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 September, 2011

This chart and information were emailed to me the other day from Allen Douglass of FC Stone. I found both very interesting and worth sharing. Thanks Allen.

Anna Kaverman- Mercer Landmark

Interesting to look back at the December corn chart, and see the correlation…

December Corn Chart:  Déjà vu all over again – as Yogi Berra would have said.  Looking back at this market – to its roots after the 6/30/2010 USDA reports. .  Each of the big move, with the exception of last year’s November massacre, have bottomed in relative proximity to Quarterly Stocks data (or quarter end?).  Thus far, each time the market has recovered – and driven to new high levels.  One of these days, the break will be for good, and the resulting liquidation will be far more severe than any of us will contend today.

Anna Kaverman – Mercer Landmark

Earlier this week the market started to show signs of strength but in the past few days the gains have all but been erased. This tells me that I wouldn’t take your seatbelt off just yet.  I have to believe this wild ride is still far from over.

Just in the past week, the funds have liquidated close to 50,000 corn contracts and over 60,000 soybean contracts, and they now sit massively short CBOT wheat (largest short position since the early summer of 2010). Rest assured, there is certainly blood in the water and the sharks are still swarming. I read a fact the other day in an article that just astounded me. It said that traders holding just 10 long silver contracts in the past five trading sessions have lost a half million U.S. dollars! If they lost that much while being long just 10 contracts, just think for a minute about what has happened to the large diversified funds that are holding long positions in silver, gold, copper, crude oil, corn, soybeans, coffee, sugar, etc. To say the least, they have gotten their bell rung in a knock down drag out fight.

Soybeans have definitely taken it on the chin as of late.  Soybeans have now broke more than $2.00 from their August high of $14.65 which was put in on the last day of August. On September 28th, November soybean futures closed at $12.23 ½. The sharp decline reflects the continuation of poor economic performance and concerns about financial conditions in Europe and the United States and a decrease in exports. The key moving forward will be just how many cargoes of soy end up being sourced from the U.S. versus South America. The next six months will certainly tell the tale. If you look at last year’s numbers, you can see that of the 21 million tons of soybeans China imported during the fall and winter months, only about 2 million tons came from Brazil. Hopefully that trend continues, but I assume a lot will depend on “quality” and “currency.”

As for corn, the “tech” traders seem to have their eye set on the $6.15 to $6.20 area. With Friday’s September 30th stocks report looming they may find the momentum this week to make it happen. For this reason, a lot of traders are on the sidelines. The risk of a “domino type” effect taking place if Greece were to default has simply become too much for most to handle. To stabilize the market some type of resolution or longer-term game plan has to be proposed and accepted before the funds start adding more risk.  The USDA September 30th stocks and crop production forecasts and more importantly the October 12th updated production report will put the grain fundamentals back in the forefront of trade.

I was recently asked, “When should we sell our grain?” by a group of farmers at a plot day. I came across this article from Purdue University that has some insights on what to look for this coming year. I always maintain the mindset that the decision  to store grain should be based on EXPECTED RETURNS rather than on CAPACITY TO STORE. Please read the article and I would welcome any comments. As always if you have any questions or comments please feel free to contact me at anytime.

Philip Rolsten – Grain Merchandiser – Country Hedging Broker
Office: (419) 749-2289  – Email: Phil@mercerlandmark.com
 

Caution Flag Raised For On-Farm Storage

The old saying regarding on-farm grain storage goes something like this: “bins pay dividends.” This year, however, may be the one year in many that bucks conventional wisdom, according to Matt Roberts, Ohio State University Extension agricultural economist.

“The question is, ‘How much of a premium storage will pay this year?’” says Roberts, an associate professor in the department of agricultural, environmental and development economics in the College of Food, Agricultural and Environmental Sciences. “A lot of farmers will look at last year and see big gains to storage and think those type of opportunities will be on tap this year, but I think that is much less likely to be the case.”

One of the biggest reasons Roberts is more skeptical about storage premiums this year is a significant potential for over-rationing, especially of corn, given the lateness of the crop.

With weather playing a significant factor in how quickly farmers were able to plant corn and soybeans across the Corn Belt, particularly in the eastern Corn Belt, corn is several weeks behind a normal pace of development.

In Ohio, for example, the USDA reported this week that only 56% of corn was at the dent stage, compared to 89% last year and 79% for the five-year average. Likewise, only 6% of corn was rated mature across the Buckeye state, compared to 46% last year and 20% for the five-year average.

“In years like this with lots of uncertainty, we see lots of planned rationing, or what you might consider defensive rationing,” Roberts says. “Then, when we know how big the harvest actually is, if there is a lot more grain than people planned, prices really soften.”

USDA trimmed its production estimates for corn slightly in the September crop production estimates released Monday, to 12.9 billion bushels. While that estimate is down from the beginning of the season, the department reports the crop could still be 4% larger than last year. Even so, Roberts says the corn market is extremely tight.

He notes that because of the late maturity of the crop, market watchers may not have a completely accurate idea of the scope of the crop even by the October USDA production estimates, when the department will fully incorporate Farm Service Agency acreage data.

With that uncertainty in mind, Roberts’ recommendation to farmers is to get a futures price locked in when opportunities present themselves in the day-to-day volatility of the market.

“I think we’ll see a lot more corn moving from the farm in January and February, so watch the carries,” he says. “If we see December corn futures above $7.80 before harvest, that’s a good opportunity to sell. I think most have done a lot of selling already, so now it’s time to sit back and watch the spreads to figure out storage. I’d be very leery of how much I’m going to store this year.”

**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. and Mercer Landmark, Inc. bases its recommendations solely on the judgment of their personnel.**

Anna Kaverman: Mercer Landmark

A clumsy keystroke

Some survivors are convinced that someone else died in their place. United Airlines flight attendant Elise O’Kane had wanted to work her usual trip from Boston to Los Angeles that month.  But in August, when scheduling her flights for September on the airline’s computer system, she accidentally inverted two code numbers and wound up with the wrong schedule. She managed to trade flights with other attendants for all her trips — except for Flight 175 on 9/11.

So the night before, she logged into the computer system again and tried to request that flight. The system froze. By the time it finally processed her request, it was one minute past the airline’s deadline for such changes. Her request for Flight 175 was denied. She would have to fly to Denver instead of Los Angeles. “I was not happy that I was not on that flight,” O’Kane said. “I was driving to work steamed.” On the shuttle ride from the employee parking lot to Logan International Airport Tuesday morning, she sat near a cheerful reserve flight attendant, Robert Fangman. The 33-year-old was gushing about being called into the California flight and having a Bloody Mary at a Los Angeles beach spot. “I’m just so excited,” he said. “This is a great trip.” “I can’t believe you got it,” she replied. “I tried to trade into that last night.” Seeing his youthful exuberance, some of her anger faded as she told herself, “Just humble yourself and let him enjoy the trip.” They chatted briefly.

Her Denver-bound plane left Logan between American Airlines Flight 11, which crashed into the World Trade Center’s North Tower, and United’s Flight 175, which struck the South Tower. Fangman, as well as O’Kane’s colleagues on her usual flight, were killed.

September 11, 2001: 10 years later

In September 2001, the United States could look back on almost 20 years of national success. It had triumphed in the Cold War and launched an Internet revolution. From 1983 through 2001, the United States had enjoyed a surge of prosperity punctuated only by the two briefest and shallowest recessions in modern history. Flash forward a decade, and the mood has thickened into gloom. Almost 80% of Americans express themselves “dissatisfied” with the nation’s political system, 45% “very dissatisfied.” Barely one-quarter of Americans express confidence in the national government to cope with the country’s problems.

Even with all this being said to look back on that day is to see a country in shock, a country in fear, a country in grief. If the story of the United States has a theme so far in the 21st century, it is surely one of resilience. To hail that spirit on the 10th anniversary of September 11, 2001, I wanted to take a break today from talking about the upcoming USDA report and impending harvest and ask each of you in words of Allan Jackson, “Where were you when the world stopped turning that September day?”

In the four and a half years that I have known my husband and the almost 10 months we have been married, I realized the other day that I had never asked him this question. So as we were watching a special on the History Channel last week I asked him. Not surprisingly he remembered exactly where he was, as do I. He was a sophomore in high school English class at Delphos St. Johns. He even remembered the teacher. I was a senior at Fairview High School in study hall in Mr. Hoelscher’s vocational agriculture shop. I remember two of my classmates coming in and saying that an airplane had just hit the world trade centers. At that point we turned on the news to see what was happening. It was extremely surreal. Something that you never thought would have ever happened in your lifetime. I don’t remember what happened after that, but I do remember going home that night to my family and thinking how lucky I was. We watched the coverage on television that night and before I went to bed I said a prayer for all those whose lives were either un-accounted for or lost.

For my parents they didn’t have to explain what happened on September 11th because we understood. However, I often wonder what about those whose children were not born yet or old enough at the time to understand. A parent has a responsibility to protect their children. Protect them from getting sick. From the monsters in their closet, from the big noisy dog next door. But try as they may, the one thing they will not be able to protect them from much longer is the reality of the world in which we live. The history books were forever changed that day and the goal should be to never hide the truth. Instead this year will provide an opportunity for some to educate their children, grand children and even great grand children alike and be the first ones to tell them about 9/11.

Making conversation about the worst tragedy in American history will not be easy. Once they start asking questions about what happened, who knows where the conversation will go. How do you even begin to explain to a 9-year-old what a terrorist is? That there are people out there willing to kill you just because you don’t think the way they do or believe what they believe. And once you explain that, how do you explain that this does not reflect the beliefs of all of the people in the countries where those bad people came from?

The reality is to this day, even I still ask “Why?” We may not have all the answers to the questions and probably never will. The one thing we can share with them and future generations is the great sense of American pride that this country has and that we will never forget where we were when the world stopped turning on September 11, 2001.

Anna Kaverman – Mercer Landmark

Producers and analysts alike will be watching the USDA’s September 12th crop report to see whether any surprises send the corn market limit up or down for the first time since the limits were expanded.  For those who did not know the daily limits for corn futures and options on the CBOT rose from 30 cents to 40 cents back on August 22nd.

Before the change was agreed upon some speculators, analysts and hedgers alike were all concerned that the expanded limits would increase volatility in an already volatile market and increase margin account requirements. David Lehman, managing director of commodity research and product development for the CME Group, however, argued that increasing the daily trading limit would actually reduce the number of limit moves in corn, thus decreasing volatility.

What did happen on August 22nd and during the first two weeks of trading? Amazingly enough volatility appeared to have decreased. In fact, the December 2011 corn futures contract neither increased nor decreased by even the old 30 cent limit. The closest it came was on September 1, when it settled down 22 cents at $7.44 ¾. All other daily settlements have been smaller, both on the downside and the upside.

What does this all have to do with the September 12th crop report? Next Monday and Tuesday will be critical in term of volatility and whether the expanded limits come into play because corn yield estimates are coming in all over the map and most are lower than the August USDA estimate of 153 bushel per acre.

On September 6th Allendale released its updated yield estimate and they pegged the national corn yield at 147.7. This was down five bushel from the firm’s August estimate of 152.7. FCStone’s Sept. 1 estimate for the U.S. corn yield was even lower than Allendale’s at 146.3 bu. /acre, down nearly 6 bu. from the firm’s August estimate of 153.2 bu. /acre. The firm’s corn production number was also subsequently cut to 12.35 billion bushels, which is 564 million bushels below USDA’s latest production estimate. Informa’s latest average U.S. corn yield estimate of 159 bu. /acre, released Sept. 6, was higher than both Allendale’s and FCStone’s estimates, but still dramatically lower than its August estimate of 158 bu./acre.

With all this being said large price swings for a day or two after Monday’s USDA report may not be UN expected. However, the 40 cent limit probably will not be traded. Forty cents is a pretty big move and we would need to see a major revision in the USDA number for prices to move limit up or down. The market is already trading an average corn yield of less than 150 bushel per acre. To see limit up the USDA would have to come out with an average yield of less than 146 bpa. or more than 152. At any rate hold on tight and stay tuned because as we have seen in the past anything can happen once the USDA releases a report.