Market Letter
07/19/2010

Outside Markets / Other Info

           

            In our May Newsletter, we discussed that these were volatile times. Crude was down, U.S. Dollar was up, Euro was in the tank. Six weeks later and all of these have changed. The Dow seems to be headed to the next level of support at 8860. While it is up at the moment, it probably is just a dead-cat bounce before the next leg down. The Euro has rebounded 6.5 % and the Dollar has fallen 5%. Crude seems range-bound between $70 and $80. In May the investment world was looking for safe-havens to put their money and the U.S. Dollar, Treasuries, and Gold were the things to own. Now, for the short term, it appears that they are willing to take a chance on some commodities which carry a little more risk and reward. The lower Dollar is helping our exports look a little more attractive as well.

           

 

Soybeans

 

            The combination of the two USDA Reports was less shocking for Soybeans, and it was somewhat friendly. The June stocks on hand totaled 571 million bushels, 21 million below average trade guess. Implied disappearance in the third quarter of the 2009-2010 marketing year was 699 million bushels. This figure is almost the same as last year, when we all but ran out of soybeans. There are ships waiting to be loaded for China and USDA is steadily lowering our ending stocks. The July Supply/Demand Report was lowered by 10 million bushels, to 175 million. The Stocks Report hints that the number is closer to 160 million, meaning more cuts are coming in the August Report. The November 10 contract has strong resistance in the $9.80 range, but with the help of La Nina, it might happen. If we reach this level, that would have November 11 board close to this same level.

 

Corn / Milo

           

            We have recently had two USDA Reports, the June 30^th Quarterly Grain Stocks Report and the July 9^th monthly Supply/Demand Report. Most market analysts were bearish going into the Quarterly Report, thinking that a good dry spring meant more acres of everything and a great start to a high yielding crop. Then the USDA did what no one was prepared for, they lowered corn acres about a million, rather than raising them by that same amount which is what most of the market was expecting. Let the fireworks begin! On top of that the disappearance of corn stocks was 300 million bushels more than Average Trade guess. We had used up more corn for feed and ethanol because it takes more low-quality corn to get the same gain or yield. Surprise, Surprise, Surprise! The $.45 we had lost recently, has quickly come back to us. With the prediction of a full-blown La Nina arriving late July/early August, we have another chance to make some sales at decent levels. September corn’s first objective is $3.91, then $4.09 and then the January high of $4.47. While this rally could happen if we get a weather scare, it could offer opportunities to finish selling this crop and to start selling some of next year’s crop as well.

 

 

Wheat

           

            Last newsletter we mentioned our Ending Stocks for all wheat was just under 1 billion bushels. Now, in July we have gone over 1 billion and the price seemed to have put a bottom in. June 6^th we put a double bottom in at $4.25 on the July board and it appears the Speculators decided to start unloading their short positions. They were about 75,000 contracts short, which means they would have to buy back these to get out. This is the rally we have been experiencing and for the first time in over a year, the specs are long wheat. How far will they push it up is anybody's guess, but if you need wheat in your mix for next year, the first major objective for July 11 is in the $6.80 range.

           

Rice

           

            In the last couple of weeks USDA has released three reports, June 30^th Stocks report, June 30^th Acreage report and the July Supply / Demand report, all showing very bearish numbers for long grain. Prior to the latest stocks report, old crop supplies looked very tight. However, on the June 30^th  report, USDA added another 12ml /cwts. Has USDA greatly miscalculated the March stocks or was long grain use much less this quarter vs. last year at this time or a combination of both?

            The Acreage report shows long grain acres increased 190,000 / acres from the March planting intentions and up 475,000 / acres more vs. 2009 crop, making an already bearish situation, more so. In contrast to the

long grain report, medium grain acres were reduced by 99,000 / acres, significantly improving it’s price outlook. Hopefully wide price spreads between long grain and medium grain will result in some traditional medium grain users substituting some long grain in their buying mix.

            Looking at the long grain Supply / Demand report, from the supply side, major increases in production and beginning stocks raised supply 23 ml / cwts. On the use side, domestic / residual use was lowered 7 ml / cwts and exports increased 1 ml /cwts. for a net reduction in use of 6 ml / cwts. Long grain ending stocks were increased 29 ml / cwts (115%) to 54.3 ml / cwts. In regards to medium grain, supply was reduced by 7 ml / cwts due to major reduction in acres. From a use standpoint, domestic / residual use was reduced 3 ml / cwts, but was offset by a 3 ml / cwt increase in exports, resulting in no net change to use. Ending stocks for medium grain were reduced 7 ml / cwts. (39.5%).

            One of the more puzzling categories over the last quarter has been domestic / residual use. It appears USDA uses this category to dump stocks in (April / May) or to take stocks out of July when they may simply cannot account for these stocks.

 

FGT News

           

            FGT’s 2011 crop Pool contracts were mailed earlier this month. The signup deadline is July 31^st.  If you did not receive a contract, and you want to sign up, please call 662-332-0987 and we will send you a contract.

            FGT is offering contracts for all 2011 crop grains now. We have bids for flat price, basis, and HTA contracts. Call any FGT elevator or check prices on the website www.fgtcoop.com.

            FGT will dump flatbed trucks this harvest at all locations, except Hollandale, which is a milo-only elevator again this year (max 14.0% moisture, US #2 grade). The trend continues toward hopper trucks, as most companies are moving to hoppers-only, for reasons of efficiency, safety, and insurance. We will communicate through this Market Letter when FGT makes the change.

            Rodney Rollins, age 39, died suddenly June 13^th, while attending a funeral in Kentucky.  Rodney had worked for FGT in Greenville since July 2007, primarily in rice operations. He was a valued and dedicated employee. Rodney will be greatly missed by his FGT coworkers, his family, and friends.

 

The Lighter Side

 

            According to a news report, a certain private school in Victoria, BC recently was faced with a unique problem.

            A number of grade 12 girls were beginning to use lipstick and would put it on in the bathroom. That was fine, but after they put on their lipstick they would press their lips to the mirror leaving dozens of little lip prints.

            Every night, the maintenance man would remove them and the next day, the girls would put them back.

            Finally the principal decided that something had to be done. She called all the girls to the bathroom and met them there with the maintenance man. She explained that all these lip prints were causing a major problem for the custodian who had to clean the mirrors every night.

            To demonstrate how difficult it had been to clean the mirrors, she asked the maintenance man to show the girls how much effort was required.

            He took out a long-handled squeegee, dipped it in the toilet, and cleaned the mirror with it.

           

 Sights and Sounds

 

Sweltering, relentless heat and humidity

Selective rains on the just and the unjust

 

Lost Summer for coastal condos

Fresh hope riding on BP’s cap

Everyone ready for a permanent fix

 

Thrill of victory for Spain

South Africa & vuvuzela winners too

Sights set on Brazil in 2014

 

 Quote

 

Ezekiel 11:17-21

           

            This is what the Sovereign LORD says: I will gather you from the nations and bring you back from the countries where you have been scattered, and I will give you back the land of Israel again.  They will return to it and remove all its vile images and detestable idols.  I will give them an undivided heart and put a new spirit in them; I will remove from them their heart of stone and give them a heart of flesh.  Then they will follow my decrees and be careful to keep my laws. They will be my people, and I will be their God.  But as for those whose hearts are devoted to their vile images and detestable idols, I will bring down on their own heads what they have done, declares the Sovereign LORD.