Category Archives: Grain Market

The REAL Reason I Believe Grains Are Moving Higher

As most of you know, I spend a lot of my time talking to fund traders and large money-managers trying to pick their brain. With another year of big gains in equities and only 12-trading days until year-end, most of the big payers seem to be looking for ways lock in profits, hedge against “unknown” price-risk and decoupling. The crazy uncertainty now surrounding crude oil and the energy sector has a lot of guys spooked and is obviously pushing “fund-money” in several unexpected directions. A few clear and obvious beneficiaries as of late have been corn, soybeans and wheat. This might be a tough bridge for some to cross, but for others it appears much more logical, especially when you consider we are rolling into what could be more extreme winter weather, continuing turmoil between Ukraine and Russia, an election in Japan, Fed divergence from the rest of the central banks, a newly controlled Republican Congress, Greece and parts of the EU once again moving towards unstable ground. Not to mention the amount of debt the oil companies had on their books 5-years back was only around $200 billion, while now it’s all of a sudden up around $3 TRILLION. In other words there could be secondary derivative impacts the investment world hasn’t even thought about yet that players are now trying to reposition and protect against. Remember, we have now seen over 80 straight days of declining prices at the pump. Also remember, this is traditionally a “thin” period of time where moves can become extremely over-exaggerated! In other words, when you get major “headline-risk” like we are seeing in the energy markets, coupled with lower than normal trade volume, all bets are off in regard to traditional fundamental rhyme and reason. Like Bill Gross said this past weekend, “The sharp decline in the price of oil has disoriented markets and changed the perception of the creditworthiness of companies and countries. When levered money moves and tries to seek a safe haven, basically you have violent price movements across the board.”

Notes From The KC Fed Ag Symposium

I was invited to attend the 2014 Agricultural Symposium put on by the Kansas City Federal Reserve this week. During the two-day event (which ended yesterday) I was able to network and speak in great detail with several leaders in agriculture.  After attending events like this, I like to go back to the office and immediately get my thoughts and notes transferred into a more sensible format (I find it helps with retention and overall understanding). I thought it would be interesting and helpful to pass along MY thoughts and notes from the event via The Van Trump Report… Please keep in mind while reading my notes that attendees included players from many of the largest banks (Rabo, Wells Fargo, FCS, FDIC, US Bank, Farmer Mac, etc), global food suppliers (Smithfield, Hormel, Land O’Lakes, etc.) and others like Bunge, CGB, Gavilon, Koch, Ceres, etc…

Crop Prices? There was an electronic poll taken taken right of the gates in regard to what was most on attendees minds, as you can imagine the number one response was overall “RISK” associated with plummeting prices.  In other words the extreme swings are making it very difficult for everyone in the industry to mitigate risk. One great line I heard this week came from a large lending institution who’s clients are primarily in the row-crop business… He said, “well we’ve had our shot at trying to manage the insane swings and huge profit margins, now lets see how the livestock boys handle it.” 

Crop Prices? There was an electronic poll taken taken right of the gates in regard to what was most on attendees minds, as you can imagine the number one response was overall “RISK” associated with plummeting prices.  In other words the extreme swings are making it very difficult for everyone in the industry to mitigate risk. One great line I heard this week came from a large lending institution who’s clients are primarily in the row-crop business… He said, “well we’ve had our shot at trying to manage the insane swings and huge profit margins, now lets see how the livestock boys handle it.” 

  • Last year at this event there was talk of $3.00 corn…same thing this year, more talk of $3.00 corn.  Soybeans still seem to remain a bit of mystery to everyone simply because there is no real substitute for the higher protein. Wheat concerns stem primarily around logistical issues and geopolitical tail-risk i.e problems in the Middle East, Ukraine, etc… Chinese demand clearly remains the #1 focus for most ALL global lenders and risk managers.  Will the demand and rate of growth stay strong and for how long?     

Transportation? There was a big buzz in the crowd about “transportation” or should I say lack there of.  There is already talk circulating that US rail rates are going to be more than DOUBLE in many locations this year.  There is some fear there will be little to any rail available to support both a record US corn AND record soybean crop.  What happens if we throw in another rough winter like some forecaster are calling for in their early predictions?  To say US logistics could be a nightmare during and immediately following harvest might be an understatement.  Keep in mind this rarely ends up being a good thing for us the producer. Most generally the higher freight costs are passed along in the form of a lower “basis.”  Just look what the rail problems up in the Dakota’s have done to the price of cash-corn…some producers are now receiving less than $2.00 per bushel.  There is also fear that this could spill over into other areas delaying or raising the costs associated with other various inputs.  Looking for ways to lock in prices early might be a very smart play.  I’m telling you now many of the brightest minds and biggest players in Ag are increasingly becoming more concerned with the movement and logistics of grain in this country now that we have gotten deeper into the US energy boom!  Start trying to get ahead of the curve on this one… try to envision any way your operation could get put into a real pinch by lack of available transpiration, then come up with solutions and plans to avoid such a dilemma this winter.  

Farm Land Bubble? Similar to what I believe…this is NOT a Bubble. Sure we might see a -15% to -20% pullback in price, but the dynamics of the current run is so much different than that of the 1980’s Farm Crisis that it doesn’t appear to be a “bubble.” Below are a couple of interesting perspectives:

  • Generally you can conclude a -2% pullback in “farm income” will soon prompt a -1% decrease in farmland values. If you figure we’re currently in the midst of a -30% drop in farm income then we could see a -15% setback in farmland prices. Another -10% to -20% drop in farm income then land values might pull back another -5% to -10%.
  • Loan-to-Market-Adjusted Collateral Value is remarkably strong. Meaning many of the recent purchases were made by producers putting down a large portion in cash. About 77% of farm ground that FCS has loaned on was for 50% or less of the selling price. Meaning most purchasers were putting a large chunk down and have only been financing a relative small portion of the sale price. In many instances farms have actually been purchased using NO financing at all…100% cash purchases.
  • Fixed Interest Rates – Close to 75% of ALL loans made by FCS on farm ground has locked in a fixed interest rate at one of the more historically low levels in our modern history.
  • Debt-to-Asset ratio is still relatively low at just 11% compared to the 20% ratio that is often viewed as a danger threshold. In 1985 the ratio was at 22% and was typical been above 15% for there last third of the 20th Century. In other words no real major balance sheet concerns as of yet when viewing the entire group of buyers.

*Special thanks to Doug Stark, President & CEO Farm Credit Services of America; Mark Partridge, Ohio State University and Chad Hart, Iowa State University for the great insight on farm land prices and values. 

Cash Rents? Most sources I spoke with believe “cash-rents” are currently way too high and will need to correct in some capacity. The big question however is how do we move from Point A (over-priced rents) to Point B (more fairly valued rents)??? Below are a couple of interesting thoughts:

  • Cash rents won’t break until farmers can no longer collateralize debt and paper by using some type of crop-insurance. The past few years it was easy for banks to approve operating capital and loans with crop-insurance guarantees at such extreme levels. Once this changes cash rents break.
  • Might take at least two-years from that point since most landowners won’t buy into the farmers first request for a reduction in rents. In other words the farmer is going to go to the landowner this next year and ask them to lower rents, many land owners will baulk. The farmer will more than likely leave with his tail between his legs and agree to give it one more shot. If price stay low the farmer will be requesting a MAJOR reduction in rent the following year and the landowner will have a tough decision to make, either agree to a big reduction in rents or run the risk of losing your tenant… hence this is when cash rents might really first start to tumble.
  • Remember about 55-60% of all crop ground is currently held by NON-operators, so this is a major concern moving forward for the balance sheet.

Ethanol? There was a great presentation by Todd Becker, President and CEO of Green Plains Inc. In a nutshell Todd and several others I spoke with seem to believe that US ethanol production may continue to increase on the heels of greater export demand. Several believe we will continue to see strong global demand for “clean energy.” If you combine the strong demand for clean energy with inexpensive corn and keep crude oil prices up near $100 per gallon you have an equation for explosive US export growth. Remember, US ethanol is essentially the cheapest fuel molecule in the World. As Todd pointed out “exporting” produces a Rin-less gallon and therefore makes a lot of sense for plants. He also pointed out that it’s much cheaper to add “capacity” than it is to bring NEW plants online. In other words the profit margins for existing plants might continue to escalate.  There is some talk eventually China’s push for “cleaner energy” might eventually be a huge US export market.  Most were doubting China would allow their own personal corn supplies to be used for fuel, simply not wanting to fight the protests, but will probably not have a problem eventually importing corn based ethanol in large doses.  Bottom-line, most everyone I spoke with was on the bullish side of the fence for ethanol and longer-term growth within the industry.   


Livestock Markets? There was a lot of small talk amongst the crowd during the various networking session in regard to the livestock markets.  The main question seemed to be how long can we stay at these lofty levels?  Many top industry executives said they never imagined they would see prices or profit margins like this during their lifetime. Somewhat surprisingly, many said their data, research, analysis and numbers conclude that we might simply be heading around the first turn of an extremely long bull run.  Dhamu Thamodaran, Chief Commodity Hedging Officer at Smithfield Foods and Joe Swedberg, Vice President of Legislative Affairs at Hormel Foods reiterated the worlds growing demand for “protein.” Derrell Peel, Professor of Agribusiness and Livestock Marketing Specialist at Oklahoma State University provide several slides regarding livestock, but I thought the two I included down below where fairly fitting for the cattle market.  The first simply shows the change in cattle inventory here in the US and the one below the change in beef demand that is taking place in China.  The overall consensus is that the world is continuing to march forward demanding a higher protein diet, finding ways provide the needed supplies will continue to be the challenge.    

Foreign Growth? There was a bit of discussion and questions being asked in regard to global growth and what effect falling crop prices will have on overall acreage.  Many in the crowd, including myself seem to believe corn acres in South America as well as here in the US will suffer further setbacks in the wake of sub-$4 corn. Mary Shelman, Director, Agribusiness Program at Harvard University & Chad Hart from Iowa State University provided us with some fantastic insight regarding growth in Africa, India and the Black Sea region.  We also heard some interesting global risk and portfolio management strategies presented by Brian Newcomer, the Executive Vice President of Business Development at Rabo AgriFinance and Elizabeth Hund, the Senior Vice President and Division Manager of U.S. Bank Food Industries. It was interesting to hear that most ALL global Ag lending institutions have a risk-management team that exclusively focuses on geopolitical tail-risk associated with the various landscapes and surrounding countries.  These team’s assign global risk valuations to each specific area then the banks cap the amount of money they will allow to be in play or at risk in each of these areas based on the various equations.  There are just so many moving pieces and dynamic that are in play these days regarding global agricultural…    

Big Data? We have all obviously heard the “buzz” around Big Data…but no one seems to really have their hand around what it all means.  Chick Studer, the Director of Industry Relations at Deere & Company did a great job of explaining how far we have come in the past few years regarding “technology”.  He explained how the “adoption speed” in regard to farmers being more receptive to technology is dramatically increasing. This could ultimately lead to much more rapid gains in technology then we have originally estimated. Also lots of talk in the crowd about ways to better improve yields via various technological tools, ways to see how your farms production is staking up against farms with similar soil types, etc. This field is rapidly advancing and I am excited to see what eventual comes form it all…Stay tuned! 

Bank Loans? Several in the banking sector believe they are going to start seeing a major increase in producers looking to carry their crop as long as possible…cash flow will obviously start to become tight, but banks seem willing to accommodate, at least at this juncture. There is also some talk about more loans in regard to producers seeking even more storage.  The banks seem to be in good shape and comfortable with the overall balance sheets of most.  An extended bear market could obviously change this mindset. 

Visit the KC Fed website: Thanks again to KC Fed President Esther George and her staff for continuing their efforts to provide great agricultural insight. They help provide many of us in the industry with tons of great information and research. You can go directly to their website and see ALL of the presentations by CLICKING HERE

 

Answering My Mid-Year Marketing Review Questions

Below you will find the answers to my own personal review of my marketing efforts for the first half of 2014. I encourage you to ask yourself similar questions in regard to your own efforts:

What part of my “process” has worked as expected? I am happy to say I have been able to meet most ALL of my “pre-harvest” goals and objectives. My goal was to get close to sold-out in wheat by the first half of 2014 and I have. A bit of this was due to poor production. We had 70% priced at extremely strong levels, with most operations experiencing 30-50% yield losses this basically took us to “sold-out.” My goal was to get to between 50-70% of estimated 2014 new-crop corn and soybean production priced during the first half of 2104. Unfortunately in corn I only got 50% priced. I missed a 10% sale by $0.07 cents when placed my last order at $5.24 vs. the DEC14 contract (got a bit greedy). I was however able to reduce our soybean risk by getting my max 70% priced before the big break. My goal was to have between 20-30% of my estimated 2015 production priced at profitable levels as well. I have in fact been able to price 25% of my 2015 corn; 20% of my 2015 soybeans and 30% of 2015 estimated wheat all at great profit margins.  For the most part I am very happy with our current sales and seem to be right on track. Obviously, with hindsight being 20/20, I should have pulled the trigger on 10-20% more or our estimated corn production.

What has caught me by surprise? The overall lack of a “weather” story. My plan and process generally takes into account some type of weather related rally during the US growing season. The “event-driven” investors have become such a large crowd it’s hard not to figure in a money-flow type move of some sort to the upside during the US growing season. This year’s weather has been almost perfect for a large majority of the belt… This is certainly something I wasn’t counting on when we headed into the season, especially when you consider the trend of the past few years.  This has left me a bit “undersold” from where I would prefer to be with corn.

What changes are implied moving forward? In other words how has the game changed most recently since my last review? Not only has the weather pattern significantly changed (for the better), but so has the dynamics in Chinese policy. The Chinese are getting away from their current policy of storing massive quantities and providing a “price floor” and opting to move more towards an individual farmer subsidy program. This transitionary period has created a unforeseen wrinkle in the sheets. In return US corn cargoes are being kicked and China is currently NOT a threat or in the market for large corn imports. Certainly this dynamic will change moving forward…but when remains my biggest question?

What are the biggest risks moving forward and what could change my mind in regard to these risk? From a producers perspective I am pulling for some type of unforeseen geopolitical ptr weather related risk to hit the market. Perhaps something in the Black Seas region, the South China Sea area or in the Middle East. If crude oil takes off to the upside on greater threats of war I have to believe we get a nice initial knee-jerk bounce in the ag commodities. Remember, it was the announcement by Russia that they were temporality banning all wheat exports in 2010 that turned the corn market around and gave us our first push towards $8.00.  From a negative perspective my biggest risk is everyone else producing a bumper crop, prices spiraling lower and our production NOT be record large.  We need the extra bushels and extra production to help make up for the price break. 

What has now become my overall objective? My newest objective is to get my remaining 2014 new-crop bushels priced. I need to move another 50% of Corn production and 30% of our soybean production.  The only good news is our bins are empty and we have another 12-months to get it marketed. Our early sales and hedges are more than enough to provide cash-flow. I would also like to get another 30-50% of my estimated 2015 production priced within a similar same time frame (12-18 months). As always my overall objective remains finding ways to reduce RISK!

Think About This Carefully… Is The Current Setup Similar To What We Saw Prior To The Jan 10th Report?

There are some talks that the trade is setting itself up for the June 30th USDA report in a very similar form and fashion as it did ahead of the year-end Jan 10th USDA report. If you recall, back in early-Jan everybody had aggressively moved over to the bearish side of the boat and was projecting major bearish balance sheet adjustments. This is the same day in January that old-crop corn, the JUL14 contract posted its low of $4.21^6 and new-crop corn, the DEC14 contract, posted its low of the year at $4.35. My point is, who out there isn’t already aware of near ideal growing conditions? Who hasn’t already heard talk of a 170 type yield? Who out there hasn’t heard talk of a US crop being over 14.0 billion bushels? Who out there doesn’t realize that South American and Ukraine suppliers will soon becoming more competitive than the US in the months ahead? Who doesn’t know that global ending stocks could soon reach their highest levels in the past 15-years? Who doesn’t know that China has banned the imports of US corn and is forecasting yet another record domestic crop? Yes, the funds are still long a considerable amount and forced liquidation could certainly cause more blood to be spilled into the streets….but how much more? If I had to guess, perhaps $0.50 cents in new-crop, perhaps even a bit less. I just have a hard time believing corn prices can fall and stay below $3.80 for an extended period considering the world in which we now live. How much better than “ideal” can crop growing conditions get?

If You Want to Make a Bullish Argument…

There is no debating the fact the commodity markets have changed the past several years, I will call it the post-2008 shift. Since that period I have found you need THREE MAIN ingredients to spark a longer-term bullish fire: 

  1. Demand – First and foremost, you have to have a strong “demand” story. I contend we now have one in the corn market. I believe Chinese demand for US corn can’t get much worse, yet exports have dramatically rebounded. Corn being used for ethanol is teetering on a NEW record demand and appears to be remarkable strong. Ethanol exports are big and there doesn’t appear to be many major hurdles in our path.  I can also argue with limited soy supplies and wheat prices in a counter seasonal trend (moving higher rather than lower) corn for feed usage is also very strong.  Bottom-line, we absolutely have the first ingredient needed for a bull story…DEMAND! If we didn’t have a big demand story, nothing else would really matter, but we have one…so now the games begin. 
  2. Increased Horsepower & Torque – In order to pull any large object up an increasingly steep slope you need more horsepower and torque.  In the case of the markets this means we need increasingly more buyers than sellers. One can easily argue during the past six-months this is exactly what has happened and has caused prices to rally.  During this period of time the funds have gone from short around -200k contracts of corn to long about +300k contracts. The question now is will they continue to add more horsepower to the equation or have they already redlined the engine?  Both bulls and bears can argue either side of the debate. Knowing how funds generally tend to stick with what’s been working and have the tendency to  inflict pain on the market much longer than anyone ever imagines, I am going to say they are currently in a “holding pattern” but would ultimately like to add more length, especially considering the negative correlations with equities and the ongoing geopolitical tail-risk associated in the Black Sea region.  This debate will obviously continue for the next several months so pay close attention, it is an extremely important ingredient!
  3. Production Hiccups – In my opinion the third and final ingredient needed to spark a massive bull run (assuming ingredient #1 “demand” and ingredient #2 “interest from the funds” has already been added to the mixing bowl) is a “Production Hiccup” or crop failure of some sort. This has obviously NOT occurred at this very moment but obviously could. Having seen how “Mother Nature” has played the past several years we simply can’t give her an “gimmies.”  Be careful however getting ahead of yourself.  If this ingredient isn’t exactly right it can ruin the entire recipe.  The funds will quickly lose interest, our horsepower will drop and the run to higher ground will abruptly end.  

Unfortunately, in today’s market place we need ALL “3 MAIN INGREDIENTS” to take corn prices move back above $6.00. Traders are placing their bets right now on IF ingredient #2 Increasing Horsepower and #3 Production Problems are going to make it into the mix… 

The Port City of Odessa…Why it’s an Important Piece of the Puzzle

Not only is Odessa an important warm-water port in Ukraine, once giving the Russian Empire and the Soviet Union access to the Atlantic Ocean, but it is also home to the Ukraine Navy. Thoughts are pro-Russian activist are aggressively trying to take over this region. Reports circulating inside the trade show the Odessa port will move between 20 and 25 million tons of cargo per year. Their container terminal is massive and GRAIN represents the largest percentage of that business. There is also talk that about 100,000 jobs are directly or indirectly related to the port’s activities. To say it’s a key piece to the puzzle would be an understatement. It appears Russia is most interested in the port city of Odessa (with approximately 1 million residents) because of its geographic proximity to “Transdniester,” which is only about 40 miles northeast of Odessa. For those who don’t know, “Transdniester” is is a breakaway independent state located along the Ukraine border. The area hosts a strong Russian military presence. It is also argued that following the collapse of the former Soviet Union, the Russian 14th Army left 40,000 tons of weaponry and ammunition in Transdniester. Moral of the story, Russia has troops and weaponry in Transdniester and the best way to gain access to the Black Sea is via the well connected rail and roadways into Odessa. If Ukraine looses control of the port then their begins to be more questions and uncertainty in regard to grain shipments out of Ukraine. 

USDA Weekly Export Sales Week Ending 4/24

  • Corn sales reported at sales of 937,900 MT for 2013-14 and 13,800 MT for 2014-15 were within expectations. Last week sales were reported at 618,900 MT for 2013-14 & 382,900 MT for 2014-15.
  • Soybeans sales reported at negative -16,400 MT for 2013-14 and +78,900 MT for 2014-15 were at the low end of expectations. Last week sales reported at 800 MT for 2013-14. Sales of 118,200 MT were reported for 2014-15
  • Wheat sales reported at sales of 214,900 MT for 2013-14 and 219,600 MT for 2014-15 were within expectations. Last week sales were reported at 339,100 MT for 2013-14 and 271,700 MT for 2014-15.

How Crude Clogged US Railways, And Why That Won’t Change Soon

Producers across the country are well aware of the bottlenecks plaguing railways. They are delaying delivery of everything from grain to fertilizer to ethanol and are causing an uproar all the way to Washington. A majority of blame for this is falling on the lap of BNSF railroad, who itself is somewhat a victim of circumstance that led to some unforeseen consequences in which America’s oil “boom” is at the heart of. First, it’s important to understand exactly what is meant by “boom”. The industry really did explode – production between early 2010 and 2013, in just three years, increased by 40% from 5.47 million barrels per day to 7.44 million. That production increase has all occurred in the country’s midsection, most notably North Dakota’s Bakken Shale play and the Eagle Ford Shale in Texas. Keep in mind, before 2010, less than half of US oil production came from this part of the country. The country’s oil infrastructure, however, is far from these new production plays. Most pipelines and refineries are strategically located near the long-established fields in Oklahoma, Louisiana and Texas as well as population centers on both coasts. As production ramped up in the newer fields, stockpiles at US storage facilities increased by 10%. The majority of this glut ended up in Cushing, OK, the meeting point for central US oil pipelines and where the price for West Texas Intermediate (WTI) crude is set. This led to the first significant spread between WTI and Brent in 2011, and to this day, WTI trades at an average $15 per barrel discount. This has obviously created price arbitrage opportunities, but crude prices can vary greatly between different parts of the country. That is one of the reasons rail has been such a popular mode of transportation. If crude is going for a substantial premium on the East Coast, that’s where shippers are going to send it. That sort of flexibility is not something they would have with a pipeline. Not that there aren’t any pipeline plans in the works, there just isn’t a great sense of urgency to get them built. Several, like the Keystone XL pipeline, face indefinite bureaucratic delays, while others have been abandoned over profitability concerns. Consequently, rail cars continue to stack up in North Dakota and the whole rail system, particularly eastward through Chicago, is continuously logjammed. Over the last year, safety concerns over oil-by-rail transport have come into the spotlight, which could have some major implications. In early 2014, new safety standards were issued for oil cars and even more are expected by the end of 2014. This may result in more of the older cars being taken out of commission altogether, or at least temporarily out of service as they are retrofitted to meet new standards. While that could temporarily ease rail traffic, it would also likely result in a rise in gas prices. Other rule changes the industry is waiting on are those that restrict ocean shipments. US crude exports have been banned since the 1970’s, and details of that restriction prevent US refiners from easily transporting oil via ship. While everyone recognizes this is a real problem, and the added transportation capacity is needed, no one is expecting to see any changes within the next year. (Sources: Kansas City FedUS Energy Information Administration)Oil

Ukrainian Farm & Political Update…Things To Think About

According to sources in Ukraine, the planting season has started a bit early this year. For most of the country, I am hearing the winter crops have seen their plantings decrease by about 2.5 million acres as producers shift to more profitable crops — like corn, sunflower, and soybeans. However, the current political risks seem to be limiting the producers’ desire to sharply increase planting area or input costs, so who truly knows how many acres will for sure go in the ground???  According to the APK-Inform agency, Ukraine is forecast to produce 57.3 million metric tons of grain in 2014. I am also hearing that corn planting will start in about a week in many locations. As far as weather, most meteorologists seem to believe planting conditions in the coming weeks will be somewhat favorable. Soil moisture levels seem to be satisfactory with a few concerns in select areas. So at least as of now, the picture looks fairly good for Ukrainian production to get in the ground. The kicker however is that total ending yields and crop prices hinge on a possible war with Russia. The risk of full-scale invasion by Russian troops still remains a concern and is certainly something we must continue to monitor. Despite earlier promises from Putin to withdraw troops from the Ukrainian border, the number still remains massive and certainly on the minds of those inside the Ukraine borders. From what I have read and heard, the Russian troops are fully equipped with tanks, anti-aircraft battalions, bombers, fighters, armored vehicles, heavy artillery, etc. As I have said on several occasions, many believe Putin’s takeover of Crimea is actually part of a much larger mission. Remember, in and of itself Crimea is a big burden if you don’t have the logistics from the coastal Ukraine to go along with it. The cost of shipping all necessary goods to Crimea by sea is overwhelming if they are coming from the Russian mainland. This is why many believe Russia is strategically more interested in moving further along and occupying the entire southern part of Ukraine. This way Russia also cuts Ukraine off from the Black Sea ports. The military experts say the most crucial days for Ukraine will be from now through the end of May. The dry and warm weather in South Ukraine currently allows for the movement of the heavy military weapons like tanks, anti-aircraft mobile radars, etc. Experts also say an invasion is unlikely before April 20, since this is when Russians and Ukrainians celebrate the “Orthodox Easter.” The big day on the radar screen seems to be May 25th, the day of presidential elections in Ukraine. Several military experts believe Russia will try and disrupt the elections by provoking turmoil in the Eastern and Southern areas in the days leading up to the event. Possible dates that are bing thrown out for such turmoil are May 1 (the International Working people solidarity day), May 9th (the Victory day), and days just after the elections. Bottom-line, provided there is no full-scale war, Ukrainian agriculture looks to be in adequate shape. I am certainly concerned about the higher interest rates and falling valuations of the Ukraine currency as it makes farming much more expensive. Ukraine’s ports however look more than capable of keeping up with ALL export demand  just as long as the producers are willing to let go of the bushels. However, the question still remains, what happens if and when violence in the Black Sea region escalates into a full-blown war???

A View From A Big Kodiak Bear

One of my best friends, Andy Daniels, and extremely gifted grain trader, passed along a little note that he included in his “South American Grain Wire” this past week. I wanted to include his message and pass it along to all of our readers as well. It’s certainly worth the read, extremely insightful, and gives his perspective as to what has transpired as of late in grain markets.

A few observations worth noting: This might sound crazy, but 100% of the “fundamental traders” I know are down on the year…and all have been bearish. I have never seen that before. Conversely, from 2008-2012, about 90% or more of these same exact traders made money. Why the change? From 2008-2012 we saw an explosion of outside-money coming in and chasing the “demand” story lead primarily by Ethanol. Both the Fundamentalists and the Funds were dancing in harmony drinking the same Kool-Aid. If we fast forward to 2013, money was flowing out of commodities and back into equities.  Chasing equity returns once again became sexy while the bullish commodity story seemed to be getting tired. As we began 2014, the world was bearish as analysts raced one another in projecting greater carryouts and lower prices. Following the Jan 10th report, when final production in US corn and Dec 1 stocks were woefully less than expected, the funds were caught offsides and short approx. 50k contracts. Over the past 3-months we have seen them go from SHORT -50k to LONG 300k contracts. In the wake corn prices rallied by about $1.00 per bushel. 

Wheat has gone from a record -80k short to a modest 50k long and in turn has rallied by about $1.50 from the lows. The funds have remained net long soy, in fact increasing their position to near record length, pushing prices higher by almost $2.50 from the old-crop lows and by about $1.40 in new-crop. At the same time, fundamentals, while less bearish, are still bearish and believe ultimately the recent price rally will simply buy more global acreage. So, while the fundamental story is bearish, outside money continues to flow back to our sector…therein lies the “rub”. Historically money flows and story lines are congruent, this time around that is simply not the case. Some argue geopolitical concerns are causing larger macro money players to buy “value” or in this case “commodities” in an effort to better protect their 30% equity gains over the past 18-months. Others contend that HFTs and Quant volumes have overwhelmed the fundamental crowd. Keep in mind their volumes have soared from absolutely nothing 10-years ago, to what some estimate could account for approx. 60% of daily volume in several of the commodity markets on any given day. Whatever the reasons, it is hard to imagine these extreme mirrored opinions won’t at some point in the very near future come back into balance. My best guesstimate is unless we have a major weather type event in our near-term future, the correction will be for structurally lower prices…not higher!