Grain Analysis Suprised

By: Luke Schwieterman, President, Schwieterman Inc.

In the August Supply and Demand report, the USDA did what the USDA does best confuse everyone. Expectations of analysts going into the report were for reduced corn acres and reduced yields. USDA left acres unchanged and increased yield by two bushels an acre from the July report. Yield at 168.8 bu/ac was four bushels higher than the average trade guess which resulted in a 30 cent lower “knee jerk” reaction in the futures market. Post report, analysts are looking forward to the September report which will have better surveys behind it including prevented acreage reports and ear weights and measurements. Regardless of the estimates we are reasonably assured of a fairly decent crop in the US this year. Any significant upward price pressure in the corn market will have to come from weather related problems such as an early frost or increased use of ethanol or exports. Keep in mind however that price does not stay static. As in any typical year, corn will put in a harvest low and then begin to rally into spring. We suggest that, as end users, you be watchful for the harvest low and begin to buy March call options to cover nearby feed requirements.

USDA currently projects 4th quarter average price to land between 148 on the low side to 158 on the high side. Last month’s projection was 155-167. In the text of the Supply and Demand report, USDA sighted reduced demand for the price reduction. Reduced exports were also indicated because of reduced demand and the value of the dollar. We are not in total agreement with those comments. Overall, we think exports will actually improve. Beef is a unique product and we don’t think that demand has actually decreased for the higher end cuts. Analysts can get wrapped up in the latest hype or controversies and miss judge the overall economy which appears to be alive and well. The US, as well as the world economy, seems to be humming along nicely. It’s just not expanding or inflating as fast as traders and analysts would like to see therefore gloom and doom analysis.

All in all we think 4th quarter cattle prices will approach 160 in the cash market. There will be ups and downs as we go along however. We do caution that, as always, some disastrous occurrence can happen. That’s why we suggest put options on all live cattle and feeder cattle being fed. Your investment is too great not to have some price insurance in place. DISCLAIMER: This material has been prepared by a sales or trading employee or agent of Schwieterman, Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Schwieterman, Inc. Research Department. The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. The information contained herein is based on data obtained from recognized statistical services and other sources believed to be reliable. However, such information has not been verified by us, and we do not make any representations as to the accuracy or completeness. All statements contained herein are current opinions which are subject to change. You may visit our web site at www.upthelimit.com