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Farmers Grain Market Letter  12/22/14 2:01:23 PM Printer Friendly VersionPrinter Friendly Version

Market Letter

Outside Markets / Other Info     
            The U.S. Dollar continues to climb, the Dow has its sights on 18,000, and commodities seem to be bouncing off the recent lows.  The run of the U.S. Dollar Index pushes through multi-year highs as the strength of the economy improves.  The rally of the Dow, since the spring of 2009 has marched 12,000 points and is trying to break 18,000 by year’s end.  Gold is bumping along, just above major support at $1,100 and crude oil has collapsed.  What lies ahead for grain?
            The harvest lows that came early in October seemed to catch end users off guard.  There had been so much talk for so many months about the size of this crop that most buyers were expecting prices to drop to the mid $8.00 range before rallying.  Spot soybeans went from over $15.00 in May, to $9.00 in late September.  There was so much discussion of a huge crop coming, that end users were perhaps greedily believing the news they were putting out.  Surprise! Surprise! Surprise! (As Gomer used to say).
            The market rallied back quickly.  So, rather than locking in feed prices close to the harvest lows, most end users had to settle for prices 10% higher.  Soybean meal demand was the strength of this market and most buyers were thinking this was going to collapse during harvest, but demand brought it charging back.  To the markets shock, there were not as many ready sellers as they thought.  The weather happened to hold up harvest enough that the big push to compete for space never happened.  A lot of grain was able to find a home (a bin to hide in), until buyers had to start asking for it.  A wet, slow harvest saved us from reaching those $7 lows, at least for now.
Wheat is on the move!  Whether the early cold, wet weather in the Midwest or Russia trimming exports, wheat has rallied $2.00 recently.  There is plenty of wheat globally, but what is planted is not in the best shape.
            The problems in Russia are being compounded by their policies to restrict exports until they know this new crop is going to make it.  Add to that some problems in Australia and our own Midwest, and the rally is on. 
 Corn / Milo
            What happened to the big corn crop?  The whole process started in the spring as traders anticipated a record crop, but by the time it was confirmed, we were putting in harvest lows and price recovery was on the way.
            Ethanol saved the day!  The backbone of demand was coming from good margins for producing and blending ethanol.  This steady, home-based demand is key to turning this market around.  In fact, it is so strong that the acres battle has already started.  The corn / soybean ratio has a lot of influence on whether we plant more corn or not.  November 15 soybeans divided by December 15 corn is 2.34 to 1.  When this ration is higher, we usually plant more soybeans; when this ratio is lower, we plant more corn.
            In November, this ratio peaked at 2.53 to 1, favoring more soybeans, but has been dropping recently. We are about evenly matched right now, in no-man’s-land, between planting soybeans or corn.  Corn and soybeans will start slugging it out after the 1st of the year. Informa said recently that they expected 88 million acres of each next year.
            On the December Long Grain Supply / Demand report, there were no changes on the Supply side. On the Use side, exports were increased 1.0 mln cwts, which resulted in a reduction of 1.0 mln cwts in Ending Stocks. Ending Stocks are now 27.0 mln cwts vs. 28.0 mln cwts last month.  On the Medium Grain Supply / Demand report, there were no changes to the balance sheet this month.  However, average price was reduced $0.50/cwt from $19.00-$20.00 to $18.50-$19.50.  Looking at the World Supply /Demand report, Ending Stocks increased marginally. Global rice production projected at 475.2 mmt vs. Global Consumption at a record 482.9 mmt, a 7.7 mmt deficit (1.62%).
The U.S. finally sold Iraq some rice.  In late November, we sold 4 cargos, 120,000 mt.  Prices were extremely cheap, trying to get the business.  Unfortunately, there were no immediate improvements in prices.  The Iraqi’s are scheduled to take offers for the next tender on December 21st and will have until the 26th to reply.  Prices are currently soft.  A new round of Iraqi buying (at higher prices) and / or some additional Venezuelan business would be helpful right now.  It is unclear what effect this price collapse in crude will do to the Venezuelan business nearby.
Everyone has heard by now that the Obama administration has announced a move to update U.S. policy in regards to Cuba, and reestablish diplomatic relations.  In regards to rice, Cubans have a rice consumption of approximately 900,000 mt (20 mln cwts milled).  They import approximately 450,000 mt (13 mln cwts milled). The U.S. sold rice to Cuba as late as 2008, before the U.S. tightened down and installed new banking restrictions that disallowed U.S. banks and Cuban banks from dealing direct.  This resulted in the use of third-party banks, driving up cost and impeding business.
It is unclear if any business with Cuba would be done through normal commercial channels or if it would be done under a government aid program.  In order for the embargo to be lifted, Obama would have to take it to Congress for approval; he cannot do that by executive order.  The next question is whether or not any rice trade with Cuba would come in this marketing year or not???  Make no mistake, this is big news for the rice industry.  Those of us involved in this industry have been waiting a long time to see a green light without major government impediment in regards to doing business with Cuba.
The Lighter Side
            The shopkeeper was dismayed when a new business mush like his own opened up next door and erected a huge sign which read BEST DEALS.
            He was horrified when another competitor opened up on his right, and announced its arrival with an even larger sign, reading LOWEST PRICES.
            The shopkeeper was panicked, until he got an idea. He put the biggest sign of all over his own shop-it read...MAIN ENTRANCE.
FGT News
          Holiday Schedule—FGT will close at noon Wednesday, December 24 & reopen Monday, December 29; and close for New Year’s Day, January 1st.
            Thank You—We at FGT extend our sincere thanks and best wishes to all our customers and friends.  You make this company successful by choosing to bring your business here.  Just as on the farm, unit costs go down and rebates go up when you can spread expenses over more bushels.  And that makes possible more operational improvements to enhance efficiencies at the elevator and on the farm.          
            Patronage Rebates—Speaking of rebates, FGT will mail rebates on January 2, 2015.  Total rebates are 26.4 cents per bushel for soybeans, 27.3 cents for wheat, 25.8 cents for milo, 22.1 cents for corn, and 19.8 cents for rice. This year, FGT returns to paying 75% of the taxable rebate in cash and stock; and 25% in equities.  That is up from the 50/50 ratio of the past several years.
Sights and Sounds
Cool, damp woods beckon hunter and prey
Shoppers shout “Merry Christmas” to all
Bowl games await the chosen ones
Visions of sugar-plums dance in heads young & old
Peace on earth, good will toward men
A New Year offers a new start
 Luke 2:25-32
Now there was a man in Jerusalem called Simeon, who was righteous and devout. He was waiting for the consolation of Israel, and the Holy Spirit was on him.   It had been revealed to him by the Holy Spirit that he would not die before he had seen the Lord’s Messiah.  Moved by the Spirit, he went into the temple courts. When the parents brought in the child Jesus to do for him what the custom of the Law required, Simeon took him in his arms and praised God, saying:  “Sovereign Lord, as you have promised, you may now dismiss your servant in peace.  For my eyes have seen your salvation, which you have prepared in the sight of all nations:  a light for revelation to the Gentiles, and the glory of your people Israel.”
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