During the past decade, within the final 12-months of the DEC contract expiration, the price range from high to low has averaged around $2.20 per bushel. As of right now the range in the final 12-months of the DEC14 contract is just $0.82 cents. This from the low at $4.35 set back on Jan 10th, 2014, to the high of $5.17 set on April 9th, 2014. Based on past history this would be an extremely “narrow” trading range for the DEC contract. My hunch is there are more extremes to come during the remaining few months of the contract. Example: A $2.20 cent trading range could be something like a low of $3.90 (possibly coming up during the next few weeks on near optimal growing conditions or a down move closer to harvest), followed by a high of $6.10 (perhaps on news of an early freeze, severe flooding or production hiccups in China). Remember, back in 2012 we posted our lowest close in over a year at around $5.50, the last week in May, only to turn it around and trade above $8.40 by early-Aug. Point is we seem to be in a very tight trading range in comparison to what we have seen the past few years. I am willing to bet we see the range widen extensively during the next six-months.
I continue to see report after report that El Nino weather patterns are slowly but surely coming our direction. The argument is a large wave of warm water is starting to move towards the surface out in the Pacific Ocean and along with it will come more dramatic weather changes in the weeks ahead. Remember, each El Nino can produce dramatically different results, so there is no clear cut knowledge or guarantee that we will see a drought, an extremely hot July, an early freeze or harvest time flooding. All it means is that conditions are right for a change in patterns…perhaps here in the US that change means near ideal temps and rainfall amounts for a majority of the corn belt.
Corn planting now at 88%, right at the 5 year average. Corn “emergence” also made a big jump, as the USDA now reports 60% of the crop “emerged” vs. 49% last year and around 64% on average.
US planting pace is now AHEAD of our traditional average, with USDA data showing that 59% of the crop is now planted vs. 41% last year and 56% on average. In addition 25% of the crop is now “emerged” vs. just 12% last year.
If you are wondering where your state ranks in terms of its pro-growth/pro-business policies, the seventh annual Rich State, Poor State report likely has the info you are looking for. Looking through the report, I found it very interesting. It’s co-authored by former Reagan economic adviser Art Laffer and Heritage Foundation chief economist Stephen Moore. The report basically ranks and forecast each state’s economic outlook based on 15 policy variables. Generally speaking and in the simplest manner, states that spend less — especially on income transfer programs, and states that tax less — particularly on productive activities such as working or investing — experience higher growth rates than states that tax and spend more. The actual economic ranking takes a look back at a state’s performance on three important variables: State Gross Domestic Product, Absolute Domestic Migration, and Non-Farm Payroll Employment — all of which are highly influenced by state policy. Taking a quick glance at the report and you will see that Texas ranks No. 1 in economic performance among the 50 states, and Utah has the strongest economic outlook for 2014. Michigan ranked as the worst-performing state in the nation (I’m sure Detroit weighed it down), while New York had the worst economic outlook for 2014. Interestingly enough, Michigan does have a bright outlook for 2014, ranking No. 12. I realize some people may not agree with the authors of the study as to what causes economic growth, but looking through the details of the report it’s tough to argue differently. I urge you to take a quick look at your state and see if you agree. Here are some of the Best and Worst rankings from Rich State, Poor State.
The Top 10 Best Economic Performance
4. North Dakota
Bottom 10 Worst Economic Performance
47. Rhode Island
48. New Jersey
Top 10 Best Economic Outlook for 2014
2. South Dakota
4. North Dakota
6. North Carolina
Bottom 10 Worst Economic Outlook for 2014
41. Rhode Island
45. New Jersey
50. New York
Every trader I know has tried their hand at shorting the bond market on thoughts that yields are eventually moving higher…only to donate to the bulls. There is some thought out there amongst the bigger money players that as the US stock market continues to surge higher and the largest Pension Funds try and keep their 60/40 “stock-to-bond” ratio, they are constantly being forced to liquidate stocks and buy more bonds. In other words as the price of stocks keep moving higher it pushes them more towards a 70/30 “stock-to-bond” ratio. In order to get it back in sink and closer to their traditional 60/40 ratio they simply scale back the stock side a bit and add a few more bonds. Hence, it’s going to be tough to win the short battle in bonds as long as the stock market is making fresh NEW highs.
Will “Emergence” become a bigger concern for corn? Right now the USDA has corn emergence estimated at just -8% points behind it’s usual pace. But when we dive a bit deeper into the numbers there are some important states running well behind their traditional pace. Below are few states to keep your eye on…Heat Units will certainly start to become a debatable topic: IA -25% behind traditional pace of emergence; MII -16% behind; MN -34% behind; ND -17% behind; OH -16% behind; PA -12% behind; SD -8% behind; WI -18% behind.
A Few Big Soy Producers Running Late: As you can see from the map below there are a few important US soybean production states that are now 10% or more behind their normal pace of planting: MN, -29% behind average; MI & ND -20% behind average; WI -18% behind average; OH -15% behind average; IA -10% behind average.
Argentina’s peso has remained mostly stable since the end of March, but in the past few days, the country’s central bank (BRCA) has allowed it to start weakening again. This follows a steady reduction in interest rates that’s been ongoing for the last month, which now stands 26.9%, far below the inflation rate, which most analysts believe is close to 40%. It’s thought that Argentina will once again try to patch things up by devaluing the peso even further. This in turn will likely lead to the familiar scenario of farmers holding onto their crops as a hedge against the anticipated devaluation of the currency. Hence the thought of fewer soybeans and particularly less soymeal being available to the US or the rest of the world. I should also note the Argentine harvest of both corn and soybeans is running 20-25% behind last years pace and is adding to the excitement. Bottom-line, take a big chunk of the Argentine soybean production out of the equation and global ending stocks immediately go from a large surplus to a more concerning situation.
There’s starting to be some optimistic buzz in the gold market over the Indian election of Prime Minister Narendra Modi. As we all know, India has historically been a huge buyer of physical gold, but the previous government enacted prohibitive tariffs and import restrictions on the precious metal which greatly reduced the country’s buying. It’s now expected that Modi will relax the restrictions and cut the tariff, which could lead to a flurry of new buying activity. Rolling back the tariffs and changing the rules will take some time, so don’t expect to see an immediate impact, but keep in mind that analysts think added India demand could amount to 100-200 metric tons. Another optimistic outlook is if the new “business friendly” Prime Minister manages to get the country’s economy back on track, that would result in a stronger rupee, which would in turn increase Indian gold investors’ buying power. Maybe gold is setting up to breakout of it’s most recent sideways channel? Click the chart below to see a larger version.
I had our in-house research team throw together a one piece info-graphic depicting the USDA’s current world ending stock projections for Corn (yellow); Soybeans (green); and Wheat (brown). As you can see soybeans are currently projected at their highest level in the past 30-years. Corn is also being projected at extremely high levels, better than we’ve seen in the past 15 years. Wheat stocks are actually projected to be a bit higher than they have been the past couple of years as well, but actually a touch below levels seen in 2009, 2010 and 20111. The reason I bring this to your attention is because soybeans made their run to $18 in 2012; corn made it’s first run to $8.00 in 2011; and wheat went to over $13.00 in the very early stages of 2008, following record short supplies in 2007. My point is, form a fundamental perspective, global ending stocks look nothing like they were in years where we pushed to extremely high prices. As a producer we just have to be careful getting overly greedy in this type of environment (ample world stocks).. I have learned sometimes you just have to take what the market gives you and feel blessed!
Sign Up For My Daily Report HERE!
I have talked to several producers as of late who are in need of fuel and are wondering if they should lock in a large supply or simply go month-to-month? As I mentioned back in early May, even though US crude oil production is surging, this is simply not a guarantee for cheaper fuel costs. Keep in mind, one of the world’s top crude oil exporters, Russia, is still facing much uncertainty in regard to economic sanctions and trade disputes. There is also some extreme uncertainties in regard to production and political disruptions in the Middle East (Libya, Iran, Iraq, etc.). With drama surrounding some of the world’s top exporters I’m afraid the big energy traders may remain a bit nervous. Longer-term, yes, I believe we will could some type of break in US fuel prices, but right now there simply seems to be too much global uncertainty in the air. Let’s not forget we are also quickly approaching Memorial Day (May 26th), which generally kick’s off a surge in US gasoline demand that doesn’t peak until around July 4th and doesn’t finish it’s cycle until somewhere around Labor Day (Sept. 1st). I also want to point out that Saudi Arabia recently made a public statement that they would increase production if the world needed more oil supply in light of the sanctions being placed on Russia. However they followed that statement by saying they believed crude oil prices should stay at or slightly above $100 per barrel. Moral of the story, I’m thinking the risk (nearby) is still to the upside. Many producers have recently told me they can buy on farm diesel in bulk at or near last year ’s prices. With this in mind, I still like being a buyer now rather than potentially getting caught up in some type of mid-summer rally. Those who are comfortable waiting for more of a pull-back might want to consider making a move if WTI crude oil falls back below $100 per barrel.