Guest Post - "2012 Grain Outlook"

A few days ago, I commissioned our resident grain trading expert, "Art Lomax", to write up a guest post that includes some basics about the grains as well as some of his personal opinions regarding the upcoming season. Thankfully, he obliged.

2012 Grain Outlook

by,

Art Lomax

So what’s the skinny on the grain markets for 2012? There appears to be a widespread concern that there will be an expansion of corn acres and production beyond demand leading to a big increase in corn ending stocks, and at the same time leaving a tighter bean situation with too small an acre base. And with wheat, another historically large global crop on the horizon for 2012. The wheat market seems to be trying to trace out a bottom, corn is transitioning to be the weak sister of the complex, and soybeans becoming the leader, especially with recent production problems in South America now placing a little more bullish sensitivity to US planted acres and early season new crop development in the US.

2011 was a good year for most US grain farmers. While some were hurt in drought areas and flooding in other areas, most farms saw record income due to high prices and record exports. World wheat, rice, and cotton stocks were replenished with the increase in supply reflected in prices. However, corn and soybeans just came off a short crop due to weather issues, and now the South American crop has been reduced due to drought and high temperatures in key growing areas. Soybeans over $12 and corn near $6 are still at historically high price levels.  The seasonal high price for corn and soybeans occurred last September, and the lows will likely come later this summer. But in between, price volatility should be high. The topic of most interest now is how many acres of each crop will be planted.

On March 30, this question will be answered.  The Prospective Plantings report, put out by the USDA, will report the expected plantings for most major commodities grown in the US.   This report is particularly important, as it gives the first indications of what we will see in the US crop mix.  Historically, this report has been a market driver, resulting in a “battle for acres”.

But remember, this report is only an indication of planting intentions. Another report comes out on June 30, which tends to be the final number on US acres.  Other reports to look for throughout the growing season are the crop progress reports and the crop production reports. The crop progress report is a weekly report that covers planting progress, developmental progress, and the condition ratings for the crop. The production report is a monthly report that focuses on production, usage, and ending stocks.  All of these reports, along with potential weather issues, will give the market plenty of news to trade. Throw in some middle east oil market disruptions, the Euro Union meltdown, unexpected Chinese buying, the accommodative Federal Reserve, and some election year shenanigans, and there should be plenty of trading opportunities in the grain markets this year.

Currently, the market is trading a bean acres number of 75 million acres, unchanged vs last year but down 1.6 million from last year intentions which were not achieved due to excessive moisture during planting. Increased winter wheat acres and more corn is why this number is unchanged. Even with trend line yields on these acres, US bean stocks are expected to decrease, especially now that the US will have to make up for the South American shortfall. Beans are pretty overbought right now and due a correction, but should be well supported on any pullbacks due to the expected increase in US demand caused by the reduced crops in South America.

Corn is probably trading 94 million acres vs 91.9 last year. A trend line yield on these acres would put US ending stocks next summer at 1.6 billion bushels, double the 801 million this year.  Production estimates do not get a lot of argument but recognize that we have not been able to dependably produce the trend line yields used by the USDA for the last two years. But the bottom line is that corn acres should be big, and a USDA number of 95 million acres would be bearish. Also, corn use for ethanol is flattening and is expected to fall this year.  Do not look for buyers to chase the market, and farmer selling could pick up.  The USDA surprised the market several times last year. Be careful here.

One wildcard this year could be increased Chinese buying of corn and soybeans.  This could be a positive catalyst to US markets if they decide to be more active in imports. The Chinese are very concerned about food security and keeping domestic food prices under control.  Food shortages and high prices lead to political instability, like we saw last year in MENA.

The other wildcard would be weather. With rising global trade and increased demand for protein, the US and the world cannot afford another year of decreasing corn supplies. The balance between the grain we produce and the grain we consume is razor thin. We saw what happened last summer as corn had to trade over $8 to ration demand.

I am not trying to call this market one way or another, but just wanted to present the factors that will affect the grain markets this year, and look at the big picture. The US stocks/use ratio remain on the lower end of historical ranges, certainly not high enough to cushion a severe crop failure. Let’s all hope for record yields on record acres to provide more breathing room.

I hope this summary helps explain to those not familiar with the grain trade the dynamics that can affect the markets. I appreciate Mr. Ferguson giving me opportunity to share. 

Art

_____________________________________________________________________________

For those of you wishing to trade the grains this spring, of course the most direct way to do this would be futures and futures options on the Chicago Board of Trade (CBOT). Those unwilling to go that route can also attempt to profit by trading an ETF that goes by the symbol "DAG". It is composed of roughly 25% soybean futures, 25% corn futures, 25% wheat futures and 25% sugar futures.

http://finance.yahoo.com/q?s=dag&ql=1

Here are some charts of the grains plus sugar:

paper_3-10bean.jpgpaper_3-10corn.jpg

paper_3-10wheat.jpgpaper_3-10sugar.jpg

Lastly, I thought I should attach below a comment I posted in the previous thread regarding the Commitment of Traders report from late yesterday. The net change of positions over the course of the "manufactured corrective event" is breathtaking. It looks quite certain that the bottoms for the "event" have been reached!

"""HOLY TOLEDO! WHAT A CoT!!!
GOLD
​Large Specs down 32,938 or -14.26%
Small Specs down 11,963 or -17.00%
​Cartel short down 37,235 or -9.54%
Cartel net short down 45,143 or -18.4% 
WHAT A COMPLETE AND UTTER WASHOUT FOR THE SPECS AS CARTEL NET SHORT IS BACK TO 2.3:1 AFTER BEING 2.69:1 LAST WEEK.
Additionally, the last two days of OI changes show continued short covering and long initiation in gold. Combine that with price holding above 1680 and closing above 1710 and I firmly believe that it is safe to say: BUY BUY BUY! THE BOTTOM OF THIS "CORRECTION" IS IN!
SILVER
Large Specs down 7,377 or -19.41%
Small Specs down 1,621 or -6.7%
Cartel short down 6,270 or -8.00%
Cartel net short down 8,797 or -19.73%
ALSO A HUGE CHANGE. CARTEL NET SHORT IS NOW UNDER 2 AT 1.98:1. LAST WEEK WAS 2.32:1.
Silver looks great, too. Getting the EE net short ratio back under 2 is significant. The last time this ratio was under 2 was the CoT survey of 1/31/12. That night silver closed at 33.32. This past Tuesday, silver closed at 32.78. Therefore, it would definitely appear that he worst is over for silver, too."""

Now, all of that said, apparently Santa advised traders yesterday to move to a net flat position based upon the uncertainty that the Greek "default" adds to the mix. Prudence would dictate that he is right. This upcoming week may be quite volatile and anyone using leverage could quickly be put in a world of hurt. Be cautious if trading but I wouldn't hesitate to use any additional weakness to add phyzz for stacking.

Have a great weekend and be ready come Monday!   TF

 

83 Comments

FleetFeet's picture

Good morning, and

Thanks for the new topic!  

I wanted to put some money into agriculture in general, but not in options or futures or ETF's of same.  When I looked for individual stocks, I knew I was flying blind.  So I looked at indexes, but still did not have enough knowledge to choose one over another.  

What about a day of investment education, from everyone, in all various agri choices?  If you know something, please share it.  

Velocity's picture

Thurd !!!

...no 2nd ...f**k me!!

I know you're a bizzy bee Mr T but any chance of a graph showing/plotting high/low OI against the Silver and Gold prices (just key turning points would do) so we can see a visual of how consistently the correlation/connection occurs... pretty please?!

No worries if it's too much homework ...well i'm off to pick up my 2nd place Silver medal and bask in Turdville podium glory for the rest of the afternoon :)

 
 
 
 
 
 
 
 
achmachat's picture

physical

I bought physical grain today!
(25 kilos of pasta :-))

ReachWest's picture

Grains

Thanks Turd and Art. I know little to nothing about grains - other than we need them to feed the world and when the SHTF, you'll want to have lots of them on hand. 

I personally eat little to no grains, as I follow the Primal Blueprint. But, I do store quite a bit of flour and Rice in my Food Storage.

Beez's picture

World Agriculture Supply &

World Agriculture Supply & Demand Estimate:  http://www.usda.gov/oce/commodity/wasde/latest.pdf

Art, your guest post was timely!  I was just looking at the above site this morning, dated March 9, 2012.

Trends fascinate me. I used to follow Faith Popcorn and now I'm a Celente subscriber. We can't just look at PM's. Politics, Culture, Social trends.. Everything is connected.

Thanks for the time you put into the post!

Jasper's picture

@FleetFeet - a suggestion

You might like to do your due diligence on a WesternOne (WEQ.UN).  I purchased this company several years ago.  They pay a great dividend.  They are an agricultural supply company and have bought up a number of farm equipment dealers across Western Canada.  They recently bought Britco structures.

Just one agricultural company in my portfolio.

Xeno's picture

Planting Reports

If the US planting reports show a decrease in crop plantings or size, we should all raise holy hell about the real cause - MFGlobal, Jon Corzine and company.

The biggest group to suffer from that mess are farmers and ranchers. And this is the same crap that the bankers pulled in the early 20th century which drove a lot of farms out of business.

Not to mention bankers driving the costs and prices up in the spring planting season and driving prices down in the fall harvest season.

Be Prepared's picture

@Art Lomax - Succinct & Timely

Thanks for taking the time to put together a good overall perspective of the immediate grains outlook.  I appreciate the research and guidance.  :-)

¤'s picture

Art

Wicked! yes

Stop by the Speak later for a tall frosty one on the housecool

And those gold/silver COT reports from yesterday. Double wow!!

indosil's picture

Flat

so Turd does Santa mean we will see a sharp correction in Gold & Silver?

SRSrocco's picture

BERNAKE LIES THROUGH HIS TEETH.... INDIA SCORES BIG

Everyone knows just how bad silver was taken down on FEB 29th.  It was right at the same time when Bernanke comes out and LIES THROUGH HIS TEETH that QE 3 is not necessary.  This is also at the same day when the ECB pumps over $700 billion into European banks.   

Then all of a sudden with WATCHES SYNCHRONIZED, the level was pulled and tens of thousands of gold and silver contracts were dumped on the market in a nanosecond.  This put the kabosh on the GOLD & SILVER BREAKOUT.  If we look at the charts below we can see the difference between two different MARKETS (Top Chart = US, Bottom Chart = India):

I listened to a recent interview on FSN with David Morgan.  I have had a bone to pick with Morgan in the past, but I have to give him some credit in that last interview.  He finally showed some FRICKEN PASSION in that interview telling Jim Puplava how frustrated he was with the recent takedown on Feb 29th.

Now if we put it all together, anyone with a FUNCTIONING BRAINSTEM will realize this is this is the FED-TREASURY-HSBC-MORGAN playbook hook line and sinker.  So after a few more days of ALGO selling, gold and silver bugs get to look forward to CLIVE MAUND's most recent BS Technical Analysis.

If you did not get a chance too see my response to his MARCH 5th Silver Update you can take a look at the links below:

http://www.tfmetalsreport.com/comment/140194#comment-140194

I was going to put another link to the following chart, but for ANALYTICAL PURPOSES, I am going to repost it again for kicks and giggles;

Well, it looks like the INDIANS got the better end of the stick on FEB 29th.  They plan on buying a record amount of silver in 2012, and Feb 29th was a great day to pick it up on SALE.   Of course the Indian Public paid the higher price, but the bullion dealers made great in the INTERNATIONAL SPREAD that day.

I can't even watch CNBC anymore.  I used to put it on in the background when I was doing research to see if anything interesting is going on.  But now, it is just all WHITE NOISE and PROPAGANDA.  

Lastly, my research in the oil and diesel supply has been quite interesting and startling.  My upcoming articles may not be as POSITIVE as investors and readers would like.  My gut is telling me that Stock and Bond prices are extremely overvalued (not just due to manipulation) because the energy supply to keep earnings and prices elevated are just not going to be there.

This will put a damper on JUNIOR GOLD & SILVER EXPLORERS.  

More to come...

Turd Ferguson's picture

No

MODERATOR

I believe that Santa means to simply be flat - no net exposure short or long. Gold might soar as a safe haven and as money. Gold might drop sharply if hedgies are forced to raise cash to cover margins. Hard to say for certain which will happen so Santa is simply advising traders to be cautious. It's good advice.

Response to: Flat
cpnscarlet's picture

Santa's one comment

I'm not sure exactly what Santa's alluding to now, but he has said that we are at a stage when volatility will be the order of the day. Corrections will be "violent, but short-lived".

I don't think anyone can take a stab at the short term market since we already have witnessed so many counter-intuitive moves. News that should make PMs go up are grabbed as a raid opportunity and they are smashed. Days when nothing happens, we see some pretty wild reversals. Go figure.

Long term - the system is broken. GREECE has MORE DEBT now than they did ONE MONTH ago. Nothing was fixed, nothing will be fixed. Keep stacking, I say.

Honest_Money's picture

It could not be more obvious

It could not be more obvious now after the CoT report....the Fed dumped a 10K gold contract market order to blast the price and fleece long specs while the banksters covered shorts and made out like bandits.  We need new regulators that will actually stop this criminal and collusive behavior!!

rckt's picture

srsroco India chart

the spike on the India chart is the 28th

ActionFive's picture

The mileage

they got out of the Greece crisis for market changes was really something. Daily rumors, delays, bailouts, failures- they made up the excuses to support stocks/USD while hitting commodities. Everybody is still confused.

SRSrocco's picture

rkct.... REPLY

rckt... you got a point there.  I don't know how I missed that.  I was going by the Mineweb article shown below:

In India, silver investors still extremely bullish despite price crash elsewhere

Silver prices leapt to a 7-month high in India on the same day that prices plummeted 7% in the international market. Despite the crash, traders expect a 35% rise by end 2012.

Author: Shivom Seth
Posted: Thursday , 01 Mar 2012

MUMBAI (MINEWEB) -

Silver is shining again in India contrary to the big fall in the international market. The white metal rose by $40.66 (Rs 2000) in one single day on Wednesday and has jumped to a 7-month high here, though it slid by 7% in the international markets later in the evening on the same day. Traders said investors have turned bullish on silver since the precious metal has posted an 18% gain in the last eight weeks.

Traders pointed out that many investors and retailers had built short positions in the markets since they expect prices to react sharply in the immediate future. Several new traders have also taken position in the market and are trading larger stocks.

--------------------------------------------------------

I took for grant-it that it was the same day.  Looking at it more closely, I now see just how much demand and buying was taking place in INDIA before the U.S. markets opened.   The FED SLEDGE HAMMER really killed breakout.

indosil's picture

Thanx turd

Thanx Turd

indosil's picture

wait till 19th

So we need to wait till the 19th of this month in order to build up a new position???

derekiz's picture

Re: Platinum & Paladium too.....

Turd and Gang

Anyone want to comment on the South African Mines worker strikes and their future effect on platinum and palladium prices? I think we will see more problems and tighter supply. I've added a nice position in PPLT  expecting to capitalize on that situation and the current historically low platinum to gold ratio. Luck to all.

Dr G's picture

As a follow-up comment,

As a follow-up comment, Santa's advice is ONLY for traders. It is not applicable for those that hold long gold investments, either in paper form (shame on you if this is you) or physical.

Strongsidejedi's picture

@indosil (new positions)

New positions in paper are different than new positions in physical.

I think what Sinclair and others are saying is that delivery of physical is the issue.

I know that in our area, the local coin stores seem to be plum dry of 1 oz silver and 1 oz gold.

So, even if I wanted to add, i couldn't because the physical is missing from the local stores.

Having said that, if I lived in an area which had supply of 1 oz coins, I would create a long-term program of using the PM's as an insurance policy against monetary debasement.

The debasement is a lock-on guarantee at this point.

Strongsidejedi's picture

continuing on the discussion about physical delivery

Is it just me or is the amount of physical silver standing for delivery in March similar to the sales of silver from the US Mint in Jan and February combined?

I can't locate the usmint.gov webpage with the number of ounces of silver which were delivered, but it would be interesting to compare.

lamare's picture

US Mint vs Crimex

@Strongsidejedi : I don't think the US Mint can buy on the Crimex. AFAIK the US Mint HAS to mint US mined gold/silver.

SRSrocco's picture

REPLY....US Mint vs Crimex

lamare... at one time, the US Mint had to purchase silver for its Silver Eagles production from the US Defense National Stockpile.  Before that supply ran out, the Senate passed a bill in 2002 to extend the US Mint the ability to purchase silver on the OPEN MARKET:

The authorizing legislation for the American Silver Eagle bullion program stipulated that the silver used to mint the coins be acquired from the Defense National Stockpile with the intent to deplete the stockpile's silver holdings slowly over several years. By 2002, it became apparent that the stockpile would be depleted and that further legislation would be required for the program to continue. On June 6, 2002, Senator Harry Reid D-Nevada ) introduced bill S. 2594, "Support of American Eagle Silver Bullion Program Act," "to authorize the Secretary of the Treasury to purchase silver on the open market when the silver stockpile is depleted." The bill was passed by the Senate on June 21 and by the House on June 27 and signed into law (Pub.L. 107-201, 116 Stat. 736) by President Bush on July 23, 2002.

http://en.wikipedia.org/wiki/American_Silver_Eagle

Today, the US Mint can purchase silver just about anywhere it desires.

Furthermore, if we take a look at this graph, we can see that U.S. domestic silver production could not keep up with Silver Eagle sales in 2011:

FleetFeet's picture

Agri investments

Jasper -- thanks for the recommendation.  I'll look it up.  

BTW, the reason I started looking for investments related to agriculture and food is that Jim Rogers has been beating that drum for years.  Plus good farmland.  He has at times indicated such investments are as good as gold . . .  

Bsong's picture

SRS have you taken in to

SRS have you taken in to consideration the glut of Natural Gas and the opportunity for upgrading equipment to run on it?  I don't even know if that is viable on heavy equipment.  Although i do see passenger vehicles and coal burning power plants are getting a good bit of talk in the press lately as being feasible options for NG.  

Always appreciate what you bring to the table here.  Thanks  

Pining 4 the Fjords's picture

Thank you Art!

Greatly appreciate the effort and information- thank you sir! When you have the time, could you post any AG investing websites or information outlets you use to gather info for trading? Is there a 'Turd Ferguson of grains' somewhere out there?

SRSrocco's picture

REPLY on NATURAL GAS ...

Bsong... you bring up a very good point.  This will be discussed in my upcoming articles.  Yes, indeed there is a bunch of gas coming on the market.  However, the investors who got taken by the investment propaganda of PORTER STANSBERRY, are losing their shirts because the majority of NATGAS from Shale Gas fields is being sold below production costs.

Furthermore, the best part of the field gets drilled first and the best gas is extracted in the beginning.  By the 2-3 year depletion rates in Shale Gas wells are upwards 80%.  Some state the following:

Well, if we can just drill enough wells then we can have a whole bunch producing a lot less, but it will add up over time

This is nice in theory, but the problem becomes a financial one by the 5th year and onwards.  The expense to continually FRAC the gas well becomes more expensive than the money you get from the gas as time goes by.  This becomes a ZERO SUM game 5 years.

Take a look at this chart from my PEAK SILVER REVISITED article:

We must remember the RHETORIC that came out of Nuclear Industry back in the 1950's:

NUCLEAR ENERGY = TOO CHEAP TO METER

There is no where near 100 years worth of shale gas in the United States.  The folks on THEOILDRUM.com believe its many times less.  I would be surprised if we have 10-15 years worth of the stuff.

Anyhow.... I explain more in my future articles.

atlee's picture

Great job Art

Great job Art. 

Nice write upyes

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