Tag Archives: corn prices

Corn Market Analysis for Equities.com

Commercial corn traders have played this year’s market like the veteran traders they are. They collectively sold more than 370,000 contracts during planting season and have now come in as active buyers in the corn futures. recently repurchasing more than 120,000 contracts.

We discuss the impacts of the commercial corn traders via the CFTC’s Commitment of Traders report in this morning’s feature for Equities.com in , “Corn Market Finding Support.”

You can see other examples of our recently published analysis at COTSignals.com Recent Trades. You can also sign up for a FREE 30 day trial at COTSignals Signup and have our nightly worksheet delivered straight to your email.

commercial corn trader futures chart
Commercial corn users buying at value prices.

We also walked through the same scenario in the soybean market for TraderPlanet, yesterday in Global Food Dynamics Impact U.S. Grains: Soybeans at a Turning Point?

Historical Wheat vs Corn Spread Prices

Trading the grain markets has always been tricky, especially during the planting and harvesting periods. Historically, this has placed us at the agricultural epicenter for global grain trade. Obviously, tension in Ukraine and the corresponding 15% spike in wheat prices have reminded everyone that even the agricultural markets are now a global game. In this respect, it’s no longer enough to keep an eye on domestic weather patterns to determine the success of our winter crops or anticipate spring wheat seeding. Now, it is imperative to focus on global production issues and World Trade Organization (WTO) agreements, as well.

Continue reading Historical Wheat vs Corn Spread Prices

Higher Cattle Prices in 2013

The outlook for cattle prices in 2013 appears to be even higher than 2012 due to declining herd sizes and an increasingly favorable export climate. The US cattle herd has been in decline over the last few years. The drought of 2012 has led to the culling of more animals including non-productive dairy cows and heavier steers that have managed to avoid the feedlots. The addition of these animals into the production mix did three things. First, it increased the average weight of cattle coming to market. Secondly, the increasingly tight supplies already pushed the April live cattle futures contract above the 2012 highs. Finally, it has led to the smallest U.S. starting herd since 1952.

The USDA’s January cattle inventory report shows a total U.S. cattle herd of 89.3 million head. This is the smallest calf crop since 1949 and is the 18th consecutively smaller calf crop. Producers and finishers appear to be coming to the consensus that it’s better to have fewer animals at heavier weights than more animals at lighter weights. The University of Missouri points out that steer weights are up over 34lbs from last year and December marked the 49th consecutive week of heavier steers on a year over year basis. There is an argument within the industry as to the real reason behind the growing weights between those who say weights are increasing due to better animals being culled versus the addition of the beta-agonist, ractopamine.

Politically, 2013 will see a good boost in demand due to Japan’s relaxation of the ban on U.S. beef following the mad cow episode of late 2003. This year, Japan will allow U.S. imports of cattle up to 30 months old. This relaxes the 20-month age limit rule that effectively crushed U.S. exports to Japan. Prior to mad cow, Japan was the number one destination for U.S. beef exports. In fact, Japan imported more than 500,000 tons of American beef as recently as 2000 in contrast to 2012’s total imports estimate of just over 200,000 tons. Many agribusiness insiders see the relaxation of the age limit as Japan’s recognition of globally tight supplies for the foreseeable future.

We’ve addressed the certainty of a declining cattle supply in 2013 as well as sourcing added demand in this marketing year due to freer trade, that leads us to the primary variable of input costs. This brings us to the feed vs. ethanol battle over the 2013 corn crop. Some of the blend tax incentives for ethanol producers were allowed to expire in 2012. Ethanol producers are still bound to the Renewable Fuels Standards mandate that shows 2013 as the first time that the mandate’s target is set beyond the blend wall. This year, 13.8 billion gallons of our fuel supply is supposed to come from ethanol. However due to our primary blend of 10% ethanol, we are unlikely to produce the 13.8 billion gallons to meet the mandate target.

The Renewable Fuels Standards face an application dilemma that must be sorted out by the bureaucrats to put the fundamental factors of the ethanol market back into equilibrium. Currently, unblended ethanol is trading around $2.37 per gallon while wholesale gas prices are about $2.65. The disequilibrium comes into focus when we realize that ethanol is about 25% less efficient than gasoline and should therefore, trade at a corresponding discount. Using the example above, ethanol should be trading at $1.99 per gallon. Ethanol blenders will have to push for either reenacting the expired ethanol blending subsidies or, governmental clarification of E85 liability and warranty issues that will allow the expansion of the E85 delivery infrastructure.

Finally, the cattle market will keep its eyes focused clearly on the skies. The drought of 2012 was genuinely historic with many ranchers still feeling the pinch through the high price of hay this winter. The run-up in grain prices was brutal to cattle ranchers, as crop insurance provides no relief for livestock ranchers. Therefore, this may be the most important weather year that I’ve been witness to as a steady and useful supply of rain will be necessary for both grazing and growing feed crops. The National Oceanic and Atmospheric Administration (NOAA) expects 2013 to be a normal year however, several universities’ grain forecasting models are leaving room for exceptional volatility with average December corn (2013 crop) prices expected to finish around $5.75 per bushel but, quickly tailing out to more than $6.50 per bushel without factoring in the rising tide of any additional volatility.

Cattle farmers appear to be taking proactive steps to managing their businesses in 2013. The Commitment of Traders Report clearly shows commercial buying both in the grain markets and the cattle futures market itself. Commercial traders have bought more than 11,000 contracts of corn below the $6.50 per bushel level in the December contract. This is evidence of cattle producers attempting to lock in their feed costs for the coming year at anything near normal feed prices. We’ve also seen commercial traders nearly double their long position in the cattle futures as they guarantee their ability to make future delivery. U.S. Cattle ranchers locking forward production costs at these levels shows that they’re projecting their profit margins based on growing global demand rather than declining input costs. Given the miniscule herd numbers, we could see prices really skyrocket in 2013 if the weather is decent and ranchers can hold back animals to re-grow the herd size on forage, rather than feed.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

Hog Futures About Face

Trading is always a measured risk and best guess scenario. We use the tools and information we have access to in an attempt to predict future market direction and magnitude. This must be balanced against the risk and then the odds, along with the risk and reward scenario must be calculated to determine if the trade is worth taking. Every once in a great while multiple forces align themselves and make the task of calculating variables much easier. This is the current situation in the lean hog futures where fundamental, technical and seasonal factors have all combined to put a halt on this market’s rally and set the market up for a profitable short position based on declining hog prices over the next two weeks.Trades lasting more than a day or two require a proper assessment of the lay of the land. This means starting with the fundamentals. The greatest fundamental impacts on hog prices are the price of corn and Chinese demand. The high price of corn over the 2012 crop year did cause breeding sow numbers to decline. However the increase in hog prices due to Chinese demand was enough to allow farmers to hold on to breeding sows that in normal years would’ve been sent to liquidation. Research from Purdue University showed that, “increased lean hog prices combined with lower feed costs have translated into reduced losses of about $30 per head – about 40 percent coming from the lower feed prices and 60 percent from higher lean hog futures.”The equation of measuring herd sizes, slaughter rates and feed prices is better left to the professionals and universities. The end result of their analysis is their actions in the markets. Tracking their buying and selling as well as their magnitude provides a single variable that can be measured against price. This simplified equation of the degree of commercial trader buying or selling relative to the current market price can be tracked through the Commitment of Traders Reports published weekly by the Commodity Futures Trading Commission. Commercial traders have sold more than 20,000 hog futures contracts since the end of September. Clearly, the commercial traders see their market as currently over-valued.Seasonally, hogs are coming into their weakest period of the year. Hogs tend to slow down in the heat of summer. They feed less. They breed less and their prices tend to rise. Moore Research has shown that hog prices tend to decline dramatically during the first two weeks of December. This follows the end of summer and the expiration of consumer demand once the packers have stocked the stores for the Holidays. Moore Research has shown that hog prices have declined during the first two weeks of December in each of the last 15 years by an average of 4.15% for an average profit of $935 per contract. Their numbers provide an estimated target of 82.45 in the February lean hog futures while the average ending price provides an outside target of 60.00. Perhaps a weighted average is a better yardstick due to the structural change in the Chinese demand growth. This makes 74.50 a more likely outside target.Technically speaking, the hog market set itself up for a perfect reversal. The hog market has rallied nearly 15% since making the September lows and spent most of last week churning near the highs. Monday’s trade brought an outside bar along with a close in the bottom 10% of the day’s range. Psychologically, this meant that the market tried to move higher and couldn’t which resulted selling pressure as weak longs were flushed out of the market once it breached its lows from the previous week. The close in the bottom 10% of the range after an outside day is a textbook reversal pattern from the Larry Connors book, Street Smarts. Linda Raschke, a well-known trader specializing in quantitative analysis, developed this strategy. This forecasts lower prices ahead based on her work.The markets rarely provide traders with this many clues to future direction or opportunity. Frankly, traders with enough experience may simply consider this a very well baited trap. Therefore, risk controls must always be put in place. There’s no telling when a seasonal pattern may not hold true and there’s no point wasting years’ profits on stubbornness. Protective buy stops will be placed above the reversal bar’s high at 87.775. Profits will be taken at a minimum target of 82.45 the average decline or, December 18th, the end of the seasonal weakness.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

Sugar Based Ethanol Boost

Many markets, both commodities and equities declined substantially during the month of May. Two weeks ago, we mentioned that we were nearing fundamental value areas in certain markets. This week, we’ll make the case for a bottoming sugar market as well as its effect on the coming corn crop’s prices.

First, lets review the global ethanol market. The ethanol here in the U.S. is made from corn and the finished product is, “anhydrous ethanol.” Anhydrous ethanol is blended with gasoline. The end result is E85 at the pump. E85 is the maximum ethanol blend allowed. It consists of 85% ethanol and 15% gasoline. The typical ethanol blend here in the U.S. is up to 10% ethanol and 90% standard gasoline. The mixture of E15, which will boost ethanol content to 15% was just approved in 2010 for car models 2007 and newer.

The primary source of ethanol on the open market is made from sugar cane. Brazil is the world’s largest sugar producer and is responsible for about one third of global production. Brazil’s sugar cane derived ethanol is a much more efficient process both in terms of the finished ethanol and product cycle regeneration. Brazilian ethanol production also produces, “hydrous” ethanol. Hydrous ethanol is used in 100% ethanol fueled vehicles, which we see as E100 as well as any Flex-Fueled vehicle.

Ethanol production from sugar cane is much more efficient than production from corn. Ethanol production from sugar produces about 5,166 liters per acre while production from an acre of corn yields only 1,894 liters. The self-sufficient energy mandate that has been the guiding force here in the U.S. for the last 10 years or so has allocated nearly 35% of this year’s corn crop to the production of ethanol. So, why are we basing our future on such an unfeasible model? The answer lies in the government subsidies going to the farm and energy industries. This year marks the end of the $.45 per gallon ethanol subsidy as well as the end of the $.54 tariff we impose on ethanol imports. This combination fostered the proliferation of business entities whose primary profit center was the exploitation of a protected and subsidized market to the tune of $.99 per gallon.

Both of these policies expired at the end of 2012. The price swing of nearly $1 per gallon made U.S. subsidized ethanol inventories a bargain on the open market. Ironically, this led to Brazil being the number one importer of corn based, U.S. ethanol on the global market. Our subsidized production paid for by the taxpayers was sold at the discounted price to Brazil by the blending stations earning the tax credits.  It is important to note that further corn subsidies also exist here to the tune of $3.5 billion to corn farmers in the U.S. and $0 subsidies to U.S. sugar cane growers.

The loss of the ethanol subsidy combined with the remaining direct government subsidies for growing corn should shift total global production of ethanol from corn to sugar. The interesting point will be how many corn based ethanol plants here in the U.S. go the way of Solyndra as the poster children of a misdirected governmentally mandated and subsidized pipe dream. Meanwhile, excess sugar production over the current growing season should be digested, as it is shipped world wide for foodstuffs while Brazil works through their own domestic surplus. This shift will allow the largest corn crop ever planted to be diverted to traditional uses. Furthermore, we can track the huge imbalance in the sugar market between commercial trader and the small speculators through the Commitment of Traders Report. The net effect will be falling corn prices, perhaps under $5 per bushel and a sugar price base around $.185 per pound.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk of loss in investing in futures.

Following Up on Corn, Weekly Exports and the Dollar’s Devaluation

 

Corn continues to march to new highs, now trading around $4.80 per bushel. Much of what we’re seeing is demand driven. I was looking at corn sales for the marketing year ending September 1st and it validated much of what we’ve been discussing.

 

From the USDA website. China has imported 236,000 metric tons this marketing year. Over the last three years, their U.S. corn imports total 0. Yes, that is a 0.  While this is only 1.5% of our total exports, it must come as a surprise demand factor due their absence of imports in the past. Also of note, Taiwan imported 651,000 metric tons. This is up from 488,000 last year and 0 in the previous two years. Yet another upside surprise. Combine this with Japan’s 66% increase over last year and you have three Asian countries’ demand increasing from 166,000 tons in 2008 to 5,216,000 tons in 2010. This accounts for 1/3 of all exports and obviously represents a HUGE piece of the pricing mechanism. Weekly net exports are as high as they’ve been in the last 10 years.

Fundamental Analytics Weekly Net Sales chart is the 2nd, “Interesting Formation .”Full access to currenc and historical grain reports is available at USDAGrainReports.com

I apologize for the poor formatting. While I may be technically competent, I’m not always technically capable. CORN – UNMILLED                                     MARKETING YEAR 09/01 – 08/31   OUTSTANDING EXPORT SALES AND EXPORTS BY COUNTRY, REGION AND MARKETING YEAR1000 METRIC TONS       AS OF SEPTEMBER 2, 2010——————————————————————————–                      :      CURRENT MARKETING YEAR         :NEXT MARKETING YEAR                       ———————————————————                      :OUTSTANDING SALES:ACCUMULATED EXPORTS: OUTSTANDING SALES                        ———————————————————   DESTINATION        :THIS WEEK: YR AGO:THIS WEEK: YR AGO  :SECOND YR: THIRD YR——————————————————————————–                      :EUROPEAN UNION – 27   :     1.0      0.3       0.0      0.0        0.0       0.0   SPAIN              :     1.0      0.1       0.0      0.0        0.0       0.0   U KING             :       *      0.2       0.0      0.0        0.0       0.0                      :JAPAN                 :  4329.5   2595.1     166.6     88.9        0.0       0.0                      :TAIWAN                :   651.4    487.9       0.0      4.3        0.0       0.0                      :CHINA                 :   236.0      0.0         *      0.0        0.0       0.0                      :OTHER ASIA AND OCEANIA:  1214.5   1696.4      57.3    117.9        0.0       0.0   HG KONG            :     1.3      1.5       0.0      0.0        0.0       0.0   INDNSIA            :     0.0      1.4       0.0      0.0        0.0       0.0   ISRAEL             :   226.0      0.0       0.0      0.0        0.0       0.0   KOR REP            :   832.1   1633.3      57.3     57.8        0.0       0.0   MALAYSA            :     3.3      3.0       0.0      0.2        0.0       0.0   OPAC IS            :     0.0      1.6       0.0      0.0        0.0       0.0   PHIL               :     0.5      0.0       0.0      0.0        0.0    &
nbsp;  0.0   SYRIA              :   151.0     50.0       0.0     60.0        0.0       0.0   VIETNAM            :     0.3      5.6       0.0      0.0        0.0       0.0                      :AFRICA                :  1144.5    557.7       0.0    174.6        0.0       0.0   ALGERIA            :     0.0      0.0       0.0     26.5        0.0       0.0   EGYPT              :  1090.0    487.8       0.0    130.1        0.0       0.0   MOROCCO            :    29.5     49.9       0.0     18.0        0.0       0.0   TUNISIA            :    25.0     20.0       0.0      0.0        0.0       0.0                      :WESTERN HEMISPHERE    :  3739.0   4112.2      61.9    151.2        4.6       0.0   BARBADO            :     3.2      6.1       0.0      0.0        0.0       0.0   C RICA             :   129.4     71.3       0.0      0.0        0.0       0.0   CANADA             :    90.2    251.3       6.7     22.1        0.0       0.0   COLOMB             :   295.5    582.3       0.0      0.0        0.0       0.0   CUBA               :    75.0    200.0       0.0      0.0        0.0       0.0   DOM REP            :   243.1    196.8       0.0      0.0        0.0       0.0   ECUADOR            :     0.0     45.0       0.0      0.0        0.0       0.0   F W IND            :    19.5     17.1       0.0      0.0        0.0       0.0   GUATMAL            :   248.8    394.9       0.0      0.0        0.0       0.0   HONDURA            :    82.1     96.7       3.5      0.0        0.0       0.0   JAMAICA            :    64.8     57.6       1.5      0.0        0.0       0.0   LW WW I            :     0.5      1.8       0.0      0.0        0.0       0.0   MEXICO             :  2283.0   1822.9      30.2     80.1        4.6       0.0   NICARAG            :    11.6      8.7       0.0      0.0        0.0       0.0   PANAMA             :   103.7     99.0       0.0      0.0        0.0       0.0   PERU               :    36.5    217.5       0.0     23.5        0.0       0.0   TRINID             :    24.0     15.0       0.0      0.0        0.0       0.0   VENEZ              :    28.2     28.2      20.0     25.5        0.0       0.0——————————————————————————–TOTAL KNOWN           : 11315.9   9449.6     285.8    5
37.0        4.6       0.0TOTAL UNKNOWN         :  3786.6   2681.9       0.0      0.0       50.8       0.0——————————————————————————–TOTAL KNOWN & UNKNOWN : 15102.5  12131.4     285.8    537.0       55.4       0.0EXPORTS FOR OWN ACCT  :      –        –       21.9     34.3         –         – OPTIONAL ORIGIN       :   141.8    127.1        –        –         0.0       0.0——————————————————————————–

 

These export figures also fall right inline with the Dollar’s declining value. The Yen hit a 15 year high against the Dollar last week and the Chinese Yuan continues to appreciate, in spite of their officially pegged boundaries to the greenback. We also saw the Dollar depreciating against several African currencies, including the Egyptian Pound.

 

Further examination of the table reveals little in the way of exports to the Euro zone, with Spain and United Kingdom being the only two countries to make the list. Obviously they have an added advantage in being able to grow their own crops but, with the severe weather problems they’ve had this summer and the impact on their crops, one would think we might see an uptick in exports to this area.

 

I read an interesting article this weekend detailing the competitive devaluation race between Euro zone, United Kingdom and the United States. The current political plans are similar among all three. All three must devalue their currency in order to make their exports more competitive and force increased domestic consumption upon their people. This is the only way they can grow their way out of their recessions while keeping domestic inflation in check. However, at the same time they are printing money to devalue, they are forcing the individual savings rate to increase (the U.S. has gone from 0 savings to 6% in the last year), this also reduces domestic demand, stifles small business and lowers taxable receipts. Keeping this in mind, it becomes a race to see who can implement the process the most efficiently and beat the other faltering countries to the end game of sustainable growth and manageable debt.

This blog is published by Andy Waldock. Andy Waldock is a trader, analyst, broker and asset manager. Therefore, Andy Waldock may have positions for himself, his family, or, his clients in any market discussed. The blog is meant for educational purposes and to develop a dialogue among those with an interest in the commodity markets. The commodity markets employ a high degree of leverage and may not be suitable for all investors. There is substantial risk in investing in futures.

 

Lost in the Confusion

Lost in the Confusion

 

Amid the roar of the financial chaos and their ability to affect,
seemingly every market, one sector has been quietly building a base and should
be renewing buying interest. Remember back in late May and June during the
wettest spring ever when the concerns of crop planting were making the local
news? The ensuing run up in grain prices soon had everyone beating the drum of ethanol’s
demand on corn prices and the cost of bread, chips and cereal.

Since the grain markets peaked in July, many of them have
sold off considerably. Soybeans have fallen from an all time high of $16.47
down to $11.00 per bushel. Corn and wheat are also off 30 – 35%. The main
reasons for this sell off has been the exceptional growing conditions helping to
make up for the wet spring as well as the typical seasonal pattern the grain
markets have of selling off once the crop has been planted. Further pressure
was added this summer by the rise in the U.S Dollar and the global demand
reduction associated with increasing purchase costs as a result of the exchange
rate.

Soybeans and wheat continued to decline this past week amid
the global uncertainty of the financial markets and a general flight from
derivative based investment. However, corn made its low of $5.00 per bushel
more than a month ago. Also, the corn market failed to make new lows amid the
financial panic. Technically, corn need only close above $5.67 to setup a
genuinely bullish breakout of a double bottom.

Fundamentally, while the corn crop has grown well, the late
planting has had an effect on the maturation process of the crop. The saying
being floated by the corn pundits is, “Looks good from the road but not in the
field.” This year’s crop will be especially vulnerable to an early frost or
cool late summer as the late planting is affecting the finishing of the crop.
Lastly, and most importantly, the global corn crop began this year at one of
the tightest stocks to usage ratio on record. Basically, this means that there
was less of the previous year’s corn crop still available in the pipeline at
the beginning of this year’s planting season.

It appears in the USDA grain reports that given the acreage planted, the projected
yield and demand for this year’s crop will do little to ease this issue. While
we move to global “on demand inventory,” it’s important to know that commodity futures
supplies are static. Government’s can print money. Stock exchanges can forbid
short selling and banks can be bailed out. However, neither the U.S. Federal
Reserve nor the European or English Central Banks can create more corn. Those
who have been losing sleep over the next financial market, “Breaking News
Bulletin,” may wish to consider something more grounded.

 

Andy
Waldock

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