Monthly Archives: January 2015

What About Chinese Cancellations?

There’s a lot of mystery currently surrounding Chinese import demand for soybeans. We recently digested two days of “cancelations” followed by a day of purchases. The trade is a bit nervous because the cancelations are coming about a month earlier than last year. The other concern is there’s probably 2.5 to 3.5 million tons of soybeans left that need to be shipped against sales that have already been booked. With this many beans still yet to leave US ports and China already making cancelations, there’s definitely reason to be concerned. Keep in mind Chinese meal has also been falling under more heavy pressure…Stay Tuned! 

Why Are Crude Oil Prices Continuing To Fall?

Basically there are a couple of theories and I’m personally guessing its a combination of the two. Just keep in mind back in July of 2008, oil was at $147 a barrel. By December of 2008 it was down to around $32 per barrel…a drop of over -75%. In other words, prices may still have further to tumble.

Increased Production and Less Demand – Chinese demand has somewhat slowed, while U.S. oil supplies have risen from five million barrels per day to around 9.3 million barrels per day in the past five years. Also keep in mind we are using more bio-fuels and vehicles are getting much better gas milage. You also have to recognize the Saudis have brought more rigs online. 

Geopolitical Maneuvering – The Saudis are making their move for political reasons. They clearly want to send a message to Russia as they fear the implications of a well funded Iran and ISIS [the Islamic State] military movement. Bottom-line, this is a very viable way to  break Iran’s economy. the theory is that Saudi Arabia has nearly $750 billion in reserves and can withstand low oil prices for several months, perhaps even a year or more. My point is, the Saudis clearly have a game plan and they will want to see their goals achieved before they change or shift their policy. The next OPEC meeting is in June and I highly doubt the Saudi’s veer from their current positioning.

Looking At 2015 Corn Production

Traders must now turn the page from “old-crop” to “new-crop.” Questions and debates are already arising in regard to 2015 production: 

  • How many corn acres will US farmers plant in 2015? Most early guesses range from 87 to 90 million acres. The consensus seems to be a number north of 89.0 million will be considered somewhat bearish, while a number sub-88 million might start to be considered somewhat bullish. Obviously the bulls are wanting to see the acreage number slip down to around 87 million acres or lower. On the flip-side the bears are thinking if corn prices can hold at their current levels or perhaps slightly higher, US producer will plant closer to 90 million corn acres.     
  • What type of yield estimate will the USDA start out using? You have to believe the USDA will start with a yield estimate somewhere between 165.5 and 167.5 bushels per acre. Bulls are hoping somewhere along the line a “weather” story can build that eventually causes the the trade to consider a 10-12 bushel reduction in yield. If this is to happen prices could certainly push north of $5.00 in 2015.  The problem is without a bullish weather story, yields around or north of 167 bushels per acre would certainly be hard for the bulls to overcome, hence keeping a lid on most any and all significant rallies.   
  • What about South American Production? Most sources inside the industry are looking for Brazilian corn production to be down by about 5.0 MMTS, Argentine corn production is estimated to be down some 3.0 to 4.0 MMTs. A lot will obviously depend on the weather moving forward and the planting of second-crop corn in Brazil. Most sources will tell you the second-crop in Brazil needs to be planted by late-February or at the latest the first week in March. Stay tuned…

Believe It or Not​,​ 5 US States Have Hottest Year on Record

2014 was quite a year across the globe for warm temperatures. At the stroke of midnight on the 31st of December, a number of US urban areas joined the record-setting festivities while not a single major urban area achieved record cold. The facts are, it’s been almost 30 years since a major US city had a record cold year. According to the folks over at Climate Central, 17 of the 125 largest metropolitan areas in the US had their hottest year on record. Interestingly, the record setting cities all sit to the west of the Rockies. The heat followed Interstate 5 from Seattle down through Portland, Sacramento and San Diego with detours to San Francisco, Fresno and Modesto before heading east to Las Vegas, Phoenix, Reno and Tucson. Salt Lake City, Los Angeles and El Paso are among other western metro areas also had their top 5 warmest years. Here are some more details from the year-end report.

  • Five states with record setting cities were Arizona, California, Nevada, Oregon and Washington.
  • California has 10 of the 17 hottest cities in part because it’s such a huge urban state, but also because it has experienced some extreme heat over the year. the state was running about 2 degrees F above its previous hottest year, which is a huge margin when you consider most records are broken by tenths or hundredths of degrees.
  • The 17 metro areas that set records in 2014 have a population of 28.5 million, or about 9% of the US population.
  • Some metro areas, however, such as Kansas City, MO and Fayetville, AR did actually experience a top 10 coldest year, but most major cities east of the Mississippi River had just cool or near average temps. This of course, was due to that polar vortex that sat over the middle section of the nation for the first couple months of last year.
  • It’s been 29 years since any city in the US has seen a record cold year. The last metro area to feel the big chill was Kansas City, Mo., Spokane, WA., and Boise City, ID back in 1985.
  • When it comes to global record coldest year, you’d have to go back a century to 1909. Incidentally, that record was tied two years later on 1911. 

Drug-Resistant Infections Could Kill Millions

 

I know this is a touchy subject, especially as many officials and political interest groups are blaming the ag community for over use and abuse of antibiotics as one of the primary causes of resistance. Regardless of where you stand on this argument, I will always believe it’s imperative that we educate ourselves and fully understand what is being reported. Just this past week the British government released results of a project they funded to determine the threat posed by antibiotic resistance. As you may know, many diseases are growing increasingly resistant to the drugs used to treat them. The study estimates near-future global deaths could climb to 10 million per year and cost at least $100 trillion in lost GDP. Called the “Review on Antimicrobial Resistance,” the study was commissioned following a report from the UK’s Chief Medical Officer in 2013 that said antibiotic resistance was as big a threat to society as terrorism. The Review will continue to release periodic results of their work over the course of the next couple of years. This first release was based on examinations of six pathogens – three bacterial infections that are commonly resistant, Klebsiella pneumoniae, E. coli and MRSA; and three globally important diseases – HIV, TB and malaria. Here are some of their startling conclusions:

  • Antibiotic resistance currently accounts for an estimated 50,000 deaths in the US and Europe. The US CDC puts the number for the US at 23,000. But the project estimates that the actual current death toll is 700,000 worldwide.
  • If antibiotic resistance were allowed to grow unchecked — that is, if there were no successful efforts to curb it or no new drugs to combat it (the latter is very plausible) — the number of deaths per year would balloon to 10 million by 2050. For comparison, that is more than the 8.2 million per year who currently die of cancer and 1.5 million who die of diabetes, combined.
  • Those deaths would cost the world up to 3.5 percent of its total gross domestic product, or up to $100 trillion by 2050.
  • Moreover, the toll of deaths – and the cost of them – would fall unevenly across the world, with the global south and Asia suffering to a greater extent and losing greater amounts of income. In one example, they estimate that 25 percent of all deaths in Nigeria could be caused by resistance if trends continue unchecked.

They conclude their findings with this – For the majority of people, including in leading policy and business circles around the globe, the threat of drug resistance might seem a distant and abstract risk, if it is known at all. This is a looming global crisis, yet one which the world can avert if we take action soon.

USDA WASDE Results, January 12, 2015

US Corn & Soybean Production

Jan. #
USDA Nov.
Avg. Guess
Range of Guesses
2013 Final
Corn Total Crop
14.216
14.407
14.349
14.171 – 14.554
13.925
Corn Yield Avg.
171.0
173.4
173.3
171.3 – 174.3
158.8
Harvested Acres
83.1
83.097
82.765
82.057 – 83.527
87.668
Soybean Crop
3.969
3.958
3.956
3.844 – 4.020
3.358
Soy Yield Avg.
47.8
47.5
47.6
46.8 – 48.2
44.0

Harvested Acres

83.1
83.403
83.044
82.126 – 83.403
76.253

2014/15 January Ending Stocks

 
Jan. #
USDA Dec 2014
Avg. Guess
Range of Guesses
Corn
1.877
1.998
1.927
1.710 – 2.081
Soybeans
0.410
0.410
0.393
0.355 – 0.452
Wheat
0.687
0.654
0.666
0.636 – 0.699

December 1st Quarterly Stocks

 
Jan #
USDA Sep. 1
Avg. Guess
Range of Guesses
USDA Dec 1, 2013
Corn
11.203
1.236
11.123
10.820 – 11.325
10.453
Soybeans
2.524
0.092
2.590
2.400 – 2.742
2.154
Wheat
1.520
1.914
1.499
1.400 – 1.585
1.475

2014/15 World Ending Stocks

 
Jan #
USDA Dec 2014
Avg. Guess
Range of Guesses
Corn
189.15
192.20
191.19
186.50 – 193.00
Soybeans
90.78
89.87
89.35
87.40 – 90.55
Wheat
196
194.90
194.33
190.90 – 196.00

USDA Winter Wheat Acres

 
Jan #
Previous USDA
Avg. Guess
Range of Guesses
Total Winter
40.45
42.399
42.564
41.000 – 44.000
Hard Red
29.50
30.471
31.023
29.800 – 32.115
Soft Red
7.50
8.498
8.039
7.432 – 8.739
White
3.48
3.430
3.502
3.200 – 3.823

New App Could Be A Life-Saving Tool On The Farm

There have been more than 900 grain-bin entrapment deaths nationwide since 1964, according to data compiled by Purdue University’s Agricultural Safety and Health Program. Illinois had 10 grain entrapments in 2010 alone. Now there is a new app that’s helping to ensure a grain rescue tube can always be located. The Illinois Grain Rescue Tube Locator app uses a GPS system to locate the nearest grain rescue tube in relevance to your location, a key component when saving farm workers from drowning in grain filled storage bins. In other words it will tell you which fire department or rescue team nearest you has a grain rescue tube. For those not familiar with a “grain rescue tube,” it’s generally a 5 foot-tall aluminum cylinder that comes in four curved pieces. Firefighters or rescuers place each piece of the tube carefully around a victim who has fallen into a grain bin. They then latch the tube together to help prevent more grain from pushing up against the victim. The rescuers then begin to scoop the grain out of the tube, helping to give the victim more room to breath. These tubes have been used to save numerous lives since they were first introduced about 8 years ago. Now you can track down the nearest tube with just the click of a button. Remember, about 40% of last year’s 33 grain entrapments across the country ended in death. Meaning response time is critical. Currently the app only maps the location of available grain safety tubes in Illinois. The Illinois Corn Marketing Board, together with the Grain and Feed Association of Illinois (creators of the app) are urging other states to consider investing in similar life saving tools. Check out this video preview of the App in action. The actual app is available for download in the iTunes and Google Play stores.

5 Possible Natural Black Swan Events To Monitor In 2015

As we constantly try and avoid the “unpredictable,” I thought I would throw out a few ideas and thoughts I’ve been hearing talked about in my travels. Obviously I have no idea if anything will come from the events, but they are certainly worth thinking about. As you know, I constantly talk about the “what ifs” pertaining to geopolitical risk, but these trends are more concerning in regard to weather and natural events.

  • El Niño – I can’t stress enough how much “weather” is impacted by El Niño patterns. As of this writing there’s still a 45% to 65% chance that a full-blown El Nino weather pattern will appear in 2015. To put it simply, this warm band of water in Pacific ocean could help push the global thermometer up further in many locations. The effects could mean many different things, most of which are highly unpredictable. The biggest fear would be a massive drought in Asia couple with intense rainfall and flooding in South America.
  • Blocking Deserts in China – I don’t know if you’ve seen this yet, but workers in China are busy planting the “Great Green Wall,” a massive belt of man-made forest that eventually will stretch nearly 2,800 miles across China, in an effort to block the growth of the Gobi and Taklamakan deserts and stem the massive dust storms they create. If the trees survive and do the job as envisioned, a similar green belt might be planted in Africa. How this so called “changing of the landscape” effects longer-term weather is still up to debate. Just understand there are some dramatic man-made changes to the landscape taking place. This sounds great in theory, but generally never works out so well in practical application.
  • Ocean Acidification – The oceans are absorbing carbon dioxide and it’s causing the pH levels to change. In a just published study by British Canadian and Swedish researchers they conclude that shrimp aren’t going to taste so good to humans in the near future. There’s also been recent evidence that mussel shells are becoming more brittle because of rising acidity. There is no question that our oceans are changing. The more important question is how close are we to the “tipping point”?
  • Water Shortages – We have discussed water shortages for the past several years and this year is no different. Expected water scarcity and problems with allocation will pose significant challenges to governments in the Middle East, Sub-Saharan Africa, South Asia and northern China. I continue to believe we will see increased civil and political tensions in regions where water supplies are limited.
  • Earthquakes – To start with, lets make certain everyone understands I am a huge proponent of “fracking” and the benefits associated with US energy production and self-reliance. But at the same time we have to acknowledge some additional risk-factors that are being talked about in associat​ion. Study after study is showing an increasing risk of earthquakes along various fault lines. It’s not necessarily the fracking itself causing the concern, but rather the disposal of the millions of gallons of waste water being pumped into injection wells or disposal wells. The oil and gas industry has been grappling with the disposal piece of the puzzle for years. Several states are now starting to jump on the bandwagon and propose legislation that bans fracking in certain areas because of what they are seeing as increase earthquake risk. Regardless of if you agree or disagree this could eventually turn into more substantial headwinds for the energy industry.

USDA Estimates for Final 2014 production

US Corn & Soybean Production

 
Jan. #
USDA Nov.
Avg. Guess
Range of Guesses
2013 Final
Corn Total Crop
???
14.407
14.349
14.171 – 14.554
13.925
Corn Yield Avg.
???
173.4
173.3
171.3 – 174.3
158.8
Harvested Acres
???
83.097
82.765
82.057 – 83.527
87.668
Soybean Crop
???
3.958
3.956
3.844 – 4.020
3.358
Soy Yield Avg.
???
47.5
47.6
46.8 – 48.2
44.0

Harvested Acres

???
83.403
83.044
82.126 – 83.403
76.253

2014/15 January Ending Stocks

 
Jan. #
USDA Dec 2014
Avg. Guess
Range of Guesses
Corn
???
1.998
1.927
1.710 – 2.081
Soybeans
???
0.410
0.393
0.355 – 0.452
Wheat
???
0.654
0.666
0.636 – 0.699

December 1st Quarterly Stocks

 
Jan #
USDA Sep. 1
Avg. Guess
Range of Guesses
USDA Dec 1, 2013
Corn
???
1.236
11.123
10.820 – 11.325
10.453
Soybeans
???
0.092
2.590
2.400 – 2.742
2.154
Wheat
???
1.914
1.499
1.400 – 1.585
1.475

2014/15 World Ending Stocks

 
Jan #
USDA Dec 2014
Avg. Guess
Range of Guesses
Corn
???
192.20
191.19
186.50 – 193.00
Soybeans
???
89.87
89.35
87.40 – 90.55
Wheat
???
194.90
194.33
190.90 – 196.00

USDA Winter Wheat Acres

 
Jan #
Previous USDA
Avg. Guess
Range of Guesses
Total Winter
???
42.399
42.564
41.000 – 44.000
Hard Red
???
30.471
31.023
29.800 – 32.115
Soft Red
???
8.498
8.039
7.432 – 8.739
White
???
3.430
3.502
3.200 – 3.823

2014/15 South American Production Numbers

 
Jan #
USDA Dec 2014
Avg. Guess
Range of Guesses
Brazil Corn
???
75.00
74.66
72.25 – 75.80
Argentine Corn
???
22.00
22.49
21.20 – 29.20
Brazil Soy
???
94.00
94.60
93.50 – 98.00
Argentine Soy
???
55.00
55.45
54.00 – 59.20

What About Cattle Prices In 2015?

Will Cattle Prices Make New Highs? Wow, what a terrific year for cattle. Almost everyone I have talked to did extremely well.  Feed prices came down dramatically, while pasture ground showed dramatic improvements. The question is can we continue to keep the bull run alive?  I think we can, at least through the early part of 2015.  From everything I’m hearing we should continue to see declining beef production for the first half of 2015, but beyond that things will start to tighten up. Keep in mind during each of the past few years the calf population has averaged a steady decline, that more than likely will not be the case in 2015. In fact most insiders are thinking the calf population will finally start to increase. Actually, some are saying the biggest increase since 1997. With corn and feed prices stabilizing and the herd starting to increase, it clearly appears that margins will start drifting back towards much more normal levels. Meaning profits for those in the cattle business, though profitable, will more than likely be nothing like they were in 2014. Another concern I have and reason I suspect there will be a lid kept on dramatically higher prices, is the fact we are seeing bigger gains in pork and poultry production.  In other words there could be more heavy competition from the cheaper alternatives. I have lots of buddies with cow-calf operations. How they approach their business this Spring will be interesting. Do they hold on to their heifers and continue rebuilding or is this the time to take some chips off the table and cash out? We have to recognize the  structural changes and shifts that may soon be hitting the cattle industry. Often the easiest thing to do is simply continue down the same path.