Corn

[HerefordSire]

Looks like now is getting close to a good time to buy some contracts.



$4 Corn

While still not exactly cheap, corn under $4 does have its positives.

First off, ethanol plants will see their costs come down, assuming there are any ethanol companies around to take advantage of the prices - the largest, VeraSun (VSUNQ.PK), is currently in Chapter 11. With gasoline prices back near 2005 levels, demand for ethanol has (unsurprisingly) fallen off. Even though corn prices have dropped to almost half of their record high, ethanol manufacturers are closing plants and cutting production, as the price for their product is dropping faster. The combination of low demand and the high corn contract prices they had to accept in the summer killed their margins. If corn stays cheap enough long enough, however, it could turn the ethanol market around.

Also on the plus side: Lower corn prices translates to lower feed prices, which eases the cost pressure on livestock feed lots. Of course, in slim economic times, demand for expensive meat goes down, but the ease in feed costs may give meat producers a little more flexibility in riding out the slim times without having to decimate their herds to save money, which is where things were headed with corn at $7.

On the negative side, with prices forecasted this low, it may be too expensive to actually plant and harvest a crop. From Reuters on Friday:

"We can't afford to raise the crop," said Indiana [Farm Bureau] president Don Villwock. "Prices are below the cost of production for corn and soybeans."

Input costs are up all over the board - from land costs to seed to fertilizer, farmers are having to make a lot of decisions right now on where to spend their money on their next crop - and just what that crop will be. Again, from Reuters:

Farmers are waiting far longer than usual to decide which crops to plant, said South Carolina president David Winkles. "There is so much uncertainty of what you can pencil in for a profit," Winkles said.

Some of that uncertainty is due to uncertainty in input costs. Seed costs are high -- Monsanto (MO) is raking it in -- as are fertilizer costs. In fact, fertilizer costs may be heading higher just as crop prices are coming down, due to, of all things, the conflict occurring between Russia and Ukraine about natural gas. The gas that flows through Ukraine flows to 18 countries. With cold weather affecting the area, activities that require high energy input, like fertilizer production, are being shut down.

Nitrogen production in particular, in countries like Poland and others, has been reduced, and in some cases shut down completely. There is some concern about a coming nitrogen shortage and corresponding price increases. While recent news suggests the disagreement will settle down, the local uncertainty is far from settled.

Not exactly a fun time to be a farmer.

http://seekingalpha.com/article/114412- ... k-for-corn

 

[HerefordSire]

Higher high is what I am looking for....

Grains

Corn: March corn made a higher high last week but failed to follow through, closing 1 ½ cents lower. Monday the USDA will release its monthly crop report with average pre-report trade guesses having corn production for '08 at 11.982b.b., down from the last report of 12.020. Ending stocks, due to the decreased usage, are expected to come in at 1.489b.b. vs. 1.474 last month. More important than the crop report this week could be the weather in South America. Argentina and Brazil remain too dry to help early emerging corn crops.

The report should be friendly, but on a surprise bearish reaction or precipitation in South America we could see a move down between 3.55/3.70. Support is seen at 3.90 with resistance at 4.30. We still have clients in the option/futures strategy from 2 weeks ago at a slight profit looking to react depending on the movement this week. (Sold May 4.30 calls, bought March 4.10 puts and long March futures just under 4.00.)

Beans: March soybeans were 56 ½ cents higher last week and on the charts there is no real resistance until $11. We have been advising clients to work out of their longs, lightening up, taking profit on the way up to lessen exposure in case of any surprises on Monday's USDA report. The average pre-report guess puts production for '08 at 2.910b.b. vs. 2.921 on the last report. Ending stocks are expected to come in at 186m.b., down 19 m.b. from the December report. The report is expected to be mildly bullish making the recent weather in South America even more critical. March soybeans have advanced $2.50 since the first week of December and if we get some precipitation over the next few days we could see a steep correction, albeit short lived.

We have advised clients to take 2/3 of the recent trade recommendation off. We advised clients to buy back the May calls at a loss (approx. $1200) and to exit the long futures at a profit (approx. $3275). We are still holding March puts looking to exit on a setback. Current support comes in at 9.80 followed by 9.50; on a move to these levels we would most likely cover the remaining puts and potentially look to re-establish longs.

Wheat: March CBOT wheat picked up 16 ½ cents last week. Resistance is seen at last week's double top of 6.46 with support at 5.95 followed by 5.80. On a move lower in corn and soybeans we expect CBOT to trade down between 5.40/5.55. March KCBOT picked up 18 cents last week. Resistance is seen at 6.70 with support at 6.25 followed by 6.10. On a set back look for a long entry with stops below 5.40. The KCBOT/CBOT March spread closed last week at 21 ½ cents premium to KCBOT. We still like the trade with stops on a close only basis below 15 cents and a target of 45/50 cents.

Monday's USDA report for wheat has pre-report trade estimations for winter wheat planting at 44.178m.a. down from 46.181 last year. The average trade estimate for ending stocks inventory is 600m.b. vs. 623 last month. Most of this should already be priced in with wheat continuing to look for guidance from corn and soybeans. Weather has also played a role in the pricing of wheat, not solely corn and soybeans. Argentina will reap the smallest wheat harvest since '89 after weather conditions curbed yields. The crop will be no more than 8.7 million tons, down at least 5.4% from a previous forecast.


http://seekingalpha.com/article/114373- ... bamanomics

 

[HerefordSire]

People and animals have to eat right? The red bar below may be off now due to economy.

 

[SRBeef]

Most corn nitrogen fertilizer comes from natural gas which is in turn usually almost a byproduct of crude oil production.

Natural gas can be shipped as a gas in a pipeline - as across Russia, Ukraine, etc, or it can be liquified and shipped in a tanker ship, or it can be turned into urea at or near the point of origin. Urea as a dry product is much easier to store and ship than a gas/lpg or ammonia which is extremely hazardous.

The two primary sources of N for corn are ammonia - made from natural gas or dry urea. Liquid N (28% or 32% is typically made from dry urea mixed with water etc by various processes.

N prices have declined enormously from their peaks last summer and typically follow the crude oil prices somewhat. There is and will be plenty of N available for the coming growing season at more rational prices than thought last summer.

Ethanol is mandated to be mixed at a certain percent of gasoline. However gasoline consumption is down so the ethanol fraction is down. Also as the retail price of gas has dropped from about $4 to under $2 per US gallon, the attractiveness of E-85 with its price advantage has dropped and so has consumption.

Other fertilizers have leveled or started to drop as folks look closer at what they need rather than just dump it on as they always have. Soil tests and more efficient use of fertilizers can often reduce fert costs without affecting yields.

Rents on corn ground shot up and in many cases have been locked in at very high prices which are not sustainable at current corn prices. However this may be a good thing in the long run, except for those that signed long term leases at high rates, as there was no way that corn could keep up with the rise in rents.

Overall I feel that corn in the $4 range is much more sustainable and good for the ag economy as a whole than $7 corn. The entire ag economy can stabilize and do well at $4-4.50 corn and $9-10 beans. Both from a sellers and buyers perspective. It has only been months ago that we were at $2 corn and $5 beans!

Sure the big seed and chemical suppliers are slow to lower prices but competitive forces will eventually take hold again.

If you are a feeder I would agree that $4 corn or anything under that is not a bad spot to buy.

What we need now is to get cattle prices in line with where they need to be to make even a modest profit at the cow/calf or feeder level.

Competition may take a while but I feel will eventually kick in, slowly, to raise cattle prices. Right now it is a fat cattle buyers market and they are not going to pay a cent more than they need to and that means the feedlots are not going to pay a cent more than they need to. jmho.

 

[HerefordSire]

Good Post SR.....everything is going to skyrocket in price soon as the recovery begins....check this out:



Furthermore, it is interesting to note that the Federal Reserve (money-printer extraordinaire) has now started to inflate the supply of money. Over the past few weeks, the Federal Reserve has injected roughly US$300 billion into the banking system without a proportionate increase in its non-banking liabilities via deposits by the US Treasury. In simple terms, what this means is that the Federal Reserve is now increasing bank reserves without the US Treasury removing an equivalent amount of money from the system. Usually, when the Federal Reserves provides surplus reserves to its member banks, the US Treasury borrows this money from the market by issuing bonds; thereby offsetting the inflationary impact of the Federal Reserve's monetary injections. However, this is not what is happening now and this has inflationary implications. Essentially, the Federal Reserve is now creating money 'out of thin air', debasing its currency and sowing the seeds for sky-high inflation.

http://www.financialsense.com/editorial ... /0108.html

 

[HerefordSire]

1-12-2009....good....limit down today. I posted this so it can be refered to in the future if need be.

Jan. 12 (Bloomberg) -- Wheat, corn and soybeans plunged the most allowed by the Chicago Board of Trade after the U.S. Department of Agriculture projected bigger supplies than forecast in December.

World wheat inventories may rise to 148.4 million metric tons by the end of the marketing year on May 31, up 0.7 percent from a December estimate, the USDA said today in a report. Global corn supplies will jump to 136 million tons, up 9.9 percent from a December forecast, the USDA said. U.S. soybean stockpiles before the next harvest may increase 9.7 percent to 6.12 million tons.

"We've got more inventory to work our way through, and we didn't need that," said Larry Glenn, an analyst at Prime Ag in Quinter, Kansas.

Wheat futures for March delivery fell 59.75 cents, or 9.5 percent, to $5.6975 a bushel in Chicago, after earlier reaching the maximum of 60 cents to $5.695 a bushel. The price has plunged 58 percent from a record $13.495 on Feb. 27.

Corn futures for March delivery dropped the 30-cent CBOT limit, or 7.3 percent, to $3.8075 a bushel. The most-active contract is down 52 percent from a record $7.9925 on June 27.

Soybean futures for March delivery declined the 70-cent limit, or 6.8 percent, to $9.66 a bushel. The price is down 41 percent from a record $16.3675 on July 3.

Lower Feed Costs

Rising corn and soybean inventories may decrease feed costs for meat producers including Tyson Foods Inc. and Smithfield Foods Inc. and lower global demand for fertilizer from Mosaic Co. and seeds from Monsanto Co. Increased wheat supplies may cut costs for Kellogg Co. and General Mill Inc., the biggest U.S. cereal makers.

The U.S. wheat surplus as of May 31 will be 655 million bushels, the government said. The estimate is 5.1 percent higher than last month's forecast of 623 million and more than double the 306 million bushels on hand a year earlier.

U.S. soybean stockpiles will reach 225 million bushels in the marketing year that ends on Aug. 31, up from 205 million projected a month earlier, the USDA said.

U.S. corn inventories on Aug. 31 will total 1.79 billion bushels, up 21 percent from 1.474 billion forecast in December and 1.624 billion a year earlier, the USDA said. The department also raised its estimate for the 2008 U.S. corn crop, the world's largest, by 0.7 percent and cut its estimates of U.S. exports, and production of ethanol and animal feed.

The USDA said last year's corn harvest totaled 12.101 billion bushels, up from 12.02 billion estimated in December on better yields and increased harvested acreage. The crop would be the second-biggest ever, down 7.4 percent from a record 13.074 billion in 2007, when farmers planted the most acres since 1944.

'Burdensome' Supply

About 3.6 billion bushels will be used to make ethanol in the marketing year, down from 3.7 billion forecast in December, the USDA said. A year earlier, a record 3.026 billion bushels were used for the biofuel.

"Corn supplies are going to be burdensome," said Peter Meyer, director of agricultural sales and structuring for Barclays Capital in New York.

"Reports were generally more bearish than expected; larger domestic production, combined with slacker demand, leaves forecasts for 2009 ending stocks for corn and soybeans on very comfortable footing," Lewis Hagedorn, a commodity strategist at JPMorgan Chase & Co. in Chicago, said in a report. "Domestic wheat inventories, already in surplus, grew still larger."

The estimate of last year's soybean crop was also raised to 2.959 billion bushels. That's up 1.3 percent from 2.921 billion projected in December and up from 2.677 billion bushels harvested a year earlier.

Reduced Consumption

Global soybean use is expected to total 231.1 million tons, down from 232.6 million forecast last month, the USDA said. U.S. consumers may use 50.3 million tons, down from 51.1 million estimated in December, the government said. That will cause inventories to rise, analysts said.

"The trend in usage is declining," said Chad Henderson, a market analyst for Prime Agricultural Consultants Inc. in Brookfield, Wisconsin. "Supplies are rising because of the global economic slowdown."

Corn and soybeans also fell after the USDA said U.S. farmers reduced the number of acres they planted with winter wheat by 9 percent, more than expected. Seedings were reduced after heavy rains in October and November left some fields too muddy for farm machinery, the government said.

Reduced Wheat Acreage

"Reduced winter-wheat plantings mean farmers have more acres they can plant to corn and soybeans," said Dale Schultz, a commodity specialist for Gottsch Enterprises, a cattle and hog feeder in Hastings, Nebraska. "There is absolutely no incentive to buy grain ahead."

Winter wheat, the most common variety grown in the U.S., was planted on 42.098 million acres from September to December, down from 46.281 million acres in 2007, a 10-year high, USDA said. Eleven analysts in a Bloomberg News survey expected seedings of 44.056 million acres, on average.

In a separate report on quarterly grain supplies, the government said U.S. wheat inventories on Dec. 1 totaled 1.422 billion bushels, up 26 percent from 1.132 billion a year earlier. About 2.276 billion bushels of soybeans were on hand, down 3.6 percent from 2.36 billion a year earlier.

Corn is the biggest U.S. crop, valued at a record $52.1 billion in 2007, with soybeans in second place at $26.8 billion, government figures show. Wheat was fourth-largest, behind hay, valued at $13.7 billion, according to the USDA.

http://www.bloomberg.com/apps/news?pid= ... IfsJiQDLBk

 

[TexasBred]

Until now most farmers with "on farm" storage facilities were sitting on corn stocks and refusing to sell at current prices. This supply might loosen some the closer we get to planting time as bankers will require them to sell off their surplus in order to invest the money in fertilizer and seed. No more 110% loans for anyone. A few farmers around here are already calling checking on what is being offered for corn, milo and wheat in storage. Corn down 3 cents right now to $3.78 with basis $.35 under the board, beans up 31 an wheat up 16.

 

[mnmtranching]

Ethanol plants have contracted corn in the $5 plus range and producers that have delivered did good. Now the plants can't afford to put in the expensive corn so their buying on the cash market. I believe there will be law suits and many plants will be forced into bankruptcy. Like I've said all along "ethanol will kill itself"
Just my opinion. Any thoughts?

 

[TexasBred]

Ethanol plants have contracted corn in the $5 plus range and producers that have delivered did good. Now the plants can't afford to put in the expensive corn so their buying on the cash market. I believe there will be law suits and many plants will be forced into bankruptcy. Like I've said all along "ethanol will kill itself"
Just my opinion. Any thoughts?

Hope your right mnm..Don't know what the plants are getting paid for their ethanol but when you figure 2.6 gallons ethanol per bushel of corn, plus gov't subsidity plus another $1.65 per bushel for sell of DDG it doesn't leave a lot of wiggle room for operating expenses and/or profit. Maybe they'll all shut down or find another raw material for production of ethanol.

 

[mnmtranching]

Ethanol plants have contracted corn in the $5 plus range and producers that have delivered did good. Now the plants can't afford to put in the expensive corn so their buying on the cash market. I believe there will be law suits and many plants will be forced into bankruptcy. Like I've said all along "ethanol will kill itself"
Just my opinion. Any thoughts?

Hope your right mnm..Don't know what the plants are getting paid for their ethanol but when you figure 2.6 gallons ethanol per bushel of corn, plus gov't subsidity plus another $1.65 per bushel for sell of DDG it doesn't leave a lot of wiggle room for operating expenses and/or profit. Maybe they'll all shut down or find another raw material for production of ethanol.

I read in a AG paper there will be billion gallons of corn ethanol backed up by Spring?

 

[TexasBred]

Ethanol plants have contracted corn in the $5 plus range and producers that have delivered did good. Now the plants can't afford to put in the expensive corn so their buying on the cash market. I believe there will be law suits and many plants will be forced into bankruptcy. Like I've said all along "ethanol will kill itself"
Just my opinion. Any thoughts?

Hope your right mnm..Don't know what the plants are getting paid for their ethanol but when you figure 2.6 gallons ethanol per bushel of corn, plus gov't subsidity plus another $1.65 per bushel for sell of DDG it doesn't leave a lot of wiggle room for operating expenses and/or profit. Maybe they'll all shut down or find another raw material for production of ethanol.

I read in a AG paper there will be billion gallons of corn ethanol backed up by Spring?

hmmmm....will a little more refining make it "white lightening"?? :!: :!: