Guest Post - "2012 Grain Outlook"

83
Sat, Mar 10, 2012 - 10:33am

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.

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

Here are some charts of the grains plus sugar:

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

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  83 Comments

indosil
Mar 10, 2012 - 12:54pm

No

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.

cpnscarlet
Mar 10, 2012 - 1:05pm

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
Mar 10, 2012 - 1:06pm

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!!

SRSrocco
Mar 10, 2012 - 1:08pm

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:

https://www.tfmetalsreport.com/comment/78616#comment-78616

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...

rcktSRSrocco
Mar 10, 2012 - 1:11pm

srsroco India chart

the spike on the India chart is the 28th

ActionFive
Mar 10, 2012 - 1:17pm

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.

indosil
Mar 10, 2012 - 1:35pm

Thanx turd

Thanx Turd

indosil
Mar 10, 2012 - 1:37pm

wait till 19th

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

derekiz
Mar 10, 2012 - 1:41pm

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
Mar 10, 2012 - 1:44pm

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.

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