"Advice is what we ask for when we already know the answer
but wish we didn't."
- Erica Jong
Commentary
Last Friday the closely watched agricultural forecaster Informa lowered its estimate for Brazil's soybean crop to 68mmt from its previous estimate of 70mmt vs. the USDA's latest projection of 72mmt. Informa also cut its forecast for Paraguay soybean output by 2.4mmt from last month to 4mmt. Over the weekend they also stated that they lowered their US 2012/13 soybean carryout forecast to 125 million bushels due to increased exports. This would reflect a stocks-to-use ratio of 3.6 percent that looks to be intolerably tight given that the lowest stocks-to-use ratio since the mid-1960s has been 4.5 percent, which occurred in 2003/04, 2008/09 and 2009/10.
We have been saying that corn broke out to the upside and could soon test 672-675. A close above these levels could quite easily push prices up near $7.00 rather quickly. The 50% retracement of the Aug-Dec break would be $6.88 ¾. One well respected analytical firm is already forecasting $7+ futures in the weeks ahead tied to increased Chinese demand and ideas that the USDA's Dec 1 stocks were 200-300mb too high. According to CIS, Inc., domestic corn prices in China exceed $10.00 per bushel in some areas. US corn imports are currently 25 cents or more below domestic prices in southern feeding areas, including shipping and import fees. We now expect China to import at least 5mmt of corn this season and possibly 7-8mmt next year, depending on their crop size. The USDA's Forum forecast for 2013 ending stocks of 1616 million bushels should prove the highest of the season. We believe winter lows have been seen in futures and a moderate bull market is in store for the spring-summer period. We are turning more bullish on both old and new crop corn futures. We expect July futures to trade above $7.00 into spring with potential to trade above $7.50 into summer if our suspicions over the USDA stocks report are confirmed in future reports.
The bottom line for US crop areas is that significant precipitation occurred last week that will ease concerns about dryness in eastern South Dakota, southern Minnesota and northern Iowa. However, the eastern North Dakota/northwest Minnesota area has missed most of this precipitation. Generally favorable conditions exist for the HRW crop as it breaks dormancy except is becoming too dry in west Texas. The early call on the spring season would be for mostly favorable moisture conditions for the crop over eastern areas but with some dryness concerns in the west. The Southeast region saw additional moderate to heavy showers and thunderstorms during the weekend period. This should help to ease drought conditions in the region. However, more rain is still needed to continue to improve conditions in the area.
Commodity prices, led by oil, continue to rise despite the Fed's official inflation rate remaining relatively low. However, other analysts believe the Fed's gauge isn't necessarily a good indicator of actual rising costs being put upon US consumers, whose spending accounts for 70% of US GDP. Forget the modest 3.1 percent rise in the Consumer Price Index, the government's widely used measure of inflation. Everyday prices are up some 8 percent over the past year, according to the American Institute for Economic Research. The not-for-profit research group measures inflation without looking at the big, one-time purchases that can skew the numbers. That means they don't look at the price of houses, furniture, appliances, cars, or computers. Instead, AIER focuses on Americans' typical daily purchases, such as food, gasoline, child care, prescription drugs, phone and television service, and other household products. The institute contends that to get a good read on inflation's "sticker shock" effect, you must look at the cost of goods that the average household buys at least once a month and factor in only the kinds of expenses that are subject to change. That, too, eliminates the cost of housing because when you finance your home with a fixed-rate mortgage, that expense remains constant until you refinance or move. Over the past year, the EPI is up just over 8 percent, according to the economics group. The biggest factor: Motor fuel and transportation costs are up 21.06 percent from year-ago levels. The cost of food, prescription drugs, and tobacco also has increased faster than the government's inflation measure, rising 3.56 percent, 4.21 percent, and 3.4 percent, respectively.
Friday's monthly S&D report could set a high water mark for grain prices for some time depending on how aggressive the USDA is with production cuts.We may use any spike that occurs into or after that to make further sales and get a start on new crop.
The US dollar backed off today from last week's Fed inspired rally. If it can hold 78.90-79.10 through this setback, then 80.00 can be seen if Fridays jobs number is seen as robust.
US Dollar Intra-day Chart
Corn
Today corn plugged the January crop report gap and backed off into the close. 672-675 is the real resistance that needs to become overcome that would really put pressure on the trade that has now become heavily short. The world is prepared for bigger corn and wheat supplies yet prices are rising. That tells me the negative news is in the market and something bullish is being dialed in. Once we get a handle what the drive of higher prices is it will be a "buy the rumor , sell the fact" moment and we will sell off. Support is 6420645 if we break in here.
May Corn Intra-day Chart
Beans
Last Wednesday we said "I think beans will have a hard time climbing above 1334-1335 in the short term without a correction." Today we hit that price and the first correction in 10 days occurred from that level. Beans are so bullish right now that if they were to close lower tomorrow, the Up Wednesday Syndrome could still cause them to retest today's high. When markets are friendly, they don't break much more than 2-3 days before buying re-asserts itself. If 1335 plus slippage of around 5-cents up to 1340 doesn't stall this market, then 1390-1400 will be the next level of significance.
May Bean Daily Chart
Wheat
Early last week we suggested that Minneapolis wheat had bottomed with the seasonal February low and covered our short hedges on 40% of old crop sales. We said it would take a close over 832 to suggest something larger is taking place. That happened today, and if a correction of the current 60+ cent rally that has occurred can be mild, then the November high at 865 will be the next target. Weather in western Europe is not looking favorable for HRS wheat.
May Mpls Wheat Daily Chart
Live Cattle and Feeder Cattle
There was active cash trade late last week at a record price of $130. Choice beef cutouts are sitting in the $198 area, with packer margins $25 in the red. At some point, there will be a major adjustment in the price relationship between cattle and beef prices, although nobody knows how and when it will happen. Long futures traders ran for the gate today, sending prices deeply in the red. Tomorrow is the open of the 3rd day in a correction, so it will be interesting to see if that open is bought against support, or if a deeper correction is under way. There are some so-called "experts" out there prognosticating that the spring high is in. Someday, they will no doubt be right, but for now the odds favor that they will be eating crow once again.
April Live Cattle Daily Chart
August Feeder Cattle Daily Chart
Gold
Gold is holding 1700 on a closing basis, but not much more. If a significant bounce doesn't happen by Wednesday that can put gold above 1725, then one has to expect a liquidation break could occur here that would take us back down to 1600.
Gold Daily Chart
Crude
Crude oil has found resistance at 110.00 and has stalled there twice; opening up the opportunity for what once was major resistance now turned support at 104.00 to be tested.
April Crude Oil Daily Chart
03-05-12
Link (in blue) below to view the latest market prediction interview on KFYR - TV:
For January, March, April, and May Feeder Cattle...Covered 100% of production buying puts and selling calls. Covered the calls in the December break near $1.00 for most.
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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