I will start the piece tonight with a disclaimer. The following are my own thoughts and perceptions. The reason behind the disclaimer. There are things going on that I just do not understand relative to an historic outlook based on my perceptions. Perceptions of what makes sense. The soy today was under pressure as were the products. The meal along with the domestic crush margins remain supported. It is my belief the beans and meal are well over valued. People talk a lot about profitability as if that matters to the market. Historically, it is the markets job to limit either production or consumption through price. The markets may go through unprofitable periods. Too high prices cut consumption. To low adds consumption, cut production. The problem is now the whole globe is producing too much. And as usual people want to find a reason why this is different and prices will stay high justifying 9-10 thousand acre land. Wrong. Let’s look at some facts, not thoughts. The US export pace is 35% behind projections. The Chinese are projected to import 88 million tons. This after analysts predicted 104 plus all over the place. My thought was no way. We are at a change. A stagnation of consumption. This is typical after huge growth for a decade. The Chinese buy 10 mmt from us, Brazil and Argentina lose it. This does not add 10mmt to the global demand. Now the Brazilian basis is breaking and will get in line with a normal historic relationship. It is talked about that the African swine flu is spreading all over China, and now Vietnam. This could cut Chinese pork production 20-30%. The Chinese crush margins are now negative. Oh but wait, the US margins are still close to $1.00 (crazy). How is this possible? Commercials talk about the demand for meal. Record amounts out there with a record crush. It is said that the Chinese state owned Sinograin is seeking crushers to ship beans to make room to buy more US beans they don’t need to fulfill trade promises. The Chinese basis sinks daily. In closing, who knows, perhaps the funds will buy beans tomorrow and the world will look rosy and we will rally? It is my belief the fundamentals justify little of what we see. Again, just my thoughts.
Looking at Corn. The Corn has taken a wait and show me attitude. The market does not believe the Chinese will buy corn when it is perceived they do not need it. The Ethanol grind is down a bit and this is also adding to the scenario as well as a general beneficial weather pattern in South America. What if can be a long way off to the market. The one thing I believe to be true, the US carry is not a burden and a bit friendly. The current price is in the low end of a 4-5 year range. The weather domestically could present some planting problems that prevent an estimated expansion of corn. It is important to note that a high percentage of the global corn stocks are currently held in Russia. One last comment. The global production of feedgrains is on the rise. It is important to remember the cost of production outside the US is typically cheaper. The foreign player will sell for less. This can be a bearish noose. I still remain cautiously friendly corn and believe there will be one more rally. We are now in the period where the market can bottom if there is a seasonal reason. Hasn’t shown up yet.
To discuss my negative views or any other aspect please call 800 993 5449 or jwalsh@walshtrading.com
” I AM AN OPTIMIST, IT DOES NOT SEEM MUCH USE TO BE ANYTHING ELSE ” WINSTON CHURCHILL