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| Why are we here? (bull market)
The wheat bull began very quietly two years ago, with evidence of increased world wheat consumption in 7 of the previous 10 years.
Weather problems last year in Australia. Short crop.
Too wet in Malaysia. Palm Oil became the hot item.
Chinese demand. No corn exports out of China & have to rebuild livestock herds.
High protein wheat is in a critical supply situation.
USA Crop Acres:
1945:
Cropped acres 363 m
Idle crop acres 40
Crop/Pasture 47 (classified by USDA as non-forested)
Total 451
1969:
Cropped Acres 333 m
Idle crop acres 51
Crop/Pasture 88
Total 472
1974:
Cropped acres 361
Idle crop acres 21
Crop/Pasture 83
Total 465
2002:
Cropped acres 340
Idle crop acres 40
Crop/Pasture 62
Total-442
2007- 249 in principal crops-feedgrains 108, wheat 60.5, Rice 2.7, Oil seeds 78.1. Hay land swings between 60 to 68 m acres. Anticipated 23.5 in CRP in 2008.
Wheat. There will be a scramble as harvests approach for vendors to buy high protein wheat & in order to rebuild stocks.
The soybean market is being driven by three factors, soy oil demand-which is difficult to ration & concern about 2008 acres & Chinese demand.
My view. We are buying acreage. We are buying it world wide. I believe in the USA, we may be surprised at the total acres & it will be the mix which is bullish or bearish.
The risk is then weather in all crop areas as many of these acres may be marginal & the weather & double cropping.
March 31 will reveal stocks report and acreage intentions.
Our corn carryout this August will be approximately the same as one year ago, or slightly higher. The predominant concern in corn is the potential to carry us through 2009 without further draw down?
There is a trade-off between DDGS & meal & corn. The more ethanol which is produced, the larger the production of DDGS.
And as a speculator, is why I like the long new crop corn versus short new crop wheat, except I want to wait to put on the short wheat leg of the spread.
At this time, fundamental analysis means little as it is obvious the markets are not yet at a price to ration usage.
Systems don’t mean much as most systems reflect a constant overbought profile in bull markets.
It is the simple price line to watch.
Price dictates the fundamentals. High prices buy production & sellers are more selective. Prices start down, sellers will become more aggressive and buyers will be selective.
There has been a NORMAL but PREDICTABLE CHANGE IN ATTITUDES THE PAST FOUR MONTHS. With good prices last fall, producers sold. As prices moved even higher, there was a “Can this be? These prices cannot last!” attitude & a lot of normal regret for making earlier sales. This transcended into the realization a higher price level is here, but how long will it last?
The recent activity in the wheat market has been the clincher. Producers now seem convinced. This last phase can be deadly & a need to be alert.
Last week, this market should have corrected more to the downside. It did not. It left another bunch of upside break-away gaps. In addition, the outside influences of crude oil, metals and the equity markets were of little to no help.
Options expire next Friday, so I still do not rule out a set back. Except, at this current time, as speculation, all good set backs should be bought.
Some Facts:
Chinese demand will persist.
Fertilizer demand will persist.
Wheat inventories will be re-built.
Weather is critical.
Sharp breaks in price will uncover demand.
When vegetable oils top, the crush will be supported by meal, that may be a different horse.
The acreage report and stocks report will CONFIRM OR REFUTE our rate of usage and WILL PROVIDE CLUES AS TO WHAT SORT OF ACREAGE BATTLE WE CAN ANTICIPATE ONE YEAR FROM NOW.
If we don’t get sufficient corn acres: We are going to liquidate some cows.
We are now liquidating a few sows.
We are now liquidating a few dairy cows.
If the producer is bullish & if these investment funds pile into these markets prior to the acreage report the markets might give us this price signal before the report.
Regardless, we are going to see continued volatility.
I have traded grain markets in one venue or another for 48 years. I have listened to a “return of the dust bowl” every few years. I have gone thru wild inflation, deflation cycles, two oil price high periods prior to the current bull & when this “magic price” is finally achieved, things may change fast for awhile- pending weather.
Additionally, these bull markets have some age & the volatility could be “edge of the seat” type.
In my opinion, we are in an atmosphere when marketing should not be “considered on the cheap.” Most options are a waste of money.
Writing calls should be considered, selling puts &/or buying puts at the high price levels & several months out so you have plenty of time to trade out of them if desired and pick up some gain as the premiums erode.
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Acres & Stuff
