Thursday August 12th we have USDA supply and demand. We have just had a 6 week period which has seen 1) wheat rally 3 dollars, only to break back over 1.20 of that rally, even though fundamentally there is plenty of world supply grain, and we have been, as traders and or producers or end users, at the whim of the speculative funds who have gotten a hold on something called “french milling wheat”.
I have been out here since Jan 1992, and I can honestly say this was the first time I ever can recall hearing about that contract in mainstream media. The most exotic thing we would hear from, generally, was if we read Jimmy Rogers, and he was talking about Malaysian Palm Oil, or Greasy Wool futures from Australia.
Second Point 2) We have had a 95 cent rally in new crop corn (CZ) since the June 29th acreage report. From 343 1/4, where I had farmers calling up worried about 2.80 cash corn and covering inputs, 6 weeks later, and they are convinced that higher prices are a sure thing.
So much so that they have no interest in protecting those prices properly with puts. Instead, they are leaning towards the tried and true, “lets just see” followed by a close second “I think we’re going higher” and the always dependable “the corn in my neck of the woods is Terrible, and the USDA and all those boys are wrong again”. I would say that 70 percent of my hedge clients have gulped the bullish Kool Aid, and are now true believers in un ending higher prices…
And 3rd, We have had a 1.66 rally in beans from below 9.00 in SX all the way up to current levels. Out of all 3 contracts, this is the least surprising bull move to me. We generally make the beans in August, and it is only August 9th. Of course, now every producer believes that 10.00 beans are their birthright, the norm, the expected way of doing business now. None of them have long term memories where anything above 6.50 beans was once a gift to sell into. No more. Its a brave new world. Where apparently, we will never have downside risk again and 10.00 beans are a birthright.
The 4th area of worry, is that every farmer and his brother is now going to double crop beans with wheat. After all, 7.00 wheat is worth planting. Don’t bother, however, doing any cash forward sales or getting a floor in place now. That’s negative thinking, brothers and sisters…Prices can only go higher….??
Combine all of these above items, and quite frankly, it scares me. And it gives me pause. I would be exiting long positions prior to the USDA report. After such a rally as we have had, the most vicious and damaging surprise which would hurt the most people, farmers and speculators alike, is…. wait for it….. a sharp down move that “no one saw coming”….
Mark my words, if Thursday morning we are sharply lower, then I will be hearing from my bulls that … “its just a correction in a secular bull market” … Oh Lord, I can’t wait. I hope I am wrong, because 3/4th of my customer base is convinced we are heading higher.
I truly hope they are right. For their sake. A dollar a bushel for corn less, or 2 dollars a bushel less for wheat and beans would be kind of painful. Like Steve Corell in the movie “40 year old virgin”.. I’d hate to wake up Thursday morning hearing American Farmer’s screaming “Kelly Clarkson, Kelly Clarkson, Kelly Clarkson!!!!” at the top of their lungs, just like when Steve Correl had his chest hair ripped out in that movie…
The people doing the ripping will be the spec funds, who now have over 250K long corn contracts and 100K plus longs in the Beans. Those boys don’t mess. They know the first loss is the best loss, because they manage risk for a living. If the news is anything but bullish, they will hit the “Dump” button. Look for 3 days of liquidation if it gets funky enough, and we start smashing through major moving averages.
Producers will be left holding the bag, unless they took advantage of the rally to sell cash and get paper sales in as floors prior to the number. The opportunity to defend against lower prices in right in front of us. The time to plan for the storm is while the Sun is shining, not when the golf ball size hail is pelting your forehead..
Doesn’t it make sense to spend 15 cents a bushel to protect a 1.00 rally in corn? Or 25 to 30 cents to protect a 1.60 rally in beans? Not to mention the risk reward spending 30 to 40 cents to protect the rally in the wheat…
As a speculator, I have to be leaning towards being bearish going into the 12th. I certainly know if its a bullish number, we will get a chance to get long at good levels once again. If, however, we drop into the abyss of “ain’t no bids”… It could be an expensive character building lesson for stubborn bulls.
Good Trading
