Ray Grabanski: Reports, spring coming
As the sun rises on a Mid-March day, we await another USDA report which typically is full of dull news in March, but today may be slightly different as the world starts this March, 2011 with some very tight stocks and nervous buyers, as we move into the start of another production season. With stocks very tight in corn and soybeans, and
relatively tight in wheat and with a cotton market raging at all-time world history highs, it is indeed a worrisome situation for grain buyers.
As the market report was out, slightly larger grain supplies and production in wheat and soybeans seem to be giving buyers some comfort this morning.
These nervous grain buyers have driven the world's grain markets (and many other commodity markets) to near all-time highs this year, fighting for competing supplies of grains and realizing that, yes, they can spend that much for grain! There has to be some surprise at sticker price shock, but since this same event happened just 3 years ago is giving these buyers some comfort in buying at these price levels.
So ethanol users continue to grind corn, even though that corn is now worth about $6.50-$7 cash on the market (although it might have been bought for a considerably lower average price). A key question for these users is whether they can make more money by selling the corn than by crushing it through their plants. It is likely that some managers are sharpening their pencils in calculating this out as this is written, and as another USDA report is being ground out.
One has to only wonder how much longer we can go on with this market rally, especially given the current price levels. While corn still has the appearance of a bull market (although arguably a tired bull market), the wheat and soybeans have shown a more tenuous situation, with prices sagging the past month in what might be the beginning of a bear market!
These prices dropped sharply in early February, and since recovered about half of those losses, and then faded away again. This is starting to look like a very tired wheat and soybean market.
Cotton had the appearance of a market top just a few weeks ago, only to roar back and take out the previous highs as we expired the March contract. Either the latest rally is just a rue (markets love to fake us out at previous highs), or indeed the cotton market has indeed such a tight stocks situation that no price will seem to be high enough. Prices in the lead May contract actually locked limit up 700 points for 6 straight days, and finally traded off those highs to close limit down by the end of the trading day. Is this really a top? Or just another fake out in what is still a bull market?