9/1/10

GRAINS:  News from the central corn belt combine cabs seems to be mostly disappointing when clients-subscribers started relaying yield data to me in the past week or so. For corn-on-corn especially, corn yields are slipping anywhere from 10-40 bushels versus '09 by many accounts, and some producers are also reporting issues with diplodia and quality docks at the elevator as well...these quality issues are still too fresh in many producers minds after the '09 quality and moisture levels were so poor. So, this begs the question:  can lower corn yields and supply give the corn the leadership qualities it needs to go higher with or without the wheat and beans? My opinion would be "No", and we saw this in unfold in this week's trade so far--corn to me is still "attached to the hip" of the wheat especially, and to a lesser degree the beans. The corn still needs support from the other complexes to go higher, when we're talking about futures. The strength in corn, and the lower supplies are playing-out in the spreads, however; just look at the Wheat-Corn Spread--it has lost nearly $1.50/bu. in the last 3 weeks alone, with the corn essentially gaining about 40 cents but the wheat losing the balance in the lead-month futures. Corn Spreads have also narrowed--the March/May Corn Spread is trading at only 5-7 cents discount compared to at least double that amount under normal supply years.
---My major point in this is not to suggest to you that the corn "can't go it alone"; it is to suggest to you that the low supply of corn, if it's all throughout the country and can take the national yield down toward the 161-162 area [where I think it should be], should be impacting the cash-basis the most:  THAT THE CASH CORN PRICE NEEDS TO RALLY TO THE FUTURES PRICE IF THE SUPPLIES OF CORN ARE NOT ADEQUATE TO MEET DEMAND. In other words, I'd rather hedge clients be long cash and short on paper at this time. There's a lot more of this discussion in last week's weekly copy. Send me an email and I'll send you a free trial of the email service.


LIVESTOCK:  It would seem to me that the time for a sharp rally, either fund-led or cash-demand led, is coming to a close for the season in the livestock sector. We still also have the issue of more hogs coming to market than normal this fall, based upon many producers comments to me in the Midwest, due to the poor quality '09 corn finally being able to be blended with new '10 corn...so that feed rations and gain will improve. There seems to be hogs being held back by this feed issue, and I'm fearful that we'll see a big increase in weekly kill as we approach the first day of Fall. So, I'm on "high alert" to get some more hedges in place on the hogs especially, and to a lesser degree the fat cattle.
--In the case of the hogs, it's been hard to recommend short futures, even at higher levels a week ago, due to the fact that the CME Index is carrying almost a $9/cwt premium to the October Futures. This is not the way you want this spread to be situated if you are trading short futures, because it's very likely that cash can go down and at the same time the futures can go up...so that you're getting hit on both ends. I'm working on trying to get this spread to flatten out some before recommending paper positions; in the mean-time, I'm trying to keep producers very current on marketings.

OUTSIDE MARKETS:  There's lots to talk and write about in the outside markets:  the major issue is how fertilizer prices are going to react to an energy-led pull-back like we're seeing and a stock-led pull-back.  Will these prices dropping take some of the premium of fertilizer prices, since the rallies in stocks and energies a month ago seemed to really attract a lot of speculative interest from Wall Street on the fertilizer and nitrogen and agriculture side in general? I am being told by clients that fertilizer prices are expected to jump again next week, but even though I'm being told this, I'm of the camp that the premium in nitrogen is a speculative premium...and that if the energies, stocks, and wheat can fall through their recent lows, then I think fertilizer prices can cool-off some. Therefore, at this time, I'm recommending clients lock-in potash only and work hand-to-mouth on their other N needs.
   
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