Technically Speaking

I am tired of hearing what caused the lack of continued demand for U.S. corn ------ the rivers were too low, the price was too high, too much corn still around! Illinois usually exports half of its corn production ----- there isn't any extra corn left for export this year at any price! I only knew a couple of people that put corn in bins during last harvest. All the rest of the bins are siting there full of air! The last big drought was 1988! You can't compare 2012 to that either because we had 1.9B+ bu. in end stocks when that marketing year ended ---- we have very little in supplies to fall back to this time! The well is dry! Stay tuned all you hopeful end users! How's planting progress going down south?

As an aside, I am taking no stance one way or the other if what the USDA says is right, and I'm certainly not getting into any silly conspiracy theories. But I will take the stance that we have to deal with the numbers as if they are reality, because in essence they are. After all, you can't tell your broker or explain to your crop input suppliers that the numbers are b.s., and therefore you don't have to pay your margin call/bill. Thinking otherwise is just making excuses and not being willing to accept that you have to play by the rules of the game, as hard or as screwy as they are.

I take the opposite view (Thursday's reaction to USDA's numbers seem to have raised the bar). A 40 cent plus 20 synthetic move lower with finding 300 million additional bushels is perfectly logical with where we are on the supply demand curve, i.e. that many bushels in comparison to carry out is a big percentage. One telling statement I heard was a rhetorical question I heard a customer ask yesterday, which was "Corn is still that price even after a 40 cent drop?" Yes, things are sped up. But just as it was in the days of the Hunt Brothers, fundamentals are eventually going to win out. The supply/demand of corn in relation to price is probably much easier (relatively speaking, of course) to comprehend than say that of the stock and bond market trading as high as they are when we have the monetary base per dollar of nominal GDP at record highs, and the federal deficit as a percentage of GDP trading at or near record levels. One can "blame" (i.e. use as an excuse for poor decisions) fund money or computer driven trading, but upon closer examination, these really aren't that hard to understand. In the case of stocks and bonds, there isn't anywhere else to put money that is as safe as those, at least the bond market. With stocks, people are chasing, somewhat blindly some might say, returns (dividends). How can all this go on? Well, it does until it doesn't. The market doesn't send out a notice when it is done going up. I view the corn going down that much yesterday as pretty minor in comparison to what can happen, i.e. 2008. Throughout the history of markets (Holland tulip market in the 1600's, Hunt Brothers silver, 1998 hog market after the June H & P report, although that last one was already in a bear, but nothing like 4 limit slammers in a row) Big Bangs have occurred, i.e. it comes to a stop before anyone thought. Yesterday does not rank with those. We are at historical price range highs, we have demand reports every week basically showing when demand shuts off, we are going into a situation that has the potential (although a ways to go) of restoring supply very quickly (and history shows the odds are great that the American farmer will produce, and produce in abundance). All in all, as I began with, the market peeling off 40 from the levels it is at is no shock at all. I'm just shocked that people are shocked!