|
Our Next Update-
January 15th following the January WASDE Report.
Click here for
the Introduction to Long
Term outlook and Phase Analysis:
General Comment :
The weather broke, the crops
are big and here we are sitting below loan with huge supplies of grain
again. For you buyers out there, enjoy it while you can because
things are about to change. When?? I'm saying in the next 10
months. Today we sit with $2.50 diesel, $62 crude oil, $13.00
natural gas and the price of corn right on $2.00. Soybeans are
under $6.00 and rice is around $7.50. Before we go into the
Long-Term outlook, let's start with the Short-Term view.
Price Outlook Next
Two Months:
We are in the Supply driven
phase of the market and will be for the next three months. Demand
is going to be huge near term and only grow over time. With that
said, I expect corn prices to hold about where they are until maybe
January or February; however, I am leaning more and more to the idea
that the rally in corn, which is going to be a long-term up move over
time, could begin before Christmas. Why? Well read on as the
short term and long term ideas have much of the same fundamentals.
With that said, I do not think we are going to see the same move in
beans unless there is problems in Brazil and right now it is way to early
to even talk about that. For rice, I see a gradual up trend
forming here as well but not until next year. My comments are the
same as corn. We could start before Christmas and in fact it may
have already begun.
Long-Term outlook:
The three things that will
combine for a major bull move in corn are the price of crude oil, the
price of natural gas, and the longer term effects of Hurricane Katrina.
While some would say crude and gas are the same thing, they are not.
First, ethanol is a direct competitor of crude but when we talk about
gas we think of the cost of fertilizer. Both of these factors are
going to affect the supply of corn at the end of the 2006 farming year
which is still 23 months away.
What I see happening is an
increase in demand to close to 11.5 billion bushels of corn just at the
same time we have farmers switching as much as they comfortably can to
soybeans. Net affect will be a large reduction in the carry over
for the end of the 2006 year and a market that will enter a long term
bull move and more than likely trade well over $3.00 in the next 12
months. Katrina is supportive of this as we see the need for more
refining ability in the US which will fuel the expansion of even more
ethanol plants. Near term, we will see pent up demand as the
current river situation has the basis in the tank with the river not at
even 50% of its old capacity. When the river comes back, we will
see a , pardon the pun, massive flood of exports as countries start to
replenish supplies and find the prices are not low but moving higher.
Soybeans on the other hand will
be led by Brazil as will rice to some extent. I see beans staying
down near term and longer term, on there way higher IF brazil doesn't
flood the market with the beans. Same thing goes for rice.
Here are the specifics...Corn
will enter a major bull market later this winter that will see massive
volatility next spring and into the summer months. Acres will be
lower by 2 to 4 million based on costs and the ability to swing acres
over to beans. If brazil has problems, we could see up to 8
million acres of corn switch into beans if corn is at current levels.
THAT CANNOT HAPPEN!!! Plain and simple, that would wipe out the
entire carryover with an increase in demand like we expect. So how
do we balance it out. You guessed it, the market must go higher
this next Spring to try and hold corn acres. It will take $2.80 to
$3.20 corn to hold current acres.
Bottom
line: We are very bullish longer term.
Our traders should get long corn by November 15 in May futures or
options. If we are early we will roll them into July when we can
do it cheaply enough. We have time right now but we strongly
suggest you get ready for a major move. One like you may not have
seen in the last 18 years. We would have to go back to 1988 to see
one like this will be and will be relentless. All corn
should be LDP'd by now and those who did it early, get ready to buy the
corn out of loan in less than two weeks when we can take advantage of
the lower County Posted Price.
Dennis DeLaughter, CEO
|
