This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Wednesday August 12, 2015.
August 12th 2015, the USDA put what could be a final dagger in the soybean bull market of 2006-2015. It was a fun ride, one that many folks in this country benefited from. Sure, there will be rallies as we go forward, but if the folks who count the crop are correct and consistent, in a few months we will have a carryout that is 5 times what it was two years ago and 2.5 times bigger than right now. I know, I’m being dramatic but it was that kind of day. (If you are wondering why I’m not burying corn, it’s because that bull died a year ago, but the report was equally bearish.)
The “miss” by the private guessers was massive. The thing is that the private’s had good points. I sat in a meeting yesterday with the guys from DT and I think all of us had a bullish twinge in our bellies when we walked out of there. The arguments for a yield cut by the USDA were substantial. Satellite data, crop tours, fly overs of every field in Big 10 country. It didn’t matter in the end because the USDA didn’t buy it. I’m kicking myself for being surprised because the crop progress numbers have been reminding us every week that things were ok.
Part of me wants to short the market here and walk away, but the crop isn’t done yet; and I wouldn’t put it past the USDA to adjust things down the road using their gorilla math formulas they are famous for. But if things stay constant and the weather appears to be decent going forward, the soybean curve will go to a carry for the first time in a long while and bean market is going out of vogue.
Now, I can argue somewhat against this.
- USDA world stocks numbers for beans were pretty bullish compared to where the guesses were, but I don’t know how accurate their South American guess is?
- Last year at this time, the USDA called for a 440 14/15 carryout. Were at 240 as of today. So the agency could adjust things down the road.
- Wheat acreage should fall quite a bit as were about 35% under the cost of production.
- Corn numbers are still below 1.8 billion where we stood last year. Any adjustments lower should keep prices off the longer term lows. Acreage will be needed to keep the carryout constant with demand constant.
Here the problem with all of that. Demand isn’t holding constant. I just cant believe soybean demand will rally for our product UNLESS South America doesn’t produce. So if you are a bull, that’s your wild card. Another problem (and here is where 0% interest rates are a negative) guys can produce at a loss longer. And at 4.00 Corn, 5.00 wheat and 7.50 beans (yes, that’s my target) we will produce at a loss.
That’s the bearish case which I think plays out over the short term. Could this be a bear trap? Possibly, but I think if you trade it that way you need to think longer term. The real problem is that for corn, there is a ton of OLD CROP product to move. For beans, exports are so far behind last year’s pace that another export cut should be expected.
Bottom line, the bears came out today just in time to bury the bulls before the harvest. Only Mother Nature can save them now.
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