Bulls Are Hungry for Grains

The following excerpt is taken from our monthly Agriculture Outlook Report, issued to subscribers on the last Friday of every month.

Near-Term Grain Price Outlook:

+ We expect soybeans to maintain their bullish momentum on Chinese purchases and international demand diverted from the South American market. U.S. ending stocks continue to shrink at a remarkable pace, and will remain tight until Chinese demand abates or South American production returns to normal next year.

+ Corn’s upside will begin to brighten as selling pressure from farmers’ unloading of old-crop storage subsides. If heavy rains continue to blanket the grain belt, the trade will see increasing concerns that planting delays will encourage growers to switch to soybeans. This development will provide a bullish double-whammy to corn’s price outlook because it reduces both expected yields (late planting) and overall acreage (switch to beans). We should note, however, that any planting delay premium for corn may be somewhat muted, as last year’s results are still fresh in traders’ minds. Recall that we had record pre-season rainfall that flooded fields throughout the western grain belt, yet we still realized superb productivity with the national yield at 153.9 bushels/acre.

+ The supply-demand equation is far too bearish to allow any significant momentum to develop in the near term for wheat prices. Record prices in 2008 did their job to spur enormous production increases, which now leave us with quite ample global supplies to meet current demand. If the U.S. dollar’s strength persists, U.S. wheat sales will continue to lose marginal orders in the export market. One bright spot in the wheat outlook: Prices will benefit from significant production cuts both in the U.S. and abroad, although any gain will be muted by the influences of excess supply noted earlier in this month’s report.

Disclosure: No positions

Comments

[dieuwer:]

I'm long DBA. With increasing world population and decreasing availability of arable land, agricultural commodity prices should rise over the long term. Additionally, prices are at historical low levels.

May 06 02:47 PM

[Ryan Pollack:]

I agree with both of the comments. Just like bubbles are over-done to the upside, the resulting busts are also over-done to the downside. Assuming an economy recovery end of year or even sometime in 2010, reflation/inflation about 2-3 years from now, and back to following the normal supply-demand curve it wouldn't surprise me at all to see all commodities and those stocks trade near all-time highs 5 years from now.

May 06 05:46 PM

[RiskReturnO...:]

DBA is best way to play the weak dollar, global growth, reflation story. It's safer than agr stocks or ETF like MOO. The only limitation is lack of options volume to enhance it's performance. For example, a covered call 10%-15% out of money for June could generate a tremendous amount of premium while we wait for the weather related triggers to kick it.

May 06 07:59 PM

[johnbee:]

Eating is the best reason that these are the best currency and downside hedges in the market. Other commodities have had their best rise. DBA etc are still not too far off the bottom.


On May 06 11:14 AM Cetin Hakimoglu wrote:

> This will be a repeat of the 2002-2008 grain bull market. No decoupling.
> 6 billion people need to eat, and desire a high protein meat based
> diets. That's why I'm long POT, which always seems to go up.

May 12 11:20 AM