April 17, 2009
DTN
WEATHER--ACREAGE GUESSING GAME
Field preparation should have been going full bore in some areas this week, as rains approach from west moving east over the weekend slowing things for a time. The temps will fall
temporarily with some suggesting 80 by next weekend in N IL. So far, looks like normal spring weather? However the weather debate continues and the CBOT seems to trade daily
changes in weather reflecting the nervousness over the acres mix, remembering full well just how much we can plant in seven open days. Fertilizer usage (P & K) seems to have
dropped significantly over most growing areas of the world, at least if one can believe the media stories, and quarterly earnings reports of producers? The China/Argentine situation
goes on and one. I would have expected some profit taking in July soybeans—reversing the SN/SX spreading going into a weekend and that is essentially what we got today, albeit
pretty tame in beans considering the strength this week. Corn is acting like it doesn’t care if acres are lost to soybeans???
A recent Reuters poll of grain market analysts and traders suggests that the market has more upside potential. The results showed that corn and beans could pick up a dollar as
we head into summer. The poll had corn prices ranging from $4.30 to $7.00 with an average of $4.92 and soybeans ranging from $10.50 to $13.00 with an average of $11.50.
Apparently some market analysts are a little bullish commodities as new spec money seems to be flowing in according to some sources. However, how much is allocated to the
grains is another matter, as there does not seem to be a story in anything but the soy complex.
Regarding the old crop/new crop Soybean Issues: The 2008/09 balance sheet is at risk of becoming intolerably tight if China continues to buy soybeans of the US. The
Jul/Nov soybean inverse is at levels comparable to last year. That inverse collapsed in late April and into May even though more than 500,000 tonnes of US soybeans were shipped
to China per month from April through July. As it turned out, the 2007/08 balance sheet was not as tight as it was thought to be, which the market reflected before USDA estimated
Sept. 1 stocks came out at a surprisingly large 205 million bushels and USDA had to revise higher the 2007 soybean crop by an unprecedented 92 million bushels. However, unlike
last year, there is little evidence at this juncture that USDA understated the 2008 US soybean crop and USDA reported stocks at US terminals are at near record low levels for this
date. It would appear that the old-crop/new-crop inverse is more likely to be sustained longer this year and poised perhaps to rally further, depending on China’s appetite for soybeans
and Argentina’s ability to export soybeans.
A quick resolution to the export tax dispute in Argentina would ease the old-crop supply situation in the US, but such a resolution likely would not occur until after the June 28
elections. This has buyers rumored to be booking soybean from US for shipment well into this summer !!! Speculators continue to be aggressive buyers of soybean futures after
having accumulated the largest net position as of Apr. 7 since August 2008, providing a fundamental basis for this buying spree is a tightening old-crop situation. It will be interesting
to see what the CFTC report today has to say as it gives us another week of history. I have been tracking the action of the large specs (not to be confused with index long-only funds)
for some time. Their positions and subsequent actions are usually a precursor of things to come, and they often are the buyers of grains farmers sell! During the last nine months it
shows that the large spec started selling off his long positions prior to the top and into the short covering spree late June of 2008 and then well into July, ultimately liquidating most of
his positions prior to the debacle in Octobers that had most thinking a harvest low was at hand. Since then it has shown that while the Large Spec was net short as a percentage of
total open interest in corn and wheat for a short period of time, he never did go short net short the soybeans, and actually began increasing his net long position prior to the last dollar
run-up.
This seems to be in agreement with my long-standing idea that the tight corn stocks situation last year was a US problem that could be solved with falling demand, which we have in
all sectors except ethanol crush. However, the soybean supply/demand situation is a world problem whose supply side is not easily solved by the US, but rather is a world problem
exasperated by China’s demand and political uncertainty of Argentina. USDA’s smaller-than-expected soybean planting intentions, deteriorating Argentine crop prospects, and traders
believing the old wives’ tale that once farmers get on the corn planter we just can’t help ourselves and keep planting on and on, all suggest path of least resistance is higher in the
near term with the extent that soybean will ease thereafter being called into question. This is a futures market, not a “past” market and likely the whole complex and producers alike
would be well served to look not just 3 days, 3 months but 12-18 months out. If by chance, the government actions get it right and the economy has already bottomed 3 months ago
as I suspect, then by the time we get into planting season twelve months from now, it may be a whole different set of demand circumstances that has end users wondering how they
are going to secure supplies for the demand of the future. Wishful thinking? I doubt it. Think positive. You gotta love this country.