Posted by: usset001 | November 14, 2008

Bullish or bearish at harvest?

harvestfieldLike the harvest of 2008, I am late in posting my post-harvest marketing plans for corn and soybeans. Before I point you in that direction, we need to discuss this overwhelming temptation to pick a market bottom, fill all available storage space with unpriced grain and wait for the price rally that is bound to occur in the months ahead. Let’s face it – that simply approach was a great choice in each of the last two years. For your consideration: a review of selected bullish and bearish factors in grain and oilseed markets.

Bullish factors in the market…

  • Ethanol demand for corn will grow by 1 billion bushel and 33% in the current crop year. The best bull markets are built on growing demand (check WASDE reports for all numbers quoted here).
  • The U.S. will produce 12 billion bushels of corn this year but ending stocks of corn will decline 30%.
  • Despite a 17% increase in U.S. soybean acres in 2008, ending stocks of soybeans are projected to remain the same.
  • This market is oversold and must rebound.

Bearish factors in the market…

  • Export demand for corn and soybeans is slowing.
  • Feed demand for corn and crushing demand for soybeans will also slow in the year ahead. The best bull markets are built on growing demand (Didn’t I just say that?).
  • Concerning ethanol, this is one sick industry. Margins are very slim and projected to stay that way for the foreseeable future (see CARD projections from Iowa State University here). Several firms have declared bankruptcy and I suspect the list will grow in the months ahead. The increasing demand for corn is riding a lame horse. 
  • From a world perspective, wheat and oilseed stocks are projected to build in the year ahead.
  • Do you really want to pick a bottom in this market?

To answer my own question, I’m not ready to pick a bottom in this market.

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