceivably require rationing in order to produce a carryover. The reason soybean prices are lagging corn is that the weather pattern could change in time for soybeans.
Analysts are already lowering their crop estimates, with prominent crop scout Dr. Michael Cordinnier cutting his US corn estimate 3bpa to 156bpa while also cutting his soybean yield 0.5bpa to 42bpa. A well known weather forecasting team lowered their corn yield 3.4bpa to 155.2bpa and their soybean yield 0.8bpa to 41.6bpa. While no one knows for sure where final yields will be, It's been procted US corn yields from 155-160bpa should still leave supplies adequate but certainly not burdensome. On the other hand, soybean yields under 42bpa would make an already impossibly tight 2012-13 balance sheet even worse off. However, analysts are being a bit more cautious about pricing in a worst case soybean scenario as July/Aug rains can turn the crop around in a hurry.
The University of Illinois' professor Darrell Good pointed out yesterday that as long as US corn yields stay above 150bpa, price rationing may be minimal, while a crop below that would require higher prices. Current conditions point to a US average corn yield below trend again in 2012, but the extent of the yield shortfall will remain uncertain for another 10 weeks. With the large increase in corn acreage this year, an average yield above 150bpa would require minimal rationing during the year ahead. Based on current and upcoming weather conditions, however, there is risk that the average yield will fall below that level, requiring higher prices to ration the crop.
US Dollar Daily Chart
Corn
A lot of attitudes changed from last week activity by Dec corn holding above 550. Then in 3 days we found this market $1.00 higher. This market I strongly believes needs to see this Friday's acreage report and weather next week Monday before it can continue its explosive rally above last falls high of 676. I still see 655-665 as major resistance this week and did create today's high. We filled our March corn hedge almost on the day's high. We are now at 50% and will leave it until some certainty is known.
Hedge alert: Sold 30% of new crop at 663 on the March 13 contract. This takes us to 50%.
December Corn Daily Chart
Beans
Corn and wheat are exploding to new highs everyday this week, yet old crop July beans cannot even take out 15.00 let alone the yearly high. This should be a warning that at the first sign of weakness, this contract may be the leader down tomorrow if weakness occurs.
July DailyBean Chart
Wheat
September wheat closing two days above the red line at 738-740, it technically says the run has more to go. But reality is it has everything to do with corn. With corn likely to chop Thursday, 738-740 should be tested again.
SeptemberChicago Wheat Daily Chart
Live Cattle and Feeder Cattle
Choice beef cutouts have jumped, now trading in the $198 area. Packer margins are $84 per head in the black. Cash offers are 117, but packers are in no hurry to pay up, as they have lots of bank loans to pay off after losing their shirts for several months. Corn corrected off its highs, and that help to propel a cattle futures rally. The drought stricken pastures are forcing movement into feedlots again, but this will only serve to reduce supplies in the future. To sum it all up, bearish now is bullish later
August Live Cattle Daily Chart
August Feeder Cattle Daily Chart
Gold
This chart is a pinball machine with the support evident in the 1530-1540 region. The price seasonal for gold doesn't turn up till September, so price action will remain choppy until the downtrend line is taken out, or support is violated.
Gold Daily Chart
Crude
(repeated) Weeks ago we showed you a study that technically predicted that oil would trade at 79.00-80.00. Now that the price has been achieved we could still trade at 75.00 where support is very evident on the long term charts. With the US dollar likely to make a high by next week, oil is likely to make a turn back up with 75.00 holding on a closing basis.
Crude Oil Daily Continuation Chart
06-25-12
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NOTE: With the exception of livestock, all trades will be entered in the electronic markets unless otherwise noted. Hedge recommendations and Trade recommendations are totally separate, and may sometimes conflict with one another. It is strongly suggested that Spec trades and Hedge trades be done in separate accounts.
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A word to the Wise
Past performance is not indicative of future results. The information contained in this report is intended for informational purposes only and is the opinion of the writer and may change at any time. This information was compiled from sources believed to be reliable to Heartland Investor Capital Management , Inc. but accuracy cannot be and is not guaranteed. There is no warranty, expressed or implied, in regards to this information for any particular purpose. There is SIGNIFICANT RISK of LOSS involved in trading futures and / or options on futures and may not be suitable for all investors. Investors should consider these RISKS and evaluate their suitability based on their financial conditions. No one should ever consider trading futures or options on futures with anything other than RISK CAPITAL . NO LIABILITY on the part of the author exists for any trading loss you may incur in the use of this information. The information contained in this newsletter is privileged, confidential and protected from disclosure. Any further disclosure or use, distribution, dissemination or copying of this message or any attachment is strictly prohibited.
Newsletter provided by Heartland Investor Capital Management, Inc. a registered CTA with the NFA, of which Eugene Graner is principal. This entity is a separate legal entity from the Introducing Broker Heartland Investor Services.
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