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Around the last week of August there were analysts, including myself, suggesting a reversal in the grain markets after Labor Day. However, with the drought compared to the dust bowl years of the 1930s and the constant bombardment of pictures throughout the long hot summer of dried up corn and soybeans looking like some landscape from a science fiction movie, it was a sure bet quite a few would doubt it or even try to consider it. Even now after November soybeans dropped $2.85/bushel, many farmers and traders feel it is nothing but a cooling off time. I have to admit that it isn’t that hard to believe soybeans can climb to $20.00/bushel. After all, one of the largest banks in the world claims that it isn’t just a possibility, but it will happen. 

The recent USDA Quarterly stocks report surprised just about all analysts when corn stocks came in well below pre-report estimates. But almost as soon as the Stocks report was released and the dust hadn’t settled, estimates from private forecasters for the USDA Supply and Demand report to be released on October 11th started to come out with new estimates and yield improvements of two to three bushels on national averages. Of course, there are farmers reporting much better yields than two to three bushels, but analysts reporting two to three are estimating the total crop including fields that look like the landscape of Mars.

To add some more confusion, as the US harvest winds down, there will be more and more reports about the weather in South America, especially for the areas of Brazil where early crops are planted. With recent grain purchases from Brazil of 750,000 metric tonnes to a southeastern US poultry and hog farm combined with exports to China, there is a lot of talk Brazil is oversold. Personally, I feel the Brazilian government should be given more credit because with the growth in the Brazilian livestock and poultry industry and with the growth in the Brazilian economy, plus the internal demand for higher quality meat, the government would curtail sales of grain. But it should be expected over the next three to four months that rain, too much or too little, will be a major topic for weekly reports from South America. 

Currently, north and central Brazil need more rain, but moisture levels are adequate to support germination. Current forecasts are calling for rain from October 11 through October 15. Naturally, with the drought in the US so fresh in the minds of world-wide traders, any change in the forecast calling for less rain will generate bullish enthusiasm. For that matter, if there are reports of too much rain, traders will get excited. For some reason, after an extended bull or bear market, reporters, analysts and traders often have a difficult time changing direction.  Even when it has been proven many times over that the trend is your friend and the direction of the trend is as obvious as the nose on the front of your face, changing direction is difficult. 

It is understandable when a producer has a tough time changing. After all, any commodity that equates to income and livelihood has a strong psychological impact. A grain producer is no different than anyone working. Higher prices are the same as a raise in hourly wages or yearly salary; maybe a bonus, and who doesn’t want to be rewarded for hard work. Believe me; watching a crop grow or die when it hasn’t rained on your farm is very hard work. 

It is obvious with the higher prices for corn and soybeans that Brazil in the early planted areas and in areas that are planted during the normal spring and early summer and in Argentina more acres will be planted. At the same time, with the prices higher for soybeans versus cotton, it is very likely 35 percent or more acres will be switched from cotton to soybeans. 

Brazil has been buying corn from Argentina and with the downturn that took place four and five years ago in the Argentine cattle industry, where estimates reported 15 percent of the cattle herds were liquidated, it is easy to see why Argentina is selling corn and feed wheat to Brazil. The Argentine cattle industry has been slowly increasing numbers, but the packing industry that closed several slaughter facilities when Argentine cattle producers liquidated has been reluctant to build new plants opting to increase production in Brazil. In fact, the largest packer in South America, JBS, has also been one of the larger buyers of Brazilian grain for its growing facilities in the southeastern US. JBS has had a profitable year because of its worldwide operations. Profits were at a four year high. Profits on cattle came from feeding grass fed cattle in Brazil versus US packers feeding high priced US grains.  

Spreaders Remain Dominate Players

Corn and soybean futures are inverted, but have narrowed considerably in September. With Index funds rolling long positions (selling) out of November soybeans and buying January, the November to January spread is trading near even. With harvest progressing much faster and earlier than last year and the five year average, merchandisers appear to be receiving adequate supplies to meet 2012 corn and soybean needs and have started to tighten basis for January at several US crushing plants. As par for the course, it also appears US producers are moving larger percentages of their soybeans and storing more corn. 

The January to July spread has narrowed in the last month from January closing over July at $2.16./bushel, down to 73 ¾ cents on the close on October 3, 2012 with January,  as of October 4th falling $2.66/bushel and July 2013 falling $1.81 cents. The trend on the spread is angling down as are the individual months. Although the markets are called bull spread with the front month stronger than the back months, the spread and the individual months indicate lower prices.

The market inversion is all about the tight current stocks in the northern hemisphere and expectations of larger stocks in the southern hemisphere. To be bull spread and to have markets indicating lower prices is to say the least atypical. But 2012  stocks, because of one of the most severe droughts in modern history compared to the large expected growth in stocks and the increased planted acres for 2013 is far from typical.  

For grain producers to market any grain on what took place in 2012 and try to put any comparison to 2013 is simply the wrong thing to do. I am not saying a drought can’t take place in 2013, but using the information we know and with estimates of grain increases expected to be planted 2013, I am not sure calling it the difference between night and day describes how opposite supplies of ending stocks will be six months from now after the southern hemisphere begins to harvest and twelve months after the US harvests the 2013 crop.

It is time for accountability

With every USDA report, dozens of analysts put out pre-report estimates and there are dozens of private reports forecasting everything from acreage and yield estimates to price projections. Because of the Internet and the ease of getting what is written posted, the number of men and women claiming to be an analyst exponentially swells with each passing week. I am proud to live in a country where there is freedom of speech. But there should be accountability especially when something is written or said can change price direction in a matter of minutes by several thousands of dollars. 

I think it is time to have win and loss percentages attached to estimates and to push aside estimates that don’t or won’t post how they have done on previous forecasts. There are several well-known analytical firms that advertise the dates and times when their forecasts will become public information, but as far as I can recall, I haven’t seen when they have reported past results. With the proliferation of analysts and soothsayers, it is now time to stand and be open. It is time for the facts and nothing but the facts. It is time for open accountability.

If you want to be added to my email list and to have my commentaries sent directly to you, send your email address and a working phone number to .  When I receive questions or comments it is truly helpful. Looking at all reactions and thoughts of a market is very useful and needed to be more complete analyzing possible market movement. I do enjoy hearing from readers. Email the above address or call 913.787.6804.

Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff.  The information provided is designed to assist in your analysis and evaluation of the futures and options markets.  However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.

Learn 25 Proven Options Strategies from ADMIS

Trading options on futures, or interested in learning more about them? The 25 Proven Strategies for Trading Options guide was developed by CME Group and features common options strategies with detailed illustrations.

Get your complimentary guide today!

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About the author

For Chris Lehner's entire career, beginning in 1976 fresh out of Michigan State, he has worked with agricultural producers and businesses from the cash side of markets, to twenty-nine years as a commodities broker, branch manager, general manager and senior hedging analyst for two of the largest packing companies, livestock cooperatives, one of the largest seed companies and renowned brokerage and agricultural consulting firms.

He is a stickler about continuing education for his clients, as well as for himself.  His library has well over 100 books from the basics of fundamentals to the micro-economics of markets, technical trading and the masters of markets, plus the extensive notes and recordings from times he spent with some of the very best traders in the futures industry. 

Chris' philosophy on marketing and trading is based on the necessity to adapt to multiple variable factors, while maximizing the satisfaction of movement and change. 

Recently, a client of many years, after reading one of his marketing commentaries called him the Paul Harvey of commodities. Rather than duplicating what other analysts or reporters too often repeat, Chris tells the "rest of the story" for the bull and the bear and finishes with his own outlook.  He uses supply and demand, combined with in depth charts because, like washing hands, he personally feels using two in unison is more efficient.

Chris has a weekly news and website commentary and his daily radio grain analysis is heard in several Midwestern states. Whether it is a phone next to his ear, in person, or in front of an audience, Chris looks forward to sharing and using his experiences to enhance his clients' trading experience.
Chris can be reached at (913) 787-6804, or via email at

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