Get This Newsletter Every Saturday from Al Kluis Commodities..."Your Markets, Right Now"...AlKluis.com Saturday, January 5, 2013 Notes from Al Happy New Year and welcome to a volatile 2013. It has been a volatile two weeks already, since we wrote the last Al Kluis Report of 2012. Congress finally came to an agreement on the fiscal cliff on New Year s Day, which rallied the US and global stock markets sharply higher this week. However, It appears the grain markets fell off the cliff. The main factors that dropped prices: Massive commodity fund liquidation, and another Chinese cancellation of US soybean purchases. Let s take a moment to look back at 2012. Here are the four main factors that rallied the grain markets to new all-time highs last year... 1. Strong demand from China for US corn and soybeans 2. The drought in South America in the winter of 2012 3. The drought in most of the Corn Belt in the summer of 2012 4. Huge commodity fund participation in the grain futures markets as futures rallied to new all-time highs For farmers who had trendline or better crops, 2012 was a year of record income. For those in the drought areas, crop insurance will keep you farming in 2013. Now, let s look ahead. Here are the four main factors we will be watching in 2013... 1. Demand from China. Current level: Strong. The economy in China is growing again and their demand for more and better food--especially protein--continues to improve. 2. Weather in the western Corn Belt and the southern plains. Current condition: Dry. This will become a positive market factor by the end of March. 3. Global economic growth. Current trend: Improved, as most of the world, including Europe, starts to grow again. 4. Strength of the US dollar. Current level: Strong, as the US raises tax rates and eventually starts to reduce spending. This is good, because in 2013, farming will be more challenging than ever. For most farmers in 2013, your rents are higher, profit margins are smaller, and financial risks are larger than ever. How are grains doing, compared to the rest of the markets? Fortunately, the top-performing commodities for 2012 were mainly in the grain markets: 1
Closing % Gain Price Soybean meal 419 +36% Wheat 785 +19% Soybeans 14.19 +18% Natural gas 3.35 +16% Meanwhile, the worst-performing commodities for 2012 were the soft commodities, most of which are produced in Brazil... Closing % Loss Price Coffee 144.40-37% Orange juice 117.35-31% Cotton 75.14-18% Sugar 19.55-16% It was a tough year to be a grower in Brazil. Join us for both of our Webinars next week... #1. The first is the Second Tuesday Profit Check webinar Tuesday at 8 pm. Cory Bratland and I will go through what we expect in the USDA crop reports on Friday. Our special guest will be Brian Willott, who manages farms in Brazil. He has an interesting presentation on farming in Brazil and will provide an up-to-the-minute analysis of Brazilian crop prospects. #2. The second webinar is our 11 th Hour Market Hoopla webinar on Friday at 10:45 am. (Recall that the big monthly USDA reports start coming out at 11 am this month, instead of the early-morning 7:30 am releases they had in 2012.) We will give our predictions of what the USDA reports will say, then at 7:30 show the results--and the instant market reactions. It will be interesting to see how the markets react to this mid-day release schedule. Both of our webinars this week are free and open to all, so we encourage you to invite your friends and farm partners (including, for example, your banker and other farm team members). If you or your friends haven t received an invitation before, go to the Events page on my website (http://www.alkluis.com/events.php) for the invitation links. Now, an important reminder about the one education program I do each year: The Lafayette Trading Academy. If you would like to learn how to make better marketing decisions, consider joining us this year. Our 2013 twelve-session course starts on Saturday January 19 in Minneapolis, Minnesota. We still have a few openings left. We recommend farmers attend with a farm partner. Working through the course helps you establish a shared language and a shared understanding of how to make marketing decisions for your farm operation. Here s a brief description of each class... Introductory level: For farmers who want a better understanding of marketing. Topics include: Basics of charting, Introduction to options, calls, puts and spreads, Big Traders and how they impact the market, Understanding grain fundamentals, Energy and inputs. 2
Intermediate level: For farmers who want to advance their basic marketing skills. This includes a laptop customized for charting, order entry and calculating options strategies. Topics include: How a grain exchange works, Advanced commodity options, Use of Prophet X software, Calendar spreads, Advanced grain merchandising, Farm technology apps for smartphones. For more information and the complete syllabus for each class go to our new expanded website for the course, www.ltaclass.com. You can also call Mark Mason at 888-345-7692 or e-mail us at info@kluispublishing.com. Al s Market Thermometers This week grain markets were hit hard by a combination of negative factors over the last two weeks. Here's the updated set of the most important market factors affecting price now... Corn Bullish Wet weather and planting delays that will reduce planted corn acreage in Argentina by 10 to 15%. Trade projections that have cut the Argentine corn crop by 37 to 75 million bushels. Odds are good the USDA will reduce corn acres in the final Crop Production report next week. Bearish Massive commodity fund selling. Another week of very disappointing corn exports. Continuing losses by ethanol producers. Projections for more corn acres and a trendline yield in 2013 creating a record crop in 2013. Lower prices and lower global freight rates are making the US corn price more competitive in the global export market. Soybeans Bullish Odds are good that harvested acres of soybeans may drop by 500,000 to 1 million acres in the final USDA Crop Production report in January. Weather problems in Argentina that could drop soybean yield and the size of the total soybean crop. Bearish Private estimates that raised the projected size of the soybean crop in Brazil to a record 82 to 83 million metric tons. The projected increase in the US soybean yield in the last USDA report, and odds of another increase in the report out next Friday. 3
The USDA showing record soybean usage in the last three months. Dry weather concerns in central and north eastern Brazil. Wheat Bullish Projections for a smaller-thanexpected wheat crop in Argentina and Australia. Record low winter wheat crop ratings. Dry weather in Australia that could take their crop down by 20% from last year. A shift to more soybean acres in Argentina. China canceled another large soybean purchase from the US this week. Bearish Huge sales of wheat futures by commodity trading funds. The bearish USDA Supply/Demand report. The USDA projections for an increase in global ending stocks of wheat. Winter storms this week that brought some moisture to the dry areas in the southern plains. 4
Chart of the Week: US Bond Market About this chart: This is the daily chart of US 30-year Treasury bond futures. This chart shows a low in September of 2012 at $144.05. From that low, prices rallied up to the November high at $152.21. Bond prices have dropped sharply lower since early November and gapped lower after the fiscal cliff agreement was put together earlier this week. What this means to you: As bond prices go down, the cost of home and farm mortgages goes higher. If you have any variable rate mortgages, we encourage you to get them changed over to a fixed rate as soon as possible. What To Watch News and events that could move the markets The USDA January reports--which include the big monthly Crop Production, the bigger quarterly Grain Stocks, and the very big Annual Summary reports--have created some major market moves, both on the day of the report, and in the following three to six weeks. In five of the last six years, corn prices have been limit down or limit up after these reports. (They were limit down 3 times, and limit up twice.) Be sure to join our Hoopla webinar to watch what happens. Here s a preview of what we ll be looking at most closely... 5
#1. The final measurement of harvested acres of corn in 2012. We think this will be down, pushing prices higher. #2. The final size of the US corn crop in 2012. We think this will also be down, which would also make prices go higher. #3. The final measurement of acres harvested in 2012. Likewise, we think this will be down, making prices go higher. #4. The final estimate of corn ending stocks. This is the real wild card. We think production is down, but usage is also down, meaning what s left over--the ending stocks --could even be higher, which would make prices go down. As you can see, there are lots of variables that can affect prices. What will happen? This will be the first time the USDA releases these important numbers at 11 am, while the markets are open, and everybody is already at their desk trading (and on their third cup of coffee). Plus, we used to have a full day of trade to trade the report. Now we only have 3 hours before the market closes. I predict the trading volume will be larger than ever, and more volatile. The big monthly USDA report days are more than just dramatic. They have proven to be the trigger for major market highs and lows. The January 2012 annual report triggered a sell-off, leading to a significant low for the year. The July 2012 report triggered the high for the year for multiple grain contracts. Now, since the reports are released during market hours, those highs and lows can appear in the first ten seconds... and then disappear. What this means for you: If you need to make catch-up sales, this could be the time. Call in your order to your broker this week, before the open of trade on Friday. When I say call it in, I mean you should have the order in place. Don t think you can watch the market reaction, then decide, then pull the trigger. Even if I m sitting at my computer trading, I can t react fast enough to trade on the spot during these extreme market reactions, and I don t try to. Call your orders in ahead of time, then sit back and watch to see if your order gets filled. What To Do Now Specific recommendations for sales, hedges and other actions to take this coming week We have six active recommendations. CORN 2012 crop: Active: Have an offer in to sell enough bushels to get a minimum 80% of your total 2012 corn crop sold if March 2013 Corn futures rally back to $7.67. 2013 crop: Active: Have an offer in to hedge 10% of your 2013 corn A bushels if December 2013 corn rallies to our target at $6.90. SOYBEANS 2012 crop: Active: Have an offer in to sell enough bushels to get a minimum 80% of your total 2012 soybean crop sold if March 2013 Soybean futures rally back to $15.90. 2013 crop: Active. Have an offer in to hedge 10% of your 2013 soybean A bushels if November 2013 soybeans rally to our target at $14.40. 6
WHEAT 2012 crop: Active. On a 80 cent rally from Friday s close in the wheat futures, increase 2012 wheat sales by 15% to get to 70% sold. 2013 crop: Active. On a 70 cent rally from Friday s hedge an additional 10% of your 2013 A wheat bushels to get to 20% sold of your 2013 A wheat bushels. Feed: Wait for a pullback early next year before buying any more corn. Fuel: No new recommendations now. Where You Should Be Summary of your marketing actions to date CORN 2012 Corn: Hedges are at 70% of the 2012 corn crop. 2013 Corn: Hedges are at 10% of the 2013 A bushels SOYBEANS 2012 Soybeans: Hedges are at 60% of the 2012 soybean crop.. 2013 Soybeans: Hedges are at 10% of the 2013 A bushels WHEAT 2012 Wheat: You are 55% sold on your 2012 wheat crop 2013 Wheat: You are 10% sold on your 2013 wheat crop A bushels. 2013 FUEL: You should have filled your fuel tanks and purchased at least 50% of your spring fuel. 7
FERTILIZER: Your 2013 fertilizer was locked in with the recommendation in late June of 2012. FEED Feed corn: You locked in 50% of your fourth quarter corn feed. Soybean meal: You have locked in 100% of your soybean meal for the third and fourth quarter and the first quarter of 2013. Ask Al... We had a lot of questions called in this week about charts and the USDA reports. Question #1, Is dropping back to fill the gap on the March Corn chart at $6.83 bullish or bearish for the corn market? My answer: It is potentially bearish. However it is more important to watch the gaps on the continuation charts. I keep daily and weekly continuation charts for all of the grain markets. The real significant gap that I am watching is the gap on the weekly corn continuation chart at $6.75. If the corn market can hold above $6.75 next week and close higher, it will be a buy signal for corn. Question #2, Which report is more significant next week: the USDA Crop Production Annual Summary, or the quarterly Grain Stocks report? My answer: I think it is the quarterly Grain Stocks report. That report shows actual usage of corn in the last three months, by reporting the amount in farmers bins, and the amount held by elevators. The monthly and annual Crop Production reports and the WASDE report are only estimates. Do you have a marketing question? Send your questions to Al at info@kluispublishing.com. Announcements and Other Information Kluis Calendar Basis & Market Update The Wednesday close this week for March 2013 CBOT Corn was $6.91. Cash basis bids were steady to 2 cents better at most locations this week. We expect limited basis gains as processors take delivery on January grain contracts and corn exports remain slow. The cash soybean bid switched over to the March contract this week. March soybean futures closed at $13.92 this Wednesday. Cash basis bids were steady this week. 8
Market Snapshot Corn: Long Term Corn futures closed lower this week. The nearby corn contract fell below the triple bottom at $7.05 and has now closed lower for five consecutive weeks. Prices are at the lowest level since early July. The market fell 50% from the June-to-September rally, and prices bottomed at $6.79 this week. The double top on the weekly chart at $7.07 is now short term resistance, with additional resistance at $7.20. Support is at the gap on the weekly charts at $6.75. After the recent sharp sell-off, I am waiting for at least a 50% retracement of the recent down-move before we will consider any additional sales. For the week: The weekly corn chart had a 28 cent trading range and closed down 14 cents from last Friday. 9
Corn: 2012 Crop March 2013 Corn futures closed lower this week. March Corn futures rallied into the open of trade on Wednesday after the fiscal cliff announcement, and then went sharply lower into the close of trade on Friday. The market was pressured by massive commodity fund liquidation, projections for a large corn crop in South America, and weakness in the wheat market. For the week: March corn had a 28 cent trading range and closed down 14 cents from last Friday. 10
Corn: 2013 Crop December 2013 Corn futures closed lower this week. The market traded higher after the fiscal cliff announcement on Wednesday and then fell lower into the close of trade on Friday. Prices dropped below support at the July low at $5.90 with the next level of support at $5.61. By spring, I look for a test of $6.20 to $6.90, where we will consider placing some 2013 crop hedges. For the week: December 2013 Corn had a 34 cent trading range and closed down 18 cents from last Friday. 11
Soybeans: Long term Soybean futures closed lower this week. The market moved lower to test the low made in mid-october. The $13.70 October low is short term support with major support at the June 2012 low at $13.49. The two week high at $15.08 is resistance with additional resistance at the October high at $15.77. For the week: Nearby soybean futures had a 66 cent trading range and closed down 35 cents per bushel. 12
Soybeans: 2012 Crop January 2013 soybean futures closed lower this week. Prices rallied into the opening of trade on Wednesday before selling of into the close of trade on Friday. Short term support is at the double bottom at $13.70, with resistance at $14.47. A close above the two day high at $14.14 will confirm a short term low. After the recent sharp sell-off, I am waiting for at least a 50% retracement of the recent down move before we will consider any additional sales. For the week: January soybean futures had a 66 cent trading range this week and closed down 35 cents per bushel. 13
Soybeans: 2013 Crop November 2013 soybean futures closed lower this week. Prices closed below the two week low at $12.83 with major support at the November low at $12.55. A close above the two week high at $13.00 will project prices back to resistance at $13.90 to $14.00. Long term I see a lot more up-side potential in soybeans than downside risk at this time. For the week: November soybean futures had a 57 cent per bushel trading range this week and closed down 33 cents per bushel. 14
Wheat March MGE Wheat futures closed lower this week. Wheat futures dropped through support at $8.75 and moving down to test major support at $8.35. Prices are oversold with a cyclical low due this week or next week. With the cash sale that was made in early November, no additional sales will be recommended until prices rally back. For the week: March wheat futures had a 35 cent trading range with prices closing down 26 cents from last week. 15
Oats March Oats closed lower this week. The oats market dropped down to the lowest level since June of 2012. The next major support is at the $3.20 benchmark. Prices are oversold and due for a short term low. Strategy: Your 2012 sales should be at 40%. Wait for a rebound rally this spring before making any more sales. 16
Canola January Canola: The canola market closed higher this week. Prices rallied up to test resistance at $607 this week. The market action in canola and soybean oil was impressive this week considering the hard down-move in most of the grain markets. The November low appears to be a major low. Stay disciplined. Wait for higher prices before making more sales. Strategy: Your 2012 canola sales should be at 60%. Wait for a rebound before making any more cash sales. The analysis and information contained within are based on information we believe to be reliable. There is no liability for its use. There is a risk of loss trading futures and options. The Al Kluis Report is published 48 out of 52 weeks per year. Copyright 2012 Al Kluis. 17