Original chart from www.commoditycharts.com
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All posts for the month October, 2012
The Bullishness of the US situation is tempered by the Global outlook.
The USDA is pinning tonnes of hope on the S.American crop and starting the bidding with a large crop size.
The job of the Bean/Corn markets going forward is to price an appropriate rationing level (somewhere above current levels basis this report) and to then start to handicap the S.American crop (basis weather and acreage reports) over the next 5 months.
Will be an interesting year – as always. Today’s close important as these two perspectives (Bullish rationing vs Bearish S.American potential) were presented to the market today and it initially focused on the former with a strong open.
Crop production numbers were down since last report but slightly above expectations so neutral on that front.
But USDA finally showing a realization that Demand is not being rationed at these price levels and Ending Stocks come in below expectations (though within the estimate range which was very broad).
As always, a Bearish close on a Bullish report is the fear so we must watch the close, but this report is firmy pointing at the fact that prices are not high enough yet to ration Demand.
Week 3 of a new Feature scheduled Tuesdays shortly after Local Best Bids to highlight when “Deferred Delivery” months are at a Premium /Discount to the “Spot” month.
– Below are tables highlighting The “Move” to date for the current marketing year – shaded in Purple.
– They also highlight the closing bid for each delivery period for the 2012-13 marketing year – shaded in Blue.
– Cost of Carry – shaded in Coral – is also calculated for each delivery period and factored in to the “Real” price – column in Green font.
– The best “Real” price currently available is highlighted in Yellow for both the 2012-13 and 2013-14 marketing year.
– Last Week’s and Last Month’s “Real” price is there and also the High and the Low closing prices for the year – used to calculate the current year’s “Move”.
A detailed explanation of how this is put together, why the tables as a whole are important, and the assumptions we are making on Cost of Carry, will be the starting topic for our next monthly Marketing Meeting starting in November. Call or reply next week with any questions in the meantime.
FOB Assiniboia, SK (Except for Lentil/Chickpea FOB Farm, and Ethanol Wheat FOB Moose Jaw)
#1Canola: Oct $13.61(11) Jan $13.54(13)
#2Y.Pea: Oct $7.96 Jan $8.22
#1Flax: Oct $13.89 Jan $13.76
#2GrLentil: Oct 20.5c
K.Chickpea: Nov 35.5c
#EthWheat: Oct $6.90
#2AD13.0: Oct $8.10 Jan $8.10
#2HRS13.5: Oct $7.49 Jan $7.58
Good close this afternoon on a Bullish Key Reversal yesterday and follow thru today after a Bullish StatsCan, which confirmed the light Canadian crop and surprised a few by how light.
It was a good close, but also at an important Fibonacci Retracement level. J-MAS is sold to 55% and comfortable remaining there given Bullish Canola Fundamentals pitted against a Bearish Oilseed Complex that is being pressured by a decent enough Bean harvest and relatively burdensome Palm supplies. Given this uncertainty, we like 50-60% sold here and below is a chart and playbook for how to catch-up if behind, or to further advance sales if you feel more Bearish than we do. Please revisit this post for Deferred Delivery premiums/discounts if looking to make sales in Canola, Durum or Peas as there are strong deferred options outpacing spot pricing for the first time in a while..
The following is a chart off CommodityCharts.com edited with analysis by us. Click it for full size.
38.2% is the first and most important Retracement Level any counter-trend must take out – in my experience the other levels are noise and while good sales points, are not nearly as critical an inflection point for what the market is trying to tell us.
A trend will almost always continue to test the 38% level as it works it’s way higher or lower and the trend must be considered completely intact until a counter-trend move breaches this important level. It is a precarious marketing area because if the level holds without a breach and you fail to sell, the next leg will often be much lower and likely at a similar acceleration as the previous trend. While the trend is not guaranteed to change on a 38.2% breach, it usually softens the strength of the current trend and a bottom is often near. Also, the 50% and 61.8% levels are not especially far above this level and your upside may be limited if you chose not to sell and were rewarded by a 38.2% breach – but you are playing with fire on the downside.
Catchup Recommendations: At today’s close just below 38.2% retracement at $608 (and with very attractive basis levels), a $13.56 bid is on the table – almost exactly where we went to 55%. As mentioned, this is a level that will be tested often in a downtrend and the trend must be considered fully intact until it is breached – we had a good Technical signal yesterday and a good Fundamental story today, but Technically, the market has not yet broken downtrend and you need to consider this – as good as many are feeling about the market today – us included. This level is a sharp, double-edged sword because if you sell and it breaches, you have sold at a lower level than what may lay ahead, but if you don’t sell, and the level holds, there remains tremendous downside – and the potential for something negative being in play that none of us have counted on.
A previously un-breached 38.2% retracement level will often be looked at later as the one place where the ball was in our court to have made a right move with the best information available – if you think such perfect information ever exists at the top, you are naive in thinking so, but at this retracement level both the bulls and bears are granting hints.
Playbook – J-MAS believes in the fundamentals of the Canola story but can not argue with the attractive basis levels propping up prices today, and would consider adding 15% to sales to get caught up. If you were below 40% sold to this point already, 15% is far enough as you have obviously been more Bullish than us to date and/or have a more solid risk-tolerance.
If you choose not to sell, continue to watch the 609 level closely for this all-important breach. If we breach, then a sigh of relieve should be felt in the pits and we should move immediately up to the fake Fib 50% level and likely move right to 61.8. Here you will also want to consider a sale, though it should be a less critical choice as both the upside and downside should be muted. Downside should be muted as the market is telling us that while the current trend may not have changed, it’s pace has. Upside is muted because we next must make the all important “New High” test before a rally can resume and because of some decent chart damage it will take a strong and previously unknown Fundamental catalyst to break us through and J-MAS will be selling again near previous highs most likely – though we do have a few “catalysts” we believe will move to the fore.
Call or reply with questions. You’re main job today is to watch 38.2% as it’s the volatile number and do something if you fear it’s move one way or the other. The bears and bulls are both granting you hints at this level, and no where else on a chart do they “both” do so quite as loudly.
We anticipated a Canola production print that would be below 14m but at 13.4 it will be a decently Bullish surprise to the market even though it was within the expectation range and it comes in well below last report of 15.4.
We had already signaled a Key reversal to the downtrend yesterday and today’s price action should be positive so as always – watch the close today and an attack on key Fib levels over the next few days.
Almost all Crops coming in at the low end of expectations except Oats. So a Bullish report in general for our area.
$$October 3rd MPUpdates – A Bullish Key reversal in Canola late in today’s trade. We’ll watch for confirmation amidst turmoil of StatsCan tomorrow, but otherwise, the Funds continue to dump Beans and seem poised on taking it back to the $14.80 gap (a further 60c drop from here). Corn has bounced off last week’s Bullish USDA stocks report but has stalled so far exactly at 38.2% Fib retracement – a level it needs to take out in order to prove a bottoming process – a fail here and a test of the $6.75 gap is likely due up (an 85c drop from here). Wheat is the stalwart, holding up nicely as Beans and Corn look for their bottom. Market is expecting a further reduction in Canola yields in tomorrow’s StatsCan, but we are not expecting that to deviate it from it’s marriage to Beans quite yet, unless it’s a surprisingly large yield reduction. Outsides are mildly Bullish but tailwind or headwind, the Funds are re-balancing a very profitable Long position and we continue to believe it a short-medium term phenomenon before a challenge in the New Year of previous highs. That said, we continue to pick our spots on selling laggards of the downtrend to mitigate the very real risk of being wrong. Targets expire Oct 8th. We believe it in your best interest to be within 20% of our official Benchmark positions – plus or minus.
$$CanolaMPU(NewCrop) – Target $14.30 Oct Delivery {658-27Basis} on 15% to be 70% sold (24bu of a 34bu crop). Benchmark is 55% sold. At Current Sep $13.09, be 40+% sold. Great basis levels are a sure sign the Canola market is stronger than current drop would have us believe. Canadian Canola crop is significantly lighter than anticipated 6 weeks ago and this will eventually lead to some good pricing opportunities but it still must play it’s part in the Oilseed Complex and there are substitutes for many of Canola’s uses. There has been a discount to Beans that should flip into a premium over time but Oil is a weight on Canola moreso than Beans and it will take time to shake that burden if it remains one. Reminder to Sell Yield Overages (above 34 bushels) into the the $13.50+ range to help lock in $190+/ac profits.
$$Gr.LentilMPU(NewCrop) – Target a 24c Oct-Nov delivery on a #2 contract on 15% to be 55% sold (15bu of a 26bu crop). Benchmark is 40% sold. At Current 21.5c be 25+% sold. A number of key criteria have been met to enable a solid bottoming process in Green Lentils. Canadian price moved towards and met up with the Pigeon Pea Put, a solid feed market has pulled off-quality bushels from the bin, all other grains have rallied, and the foray into the teens will create an entirely new perception at seeding time next year. Where 24c bids prevailing last winter were thought to be a pit-stop on the way back to 30c, the 18c scare this year will be remembered as being a possible precursor to 15c – an entirely new yet just as foolish mindset. With Chickpea yields solidly in the 40’s and netting 6X the profit level of Lentils, capitulation will be in full force during acre planning this winter. J-MAS remains neutral on 2012 price prospects but is solidly Bullish the 2013 crop. Reminder to Sell Yield Overages (above 26 bushels) into the $0.215#2 range to help lock in $103/ac profits.
$$Y.PeaMPU(NewCrop) – Target $9.15 Oct Delivery on 15% to be 55% sold (19bu of a 35bu crop). Benchmark is 40%sold. At current Mar $8.18 bid be 35+% sold. Our Bullish Pea thesis has lost some of it’s sheen over the last few weeks as Kariff prospects improved but we continue to believe a 9-handle is in the cards again in the New Year based on solid fundamentals and tight exporter carryovers. Reminder to Sell Yield Overages (above 35 bushels) into the $8.30+ range to help lock in $120+/ac profits.
$$FlaxMPU(NewCrop) – Take $14.35 Oct delivery on 10% to be 40% sold. (10bu of a 27bu crop). Benchmark is now 30% sold. At Current $14.00 be 20% sold. Even though we saw a good sign in the Canola pits today, we need to mitigate our Oilseed risk exposure since the charts are somewhat damaged. Flax can only go so far without Canola’s help so a 40% sold position is good risk management position and still allows us 60% to capture the explosive upside Flax can possesses and is setting up for. Reminder to Sell Yield Overages (above 27 bushels) into the $13.50+ range to help lock in $177+/ac profits.
$$ChickpeaMPU(NewCrop) – Continue to take 35.5c rough #2 specs on 35% to be 75% sold (35bu of a 47bu crop). Benchmark is now 75% sold. At Current 35.5c be 75+% sold. It is exceedingly difficult to market Chickpea on Fundamentals as the data is limited and our own crop is not influential. Yields have been fantastic and quality impeccable. It’s a promising sign that prices held through harvest pressure. Reminder to Sell Yield Overages (above 47 bushels) into the 35c#2 range to help lock in $600+/ac “gross” profits.
$$Eth/Fd.WhtMPU(NewCrop) – Continue to take $6.80+ Oct delivery on 20% to be 80% sold (59bu of a 78bu crop). Benchmark is now 80% sold. At Current $6.93 be 80+% sold. White Winter Wheat should be sold at least 15-20% further sold than Red – on the election year potential of a waiver of the Renewable Fuels Mandate in the US. There is enough uncertainty surrounding Corn which has performed very poorly that we are adding to our Feed sales as we foresee the next leg higher to be too far out to hold a crop we grow for early movement, and because we have continued concerns about Ethanol markets in an election year. Reminder to Sell Yield Overages (above 78 bushels) into the $6.50+ range to help lock in $300/ac profits.
$$DurumMPU(NewCrop) – Target $8.90+ March delivery for #2 on 15% to be 55% sold (25bu of a 46 bu crop). Benchmark is now 40% sold. At Current $8.55 #2 March be 40+% sold. J-MAS would not be holding more than a greedy portion of this crops based on its own Fundamentals (i.e. – very Bearish in the Short Term) but like Lentil we believe in a Long Term Bull case and we hope to capture some late 2012 pricing in anticipation of a very Bullish 2013 story. With Wheat poised to underpin and outperform Durum going into next year’s Acre Battle, Canada is poised to short Durum Acres next year. And while there is likely to be a surplus (pending Western Saskatchewan’s crop quality – as feed will disappear quickly), low acres and El Nino weather could spell a very light Canadian crop next year. If the Mediteranean comes in average, the market will quickly see a developing shortage of Durum and with it’s volatile nature, we could easily see a Bid well into the Teens at Port – as it was not at all unusual to see a $16 bid at Port during supplies scares in the CWB days. Now in a competitive market we are less likely to see the 16 as we can’t squeeze the end-user as effectively by holding supply back, but we actually get to capture the price itself (rather than just see a floating PRO go from $7 to $8.50 on $16 port bid) and it should still be in the mid-teens at port, netting us $12-$14 in the pit. While the average marketer probably still sees his average only go from $7 to $8.50 on such a move due to previous sales and lack of discipline once/if this price arrives, we are positioning ourselves specifically to capture it by underselling now and planning ahead for that type of outcome. We do so against what we consider a favorable risk/reward on an unlikely but possible scenario developing next spring. Reminder to Sell Yield Overages (above 46 bushels) into the $7.85+ range to help lock in $170+/ac profits.
$$HardRedSpringMPU(NewCrop) – Target $8.95 #2 on 15% to be 55% sold (22bu of a 42bu crop). Benchmark is 40% sold. At Current $7.58 #2 be 15+% sold. Wheat continues to move its way into feed rations, replacing the more expensive corn. It is moving almost lockstep with Corn but some supply burden does still exist and there are a number of Wheat crops around the globe poised to come in average or better. Russia’s export ban is the watch and it should happen after they blast out their excess – and then things should get interesting – though I do believe a Ban is mildly priced in. That said, it should grind towards a more historical relationship to Corn and Beans which at current levels would put it into 4 digit territory quite easily. Reminder to Sell Yield Overages (above 42 bushels) into the $7.70+ range to help lock in $120+/ac profits.
$$Nitrogen Fertilizer(NewCrop) – Fertilizer has not taken off, and may not if Beans become the crop of choice and drought acres in the US are long Nitrogen for next years Corn crop. We are cautiously backing off on Fall purchases, but believe you should take advantage of any price drops. Continue to buy $580-600 Fall Delivered Nitrogen on 60% of your 2013 needs. Benchmark is now 60% Bought. At Current $605 be 50-60% Bought. Go to 100% of Needs if you marry this Purchase to an extra 5 bushel Canola sale to lock in margin. The Math is embarrassingly simple but 3-fold in its analysis:
1) Cornola Method – Dec Corn at 759 ($7.59) + Nov Canola at 598 averages 678 and 678 becomes a Nitrogen fertilizer target price. Remember $2.40 Corn and $360 Canola in the early 2000’s? Prevailing price of N was roughly $300/mt. Remember $4.50 Corn and $500 Canola in 2009-11? N was about $475. It’s crude but historically on cue – but can also be slow to follow – which we are seeing currently.
2) Canola C.O.P Method – $605 Nitrogen is 60c/lb. 3.1/lb of N/bu of Canola is $1.91/bu. With a $13.50 price, $1.91 is 13.7% of Production. If we think back on the last two years, Canola averaged around $11/bu prior to the latest run-up. Nitrogen probably ranged between $475 – $625. When Nitrogen was $475 and “cheap” it was roughly a 13% Nitrogen Cost of Production, when it was $600 and “expensive” it was nearly a 18% N-COP. Deeper into history, we see Nitrogen taking up to 21% of Canola cost of Production when Natural Gas was a more expensive component.
3) Natural Gas – Natural gas has proven itself an ineffective indicator of where Nitrogen pricing will go as Demand fundamentals are superseding Supply side indicators at the moment and for the foreseeable future. The huge findings, especially locally, should depress NatGas pricing for the foreseeable future and this could well be entering into the current lag to movement higher.
Week 2 of a new Feature scheduled to be out Tuesdays shortly after Local Best Bids to highlight when Deferred Delivery months are at a Premium /Discount based on elevator bids and a the calculated “Real” value based on Cost of Carry.
– Below are tables explaining The “Move” to date for the current marketing year – shaded in Purple.
– They also highlight the closing bid for each delivery period for the 2012-13 marketing year – shaded in Blue.
– Cost of Carry – shaded in Coral – is also calculated for each delivery period and factored in to the “Real” price – column in Green font.
– The best “Real” price currently available is highlighted in Yellow for both the 2012-13 and 2013-14 marketing year.
– Last Week’s and Last Month’s “Real” price is there and also the High and the Low closing prices for the year – used to calculate the current year’s “Move”.
A detailed explanation of how this is put together, why the tables as a whole are important, and the assumptions we are making on Cost of Carry, will be the starting topic for our next monthly Marketing Meeting starting in November. Call or reply next week with any questions in the meantime.
FOB Assiniboia, SK (Except for Lentil/Chickpea FOB Farm, and Ethanol Wheat FOB Moose Jaw)
#1Canola: Oct $12.92(14) Jan $12.97(15)
#2Y.Pea: Oct $7.96 Jan $8.22
#1Flax: Oct $14.35 Jan $13.76
#2GrLentil: Oct 20.5c
K.Chickpea: Nov 35.5c
#EthWheat: Oct $6.97
#2AD13.0: Oct $8.05 Jan $8.35
#2HRS13.5: Oct $7.58 Jan $7.86
