John Roach's DAILY GRAIN MARKETING PLAN

2011 was a difficult year for marketing grain. The U.S. experienced a very difficult growing season. Farmers went to the field armed with the latest technology targeting record yields. Although winter wheat yields reached their historical trend line, spring wheat, corn and soybean yields fell well below expectations and historical trends.

The withering crops came at the same time the U.S. Dollar was challenging its historically cheap 2008 lows. Precious metals were posting crazy record price peaks and all commodities were in a sort of speculative fever.

Sales made early in 2011 or even worse 2010 were made to look foolish. The corn market was especially difficult because prices moved all the way to a new record high. For anybody helping farmers sell their crops, 2011 was a challenge.

Getting ready to talk with a fun group on our cruise that sails on Sunday we put together the data on our Sell Signals last year. Actually “we” was really Rob Loftin who does a great job keeping track of the data and making pictures out of it.

Click for corn, beans, and wheat

There were more Sell Signals than normal during the last crop year for corn, wheat and beans. If you click on the chart above you can see the number, average duration and total days of Sell Signals for each of the markets we cover.

Corn had 10 Sell Signals during the September to August crop year lasting an average of 13 days each. That’s lots more days than normal but is what happens when prices move to record levels.

Soybeans had 10 Sell Signals during the crop year lasting an average of 9 days each. Having 90 days of Sell Signals is more than normal but not nearly as unusual as we saw in corn.

Chicago wheat had 9 Sell Signals during its 2010-11 crop year lasting an average of just under 7 days each. Having 60 days of Sell Signals in a crop year is very normal.

Click here to see our Sell Signal days placed on a price chart. We are proud of our bean and wheat sales but wish we would have waited until late summer on all our corn sales.

Our plan this year is to make all the grain sales you want to get done in 2012 on the current and next series of Sell Signals. We would like to be done with all sales by mid-July. We see no reason to make any sales when we are not in a Sell Signal.

We often write about the Dollar Index and each day you can see a graph of the index on the right. The index is a geometric weighted average of a basket of foreign currencies against the dollar. The weighting is 58.6% Euro; 12.6% Japanese Yen; 11.9% Pound Sterling; 9.1% Canadian Dollar; 4.2% Swedish Krona; and 3.6% Swiss Franc.

The Dollar index is an actively traded index which although heavily weighted toward the Euro is still a decent proxy of the U.S. Dollar’s value over time. The Dollar Index goes up when the U.S. dollar gains “strength” (value) when compared to other currencies.

The Dollar Index started in March 1973, soon after the dismantling of the Bretton Woods system. At its start, the value of the Dollar Index was 100.000. It has since traded as high as 148 in February 1985, and as low as 70 on March 16, 2008.

The U.S. Dollar’s value is important to grain farmers because grains are priced in U.S. Dollars around the world. If the Dollar is weak, grain is priced cheaper to buyers than when the Dollar is strong. In recent years the grain markets, and most commodities, mimicked the Dollar’s movement during each day’s trade. The exception is that serious weather problems can trump the Dollar’s short-term influence on grain prices.

When it comes to the bigger long-term picture, however, grain market price peaks and valleys are heavily influenced by the Dollar’s value. At any given time, the price of corn might be 10% from its annual peak but if the Dollar is 10% higher the foreign buyer is paying the highest price of the year. The buyer may stall off a purchase because the price seems very high yet on the same day a U.S. farmer sees the price 10% below what he was offered earlier.

I am writing about this because I believe the U.S. Dollar is on its way to much higher levels and it will keep grain prices from getting as high as you might think they should.

I believe U.S. voters will force Congress and the Administration to become more fiscally responsible during this election cycle at the same time the U.S. economy is in a recovery stage. Meanwhile Europe is moving too slowly to fix their financial problems any time soon. Traders have already signaled their willingness to move money to the Dollar boosting its value over 10% since last summer when corn nearly touched $8.00 in Chicago.

Although way simplified and leaving out shipping costs etc, that 10% would be 80 cents less for you when your overseas buyer is paying a record high price.

The Dollar Index is trading a little under 80 this morning. In 2010 the Dollar peaked at nearly 89 and in 2009 it was over 89. Returning the Dollar to those recent peaks would price your products about another 10% higher to your overseas buyer if Chicago prices don’t move. Then we would be talking about $1.60 less for you with your overseas buyer paying a record price. Keep an eye on the Dollar’s value because your overseas buyer is.

Because of my expected strengthening of the Dollar, I think selling during South America’s drought might pay better than during a weather scare in the U.S. 6 months from now.

The Dollar retreated this morning off last week’s recent highs. As we mention above in our writing, the relationship of the weaker Euro and a stronger U.S. economic outlook will likely continue to push the Dollar higher all the way to elections this fall.

There were rains over the past weekend in parts of Argentina and southern Brazil but they were widely scattered and they were very light where rains were recorded. Much more was needed and far more was expected, and so prices are higher this morning on disappointment over these rains. A dryer 11-15 day outlook is back into this morning’s trade.

Traders are expecting large cuts from the USDA’s report this week for Argentine corn. Reuters published results from a poll from 14 analysts who expect an 11% reduction, from 29.0 million tons to 25.8 million tons, in Argentine corn. Area not yet planted to corn was pegged at 20% last week or approximately 750,000 hectares. Corn does not typically get planted much past mid-January, adding to ideas that at least 10% of the total crop will not be planted to corn (3.8 million hectares total).

In past years, the USDA has not been aggressive in making cuts to S. American production numbers in the January report. More cuts are historically made in the February report.

Click to view full size

Investor interest in the grains continues to lack that of prior years by a substantial number. In last week’s CFTC Commitment of Traders report, an 18,856 increase in speculative corn longs and an almost 7,000 increase in soybean speculative long positions is solid but remains far from the kind of massive long side positions we have come to expect from outside money. I would pin the reason behind Europe’s banking and capital problems as well as the relative upside in buying $6.00 corn futures is just as compelling as $4.00 in a Dollar strong environment.

In the chart above, look only at the “Outsider Long” (dark green) for corn and soybeans and note where we are today versus last year. South America provides a reason to buy upside bets but we will have to watch for the level of open interest in today’s grain markets in the coming months.

Our trip to Rome and the Greek Islands is nearly sold out. Click here to see the brochure. Call Audrey at 866-403-2756 or email: Audrey.Lerner@CruiseTravel-N-More.com for more details.

Click here for Soybeans

Click here for Wheat