This is a sample entry from John Payne’s newsletter, This Week in Grain, published on Monday, July 14, 2014.
Welcome to this week in grain, for the week of July 14th-July 18th. For the first time in a while, we have little in the way of USDA data on both the Livestock and Grain side for this week. Sure, we have our normal crop progress and export number releases, and we get a monthly NOPA crush report on Tuesday, but outside of that we are back to a more normal schedule for this week. What does normal mean for this time of year? In my opinion, normal means weather watching, cash market observing and keeping eyes on those short term technical trends in the markets. With so much positive yield and supply data priced in for grains and the opposite for livestock, do the trends continue without added news flow? That is the theme of the week. I’ll be watching for bottoming and toppy type of action in all of these markets as each of them are trading outside of what most would consider normal distribution graphs for the last few weeks.
Now that the USDA and grain news looks to slow, the macro side of the coin will look to pick up some steam. This week, especially Tuesday and Wednesday will be very influential on currencies and we could see some spillover into the grain trade. The majority of the news will come from central bank speeches, as the European central bank releases a statement this afternoon, Japan Central bankers speak late this evening, and Janet Yellen testifies in front of congress Wednesday. Chinese GDP and industrial production numbers are Tuesday night, followed by a string of US data to end the week. The Chinese data numbers are key in my opinion as always, as is the testimony by Chairwoman Yellen. Right now, the big club that the bulls are carrying in their back holster is the fact we are still after 5 years at 0% interest rates. This is a factor that cannot be understated.
Outside of data, keeping eyes on the weather will be a priority. This week we expect very, very cool temps across much of the growing region, combined with more moisture. While “rain makes grain”, it only works until a certain point. There will be a time when we will be wishing the rain to stop. This will be later in August, but those forecasts will begin to creep out as long term weather guessers begin to try to peg weather for drying and harvest time.
AUGUST WEATHER MODEL RUNS via NOAA
THE USDA TABLE – Chart of the week
Here is the latest USDA corn data for this week. I’ll be out with an updated bean table later, but I don’t want people to get confused by either chart. Understanding this is paramount to being able to understand the grains markets from a fundamental standpoint. The boxes in white are last year/baseline for this year. The green shaded boxes represent the USDA’s current outlook, as of Friday, using a 165.3 yield. The yellow shaded boxes show you how the balance sheet would look if you were to raise or lower the yield. I think realistically, you can assume a 167 to 170. To get above that is a bit of a stretch at this point in the year. The red boxes represent the 2015 crop and this is where I want your focus for today.
To keep prices down and supplies high, one needs to assume that we continually out produce demand year over year. For that to happen, corn producers need to be making money where prices are headed. Since many claim they are in the red now, I don’t believe we will see the same amount of acreage as we did the last few years. Without delving into too much analysis, I think between an increase in pasture land and acreage being put back into CRP – combined with further rotation in the extreme corn land for this year, I think we can put acreage at 85 million. That is where we were in 2010. Using those numbers, KEEPING DEMAND CONSTANT and assuming a 2 billion carryout (167 yield for this year,) we will see a net carryout reduction of almost 300 million bushels. Keep in mind this is WITHOUT adjusting demand. Yes, feed numbers are down now, but where will they be in a year after a year of 150+ cattle and 130+ hogs? Ethanol grinds have been high as well and if crude would stay high, I think we see ethanol exports begin to come into play too. Regardless, I’m just saying we have room for demand to improve.
What’s my point? My point is that I believe 2015 corn is beginning to look like a buy to me. I would not be hedging 2015 at these prices. Wait for rallies, if anything Dec 15 corn will need to price in the 90+ million acres many may think will be there. Prices have substantial upside here in my opinion, don’t let the recent bear action dictate long term pricing plans. These breaks are an opportunity to lock in cheap grain for many years for folks who are going to use corn. I don’t think smart money getting into livestock will let these prices get away.
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