The folks over at Roach Ag, who generally have very good research, took a recent survey and now believe US corn acres could be lower than the trade is anticipating. From what I heard the group is thinking more acres were lost in areas like MN, NE, ND, SD & WI than most realize…due to a long winter and very wet spring. In fact they are thinking total planted acres could actually fall below 90 million for the first time since 2010. For all of us who have more bushel to price lets hope the research team over at Roach Ag is correct in their assessment. The fear is the numbers coming out on Monday will be from a survey the USDA conducted between late-May to mid-June, perhaps a bit ahead of the heavy rains and flooding that washed out many of the fields in the northern pasts of the belt. Meaning the reduction in acres may be slow to develop or reveal. In fact they maybe counted in the “abandonment” category rather than subtracted from the planted area???
I sent my son Jordan out with Chase for a little crop tour and learning session. They have been out visiting subscribers in Missouri, Illinois, Ohio, Indiana, Iowa, Nebraska, Kansas, Colorado and Minnesota. The pictures below were taken yesterday while at a couple of operations in Ohio (one northwest of Columbus, OH and one southeast of Columbus). As you can imagine most all stops have found smiling producers at the end of the drive. Nobody wants to jinx themselves, but the crop is off to a very good start. There are of course some spot locations (all around the corn belt) that weren’t able to get the acres planted in a real timely fashion due to the late-Winter and too much spring moisture. Those late-planted crops still look good, but obviously not near as tall or as far along as the field pictured below. If there are any complaints it has to be too much moisture, some small bits of nitrogen leeching and a small amount of fear in regard to soybeans being hit with too much rainfall. Something interesting is the massive amount of bins and storage now on farms across the Midwest. The operation pictured below had storage for about 600,000 bushels, while several others we have visited the past couple of weeks have storage for between 1 – 2 million bushels (they didn’t want pictures taken). My point is who really knows how much is actually being stored on the farm these days???
Below, the top pic is from just outside Larry Bird’s old stomping ground in Terre Haute, IN and the other is from out in Brookston, IN. Thanks to everyone who extended their hospitality to they boys! They’ll be back out a few more times this summer. Drop us a note if you’d like them to pay you a visit!
USDA’s Weekly Corn Crop-Conditons: Below are some specific’s in regard to the recent weeks change in overall crop-conditions rated GD/EX, as you can see from the map the states colored “green” improved and the states colored “red” are seeing some setback out in the field: MN crop down -9%; CO & IA -4%; SD & WI -3%; PA -1%; KY, MI & OH “unchanged”; KS, NC, ND & TN +1%; IL, IN & NE +2%; MO +4%.
USDA’s Weekly Soybean Crop-Conditons: Below are some specific’s in regard to the recent weeks change in overall crop-conditions rated GD/EX, as you can see from the map the states colored “green” improved and the states colored “red” are seeing some setbacks out in the field. Overall the US crop went from 73% rated GD/Ex down to 72% rate dGD/EX: The MN crop conditions were lowered by -10%; SD -8%; IA -3%; OH -2%; ND -1%; AR & IN “unchanged”; IL, MI, NE, NC & TN +1%; KS, MS & WI +2%; KY +3%; LA & MO +4%.
USDAs Winter Wheat Harvest Progress: The USDA is now estimating that the US winter wheat harvest is 33% complete vs. the 5-year average of 31% by this date. This obviously surprises many of the bulls as they felt the crop was more severely behind schedule. Be careful with this data as I’m afraid it could be interpreted wrong. IF you look at the map below on the states of California and Texas are running ahead of their traditional 5-year harvest pace, the rest of the country is still running behind.
Obviously you have to question “total” acres in play. I’m thinking total acres may be lower than most have thought. I also have a hard time swallowing 83 million soybean acres. I continue to feel like the March survey data for soybean acres was simply too high in comparison to other crops. The survey came at a time when US farmers had a bad taste in their mouth about corn prices and were desperately looking for ways to cut expenses and reduce input costs. The Spring Insurance guarantee was established at more profitable levels and corn caught a bounce back above $5.00 by late-March and early-April…just in time to encourage more planting and giving the US producer hope of chasing yields. Moral of the story, yes some acres to the north have been switched to beans due to weather and planting difficulties, but I haven’t found hardly any producers who rolled with a significantly larger amount of soybean acres than normal. That’s why I believe the March estimate of 81.5 million was off base, potentially way off base. If you held a gun to my head and told me to call a shot, I would have to say corn acres stay steady to a bit higher (weather after the survey kept some corn acres from going in the ground that would have been planted). Soybean acres steady to lower. Even though beans acres had to replace corn in the delayed planting areas I’m just not seeing the big shift to soybean acres like the trade was talking back in March. Just be careful getting overly bearish the soybean market going into this report.
Came across an interesting study that I wanted to pass along. The study was undertaken by researchers at Growmark and centered around one question: are stocks and stocks-to-use ratios meaningful for price determination? Without getting too deep in the weeds I will try and summarize what this very technical and scholarly study came up with. The relationship between stocks and the stocks-to-use ratio and prices was studied from a number of different perspectives, which is covered below. The data from these various studies establishes that stocks and the stocks-to-use ratio are often meaningful for price determination primarily in that stocks and prices move inversely or opposite of each other. For example, when production and stocks are reduced, commodity prices tend to push higher due to supply and demand. However, the study found that this correlation occurs within a limited price range, meaning that stocks do not dictate the extent of the price moves–stocks do not influence overall price levels. Interestingly, they pointed to the fact that often, the correlation is reversed in that changes in prices can cause changes in stocks. The authors of the study go on to say that mathematically or technically, stocks can affect prices only in inverse proportion to the reduction in product actually traded on the market, and no more. Since production shortages responsible for low stocks are not sustained for more than a year or two, it is impossible for low stocks to be responsible for an ongoing rise in prices. Since production levels actually rise over time, most price level changes — particularly increases — over longer periods are due solely to changes in the quantity of money spent for a commodity. Below are a few of the different perspectives they analyzed that deal with this issue:
While long-term analysis revealed certain correlation between the stocks-to-use ratio and prices, they are weak. The paper demonstrates how the correlation is actually a result of price inflation over time.
Their analysis also showed there is no consistency at all in terms of stocks-to-use changes and the magnitude of price changes with little ability to predict the amounts of price changes or even price direction year-by-year.
The study found that, for the most part, the tendency for increasedimports or decreased exports to compensate during a year of low stocks is not evident. This points to the likelihood that low stocks are not as much of an actual threat as commonly imagined.
- An analysis comparing production and supply changes (i.e., the driver of low stocks) to price changes reveal a general tendency for larger price changes to occur when larger production changes occur, but also shows that the results are sporadic year by year. No relationship was found between supply changes and price changes.
A final analysis displays that the four crops in the study—corn, wheat, oats and barley—all have wildly different patterns of production and stock levels through time, but have an almost identical price pattern over time, as do most commodities. This shows that other forces besides stocks, production or any other fundamentals of the individual crops appear to be the primary driver of larger price movements.
At the end of the study, the authors presented an idea that I found most fascinating: They believe that the dominant factor in setting the price level of agricultural commodities is shown to be changes in the quantity of money and volume of spending, which is mostly unrelated to agricultural factors. This spending is channeled mostly through a single source and hits all commodities rather evenly and at the same time. While influences like stocks and production do affect prices — to a degree — the authors of the study believe that overall larger price levels and ranges are dictated by monetary factors. You can read the study in its entirety HERE. Like I said, it’s an extensive report and quite technical, but its findings are interesting and along similar lines to what I have been saying for the past several years.
As everyone has been focused on the possibility that copper and iron ore might have been part of huge amount of double-finance deals in China, no one was really expecting them to turn up a massive gold fraud. According to the country’s national auditor, since 2012 Chinese companies have used fake gold transactions to obtain more than $15 billion in loans! The scam involves more than 25 processing firms and fuels even more concern over how many billions of dollars worth of commodities might be part of this same sort of financing fraud, among which could be a good deal of soybeans. To simplify this for anyone that hasn’t been following along – a significant portion of China’s raw-commodity demand has probably been part of a grander David Copperfield illusion of high-tech smoke and mirrors???
We are hearing reports of waist high and even shoulder high corn all over the belt. In fact there are reports circulating that corn is starting to “tassel” in parts of southern IL, MO, etc… In other words we could end up getting a larger portion of the crop than normal out of the field early…further reducing risk and adding more supplies to the old-crop balance sheet.
USDA’s Weekly Corn-Conditions: The “GD/EX” rating is moved higher from 75% to 76% and now stands at one of the highest ratings in modern times. Here are the weekly changes: NC down -10%; ND -5%; NE -4%; CO, MI, MN & SD -1%; IN, KY & PA +0%; IA, OH & WI +1%; IL & TN +2%; KS +3%; MO +4%; TX +7%.
Soybean Weekly Crop Conditions: The “GD/EX” rating fell by -1% in the past week and now stands at 73%. Here are the details: MS down -9%; KY -7%; NC -6%; AR -5%; IL, SD, TN & WI -4%; MI & MN -3%; IA-2%; NE -1%; MO +0%; IN & OH +2%; KS +4%
In case you haven’t heard the Qingdao CCFD ponzi investigation is in full-swing and starting to make many in the commodity investment world very nervous. In case that wasn’t enough, Chinese commodities trading firm CITIC is now admitting that over half of its 220,000 tons of aluminum have pulled a “David Copperfield” and vanished. On top of that there is talk that other commodities at the Qingdao port could be missing as well. The fear is as the investigation into the “missing” commodities grow and deepen, traders are going to realize a much larger portion of the so called Chinese “demand” has been fictitious and used exclusively to fuel several elaborate banking schemes. Investigators are trying to determine if various groups have been using the same batches of copper and aluminum stored at the port as collateral to secure multiple loans. The other fear, which is already starting to materialize, is that increased uncertainty and scrutiny of shipments may severely hurt or drastically slow down imports of various commodities. We are already seeing international traders holding back and delaying cotton and copper shipments as they wait for more clear Chinese policies and some type of ruling on the current investigations. We are hearing customs officials are taking anywhere from 15 to 20 days to up to a month to clear shipments of copper cathodes. Earlier, it used to take seven to 10 days. The question being asked is just how much of the Chinese demand was REAL and how much was fabricated to provide collateral in a very smoked filled shadow banking system?
*Pictured below is Qingdao Port, consistently one of the 10-busiest ports in the world.
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?