Blogging by the Bushel
With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results.

Archive for November, 2010

Thanksgiving is a time for family and friends to gather around the table and to not only feast but to reflect on the many and sometimes forgotten blessings in our everyday lives. We all have memories attached to the upcoming holiday whether it is dad or grandpa carving the turkey, grandma’s homemade pumpkin pie or throwing the football around in the backyard. Yum, I can almost smell the food now as I am typing.  Now I don’t know the exact number but if I had to put a number on it, I would say 85-90% of American families celebrate this great holiday. With family members stressing over the dinner preparation and individuals battling holiday traffic to reach the target destination, it is easy in this fast pace world to forget the meaning of this holiday.

Personally, I know I am just as guilty as anyone else of doing this. I usually focus more on black Friday shopping, but we will save that for some other time. When I really sit down and look at everything I have been blessed with the one thing I am most thankful for is being able to say that God and my family have instilled in me the ability, passion and knowledge to turn his natural resources into the food and products that feed and clothe this nation.

As a farmer’s daughter, soon to be farm wife and elevator employee, it is easy for me to associate the food at my table with the farm families who worked hard to ensure that it would be there. That does not go without saying though that sometimes I like many lose sight of this fact and that is why I love Thanksgiving because everything comes back full circle. With all this being said, this holiday season, as you begin to count your blessings, I ask you to thank the American farmer and the hands that grow your food every day and to remember that you must give thanks before asking for more.

Anna Jacob
Mercer Landmark

     China’s policy response to internal inflation set the tone for virtually every commodity market this week. China’s inflation rate reached 4.4% in October, creating this week’s scrambling by Chinese officials to try to come up with steps to combat inflation. Further interest rate increases are probably in China’s future, but no increase was made this week. Instead, government officials talked up a combination of threatened price caps and a crackdown on speculators early in the week, followed by an increase in bank reserve requirements on Friday. This combination of “jawboning” markets and monetary tightening weighed heavily on commodities. Crude oil was down 4% for the week, despite a sizable 7.3 million barrel draw on the weekly inventory report. The U.S. dollar got a boost early in the week as Ireland and the EU attempted to hammer out a bailout plan for Irish banks. There was ultimately some agreement between the parties taking the pressure off the euro later in the week, but the U.S. dollar index was still up 0.5% for the week. The S&P 500 finished just slightly lower for the week despite an early-week dip. China’s Shanghai stock market was down 3.25% for the week.

     Corn had another volatile week, although the weekly range of 58 cents was actually less than the previous week’s 71 cent range. The December contract was down 13.25 cents for the week. The main concerns for the market fundamentally are the expiration of the ethanol blender’s tax credit at the end of the year, and the loss of export potential to China if it slows its economy dramatically.
With their more direct link to China, soybeans were down more on a percentage basis than corn this week. The January contract was down 61.5 cents on the week. Current demand continues to clip along at a solid pace despite the economic worries. Weekly export sales topped 1 mmt again this week, and the NOPA crush for October was a strong 151.9 mb. Market focus on the underlying balance sheet is limited by the fact that only minimal updates are due until next year.

     Minneapolis and Kansas City wheat contracts performed very similarly to corn on a percentage basis this week, losing 2.5% and 2.8%, respectively. Chicago wheat lost ground against the other wheats, closing down 3.6%. There are a couple of weather stories getting some minor attention: the dryness in the U.S. HRW area and wetness at harvest time in eastern Australia.

The information contained in this document is taken from sources which we believe to be reliable, but is not guaranteed by us as to accuracy or completeness and is sent to you for information purposes only. There is a risk of loss when trading commodity futures and options. Country Hedging, Inc. bases its recommendations solely on the judgment of Country Hedging, Inc. personnel.

 

“Turnaround Tuesday” that is what happened today after the market posted strong gains on Monday.  The huge gains on Monday came about because a rumor hit the market that China was going to purchase a large amount of corn, in the ball park of 6-8 million metric tons. If it actually happened this would be China’s single largest corn import total in modern history. You would have to go back to 1995-1996 crop year when the Chinese imported a total of 4 million metric tons to be anywhere close.

With all this being said, it has some wondering if the Chinese demand will continue to drive the grain markets and if so for how long? China is entering a “new era” of corn buying. The world’s most populous country may import as much as 15 million tons of corn in 2015, according to the U.S. Grains Council. China has historically been self-sufficient in corn production, but demand is starting to outpace supply as the nation continues to consume more protein. 15 million tons of corn translates to the U.S. exporting roughly 600 million bushels of corn, which will have a substantial impact on corn stocks.

Even though the demand shows no sign of slowing down, we need to focus on more than just the Chinese demand. The talk that China will soon raise interest rates to slow its economy hammered grains on Friday and did so again today. The concern with this is that higher interest rates in China would limit the lines of credit and slow demand for commodities. The U.S. dollar will also continue to be key in determining how speculative money flows into commodities. On Friday the U.S. dollar hit its highest level since October 5th.  The long and short of it is that Chinese demand for corn is obviously strong and domestic supplies are tight and the recent break in prices has presented them with a buying opportunity but any action that is felt in the Chinese market will make or break our markets in the upcoming weeks and months.

Anna Jacob

Mercer Landmark

What we are looking at here seems to be the beginning of what’s known to technical traders as an “island top” or “island reversal” a very powerful formation.  So, you may ask, “What is and island top formation”?  Island tops occur after an extended rally, the commodity “gaps” higher, that is, it proceeds to open outside of the most recent trading range.  After trading in the new higher range for several sessions, a second gap occurs only this time the move is lower.  

Today corn broke a strong support level at $5.44, it continued downward into the gap that was left untraded after last month’s crop report. Synthetically we were trading at $5.34 (because of trade limits) with support seen at $5.28, which is the bottom of the gap mentioned above. Speculators’ began liquidation of their positions as well.

                There are many big players in the market this week but I think we can sum them all up in one word: China.  Earlier in the week China stated that the reserve ratio would be increased by 0.50 points for all banks. The market reaction was a pull back, since this action would tighten money and as a result could presumably curtail demand. The next event came when China’s October inflation rate increased to a 25-month high of 4.4%. This drew speculation that their government would take further steps to curb inflation and raise the reserve requirement yet again. The November USDA report did as expected and lowered the corn yield for this year to 154.3 BPA. This cut production by 124 million bushels to 12.54 billion bushels. Category changes showed a 100 million bushel decline in feed/residual, an increase in ethanol use by the same amount, and a cut in exports of 50 million bushels. Ending stocks of only 827 million bushels was enough to spark a sharp rally, but surprisingly it did not hold and corn closed lower on report day.

What’s it all mean for me Phil?

                For me it means keeping a close eye on not only the supply and demand, yield and acres numbers, but also on our ever changing world economy. In a world that moves this fast, afternoon naps can become very expensive.

If you have any questions or concerns please leave a comment or email or call me anytime.

Philip Rolsten, Grain Merchandiser

(419) 203-6415 Cell – phil@mercerlandmark.com

“Coming together is a beginning. Keeping together is progress. Working together is success.”
Henry Ford

Anna Jacob, Mercer Landmark

After the USDA report was released this past Tuesday the 9th, there seemed to be a common re occurring theme among farmers and market analysts alike. No, it wasn’t that the USDA cut both the corn and bean crops yet again or that ending stocks are the tightest we have seen in a long time but the feeling of “I don’t know what to do next and when is the market going to top out”. Yes, I will admit that for the past two months or more, I have advised farmers to make forward cash sales for new crop and haven’t always been on the bullish band wagon and some of you followed the advice while others held their ground and rode the storm out. Now those producers who made the forward sales are nauseated every time they pull up their DTN or Mercerlandmark.com and see the board moving in leaps and bounds upward.

If I said it once, I will say it again, PLEASE DO NOT BEAT YOURSELF UP! Just because you sold before the big rally this does not make you a poor marketer. No one expected the USDA to shock the market with the October crop report numbers like it did. Never lose sight of the fact that you made those sales for a reason. More than likely it was because you had locked in some of your input cost, i.e. fertilizer/seed and knew that at that level you could make money or because you saw $10 plus beans and told yourself you could remember more years of selling $6.00 or $8.00 beans right out of the field than $10. We also cannot ignore that fact that that this year is abnormal. In three of the past four years, grain prices rallied during harvest, the opposite of what normally happens. In the one year they didn’t rally, 2008, prices were at record highs before dropping like a rock. This year could be setting itself to be another 2008.

Now, I don’t know if that is going to happen or when for that matter, but the point is no one knows when the market is going to top out. All we do know is that we can no longer talk about “what normally happens” without conviction because normal has all but gone out the window with the recent volatility. Always remember feeling uncertain isn’t always bad because if you are feeling uncertain, it’s simply because nothing is certain. Rather than allowing yourself to continue being caught up in the past, make sure you continue to plan ahead for what you will do if and when this market changes because we are in for a wild ride.

With numerous challenges over the past several years for producers, we at Mercer Landmark understand the need for a comprehensive risk management solution. We seek to provide our customers with unparalleled service to ensure maximum results. That being said, we are starting a new blog to provide our customers with even more resources and new insights into grain marketing. Please check back often for new posts and we would welcome your responses and comments!
Thanks!
- The Mercer Landmark Grain Team