History On Our Side or Yellow Flags? - Monday, 17 March 2014

   HAPPY ST. PATRICK’S DAY

 

The USDA report last week helped to rally the market a bit further but since then has fallen back from those highs.  According to Jerry Gulke, President of the Gulke Group, “an orderly market should stop and think a little bit to catch its breath and I think that’s what it is doing right now.”  He goes on to say that he feels that the pause in the market is fueled by several factors, a big one being the acreage mix for this spring.  The USDA will release the Quarterly Grain Stock and Prospective Plantings reports on March 31st, this usually has a significant impact on grain prices until spring weather issues kick in.

There are many private firms that have begun to announce their estimates for corn and soybean acres this spring.  One of which is Allendale, this firm sent out surveys to producers in 28 states and feel that their estimates are quite accurate based on the large scope of producers and regions surveyed.  What their results showed is:

CORN ACRES

 92.3 million acres for 2014

This is down 3 million acres from 2013

Still will represent the 4th largest corn acreage since 1944

Estimated carryover (based on average yield of 163 bu. /acre) of 2 billion bushels

SOYBEAN ACRES

83.2 million acres for 2014

This is up 6 million acres from 2013

Estimated carryover (based on average yield of 44 bu. /acre) of 420 million bushels.

Neither of these represent a bullish scenario.

Traders that stand on the other side of the issue believe that the flow of money is what is going to drive prices higher along with “history”.  Since 1877 we have seen 62 major bear markets.  The one we just finished is the 3rd largest we have ever had!  What has been found throughout history is that following the end of a big bear market you see big rallies back.  The average varies from 28-95% back, which if we were only able to generate a 28% rally  would put corn prices back to $5.33 per bushel.

Everyone recognizes the impact that outside situations and weather play on market prices so we can only speculate what the next few months will bring.  Right now though we have trader demand driving prices, the flow of money has begun to flow back towards commodities recently after several months of investments in other market sectors.   Once that flow decreases and investors decide they want out once again it’s likely that prices will fall lower based on projected carryover numbers.  We need end-user-demand to increase in order to keep prices at profitable levels. 

China a huge consumer of U.S. grain is in trouble.  China has several economic issues pulling their economy lower. 

  • China collateralizes loans on copper and lately copper has been collapsing.
  • The Chinese poultry industry has lost $3.3 billion
  • The pork industry is way into the red
  • Crushers in China are losing $40/ton
  • China is cancelling 1 million metric tons of soybeans from South America and is trying to cancel another 1.5 million metric tons from there as well.

The “yellow flags” are up and Economists and Universities all across our nation are encouraging producers to sell 2 years ahead.  Economics cause convergence and eventually economics will win out, and based on experience we know that prices go down a lot faster than they go up.

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