price perceptions - Amazon Simple Storage Service (S3)
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Bill Gary’s
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RICE ERCEPTIONS
©2009 Commodity Information Systems, Inc.
Issue #1393 • September 5, 2009
Soybean Complex USE A FROST “SCARE” TO SELL FUTURES ! Soybeans
a
reversal b
recovery zone
November Soybeans
Electronic Session ©2009 CQG Inc.
Electronic Session Weekly Continuation ©2009 CQG Inc.
next recovery zone
a
2nd leg objective
triangle objective
Oversold
Stochastics
The market rallied early this week to the top of the recovery zone shown previously from 9.89 to 10.18. A downside reversal occurred following the rally, confirming an end of the recovery. The first leg (a) of the decline lost 1.25. If the second leg (b) is equal, an objective of 8.94 will be indicated. The next recovery zone ranges from 9.58 to 9.81. Stochastics are in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery toward the zone indicated.
MACD
Sell signal
Buy signal
Sell signal
The market closed below the uptrend line this week, confirming resumption of the bear market. It also closed below the lower line of the triangle, shown previously. Two weekly closes below the triangle boundary will indicate an objective of 6.90. The MACD has been a good indicator of major moves over the past year. A sell signal was given on 7/17/09 and the indicator remains in a negative mode.
Continued on page 2 . . .
Price Perceptions is published twenty-four times per year and available by mail, email or fax. Technical Update supplements are available by email or fax the remaining weeks of the year. Annual subscription rate is $395 USD. For more information, phone: (800) 231-0477 or (405) 604-8726, or write: CIS, Inc., 3030 NW Expressway, #725, Oklahoma City, OK 73112. Send email to: [email protected] or visit our web site at www.cis-okc.com
Overview Farmers in the Delta are spraying to force beans to drop leaves. They are attempting to capitalize on the sharp premium in old crop beans before harvest gets underway in the Midwest. This should end the recent bull move in old crop futures. Although a frost in late September could still reduce yields, it appears supplies will be more than adequate to meet demand. Assuming no major crop losses, November futures could test the $7.50 level into harvest.
a
recovery zone
b
December Soybean Oil
Electronic Session ©2009 CQG Inc.
Stochastics
a
2nd leg objective
September Crop Report The USDA will issue the next crop estimate on September 11. In past years when the USDA forecast a record yield for the month of August, they tended to forecast a slightly higher yield in the September report . . .
Oversold
The market is currently testing the uptrend line. The first leg down (a) lost 370 points. As shown in the last issue, objective for the second leg (b) was 34.24. That objective was attained this week. The next recovery zone ranges from 35.60 to 36.50. Stochastics are deep in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery toward the zone indicated.
Higher September Yield?
USDA Soybean Yield Estimates Years of Record High August Estimate Bushels per Acre
Year 1979 1982 1986 1987 1992 1994 1997 1998 2000 2007 2009
extended recovery objective a
December Soybean Meal Electronic Session ©2009 CQG Inc.
b
a
2nd leg objective extended 2nd leg objective
Aug Yield 30.3 32.3 32.9 34.7 35.8 37.6 39.3 39.5 40.7 41.5 41.7
Sep Yield 30.9 32.6 33.1 34.0 35.9 38.2 39.3 40.6 39.5 41.4 ?
Change +0.6 +0.3 +0.2 –0.7 +0.1 +0.6 – +1.1 –1.2 –0.1 ?
In ten years since 1979, the USDA has released a record yield estimate for the month of August. In six years, the September estimate was higher. In three years the September estimate was lower and in one year it was unchanged. In only two years the estimate changed by more than one bushel per acre. Based on USDA history, odds favor a slightly higher yield estimate in the September report.
Sell signal
Stochastics
The market is once again testing the primary uptrend line. Two consecutive closes below the trend line would confirm continuation of the bear market. This week, the market rallied to the extended recovery objective of 309.50 indicated in the last issue and experienced a downside reversal. The first leg down (a) lost 42.00. If the second leg (b) is equal, an objective of 268.00 will be indicated. If the second leg is extended, an objective of 252.00 is possible. Stochastics gave a sell signal on 9/2/09, confirming the second leg is underway.
Also, since 1986, there have been eight years when the good/ excellent rating improved from late July to late August. In five of the eight years, the USDA increased their yield estimate. In one year, it was unchanged and in two years it was lower. Therefore, odds also favor a slightly higher September estimate based on condition ratings. Continued on page 3 . . .
PRICE PERCEPTIONS
#1393
9-5-09
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Phone: (800) 231-0477
©2009
Over the past fifteen years, the USDA has changed the acreage estimate only twice. Therefore, the most important observation from the forgoing is: The September crop estimate should increase slightly from August.
Rumors have circulated in recent weeks that unprecedented Chinese commodity buying has been for speculation as well as normal consumption. If true, the recent price surge in copper, crude oil, soybeans and other commodities could prove to have been a false indicator of demand. China has a history of defaulting on contracts, especially when prices decline well below the contracted price. At this time, it is not clear whether or not China’s commodity buying spree represents true demand or contains an element of speculation. However, with the global banking system still in a fragile state, repercussions from contract cancellations could be much larger than generally expected.
Our forecast for the USDA September crop report is as follows . . .
Slightly Higher!
USDA Soybean Production Estimate Million Acres and Bushels
Planted acreage % harvested Harvested acreage Yield
2008 2009 Actual USDA* CIS Est 75.718 77.723 77.723 98.6 98.8 98.8 74.641 76.767 76.767 39.6 41.7 42.1
Production
2959
3199
US Supply/Demand China has contracted for a record volume of 325 million bushels of new crop soybeans as of August 27. In addition, they still have 41 million bushels under contract for the past season that are expected to be rolled to new crop. With new crop sales as of August 27 representing 41% of exports for the entire season, many analysts expect the USDA to increase their export estimate by 50 to 75 million bushels on September 11. Because there is now some doubt about China’s imports, we have an estimate of what we expect the USDA to show in September and also a forecast based on potential developments . . .
3232
*8/12/09 USDA estimate
Due to some reports of disease and lateness in maturity, we expect only a modest increase in the USDA yield estimate for September. Although the production estimate is forecast to increase only 33 million bushels from August, it would be a new record.
Adequate or Surplus?
US Soybean Supply/Demand – Million Bushels
China Situation China has been a mammoth buyer of soybeans in recent months. One reason for record imports has been the government building of a strategic reserve. However, it is highly doubtful the government will buy the same quantity of beans and double the reserve in the new season. Another reason for huge imports has been record large hog numbers requiring soybean meal in feed rations. But, hog producers are suffering significant losses due to a pork surplus. Meal demand could subside in months ahead if herds are reduced to meet the level of consumer demand. Therefore, while China has purchased record volumes of new crop soybeans from the US, cancellations may occur or future sales could slow dramatically.
07-08 Actual Beg stocks 574 Production 2677 Imports 10 Total supply 3261
#1393
9-5-09
Crush Seed Residual Exports Total usage
1803 93 0 1159 3056
1660 96 48 1265 3069
1670 94 80 1265 3109
End stocks
205
110
210
CIS3/ 110 33705/ 11 3491
1670 17106/ 94 96 80 80 13157/ 12308/ 3159 3116 194
375
1/ 8/12/09 USDA estimate 2/ What we expect the USDA to show on September 11 3/ Based on Chinese import cancellations and slower than expected global economy 4/ Based on forgoing study 5/ Based on past similar condition ratings, no early frost, and final yield of 43.9 6/ Assumes EU meal import situation is settled by late year 7/ Based on China’s current sales pace 8/ Assumes record South American production and no increase in China reserve
In four of the past six weeks, the US did not export any soybeans to China. This was unusual, especially since they paid about 60 cents more for old crop delivery. Early this week, China’s State Owned Assets Supervision and Administration declared that state owned companies would be allowed to default on commodity derivative contracts. This was believed to center around swaps made with foreign banks for airline fuel. Although authorities have attempted to downplay the incident, a new element of risk has been introduced for those selling commodities to China.
PRICE PERCEPTIONS
08-09 09-10 USDA1/ USDA1/ CIS2/ 205 110 110 2959 3199 32324/ 15 10 11 3179 3320 3353
Continued on page 4 . . .
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Phone: (800) 231-0477
©2009
Corn
Forecasting supply/demand for the coming season is one of the most difficult we have encountered due to so many extreme variables. Our final production estimate of 3370 million bushels is based on the experience of past years (1987, 1992, 1994, 1998) of similar condition ratings on August 30. Because soybeans mature based on the angle of the sun, we do not expect significant yield losses unless frost occurs earlier than normal. Our crush forecast is above the USDA, but well below recent history in expectation of larger meal exports to the EU. However, if the EU continues to ban US imports due to traces of unapproved GMO corn dust, our crush estimate is too high. We expect the USDA to increase their export estimate by 50 million bushels for the September report based on record commitments to China. Our final export estimate of 1230 million bushels assumes record production in South America and unexpected cancellations of sales to China.
FROST DAMAGE UNLIKELY TO ALTER DOWNTREND !
a
December Corn Electronic Session ©2009 CQG Inc.
b
a
c
b
top objective 3rd leg objective
We expect future supply/demand estimates to vary widely from our forecasts as more becomes known about crop size, potential South American production, US animal numbers and meal demand, and whether or not China lives up to their import contracts. Because of the uncertain nature of so many variables, it is impossible to forecast price with any semblance of accuracy. However, if production estimates increase into fall and it is found that China’s import demand was overstated, we would not be surprised to see November futures trade as low as $7.50 into harvest. On the other hand, it frost occurs early, futures hold potential to rally back toward $11.00.
Sell signal
Stochastics
A continuation top was finally completed this week with a close below the neckline. The top objective is 2.88. The first leg down (a) lost 54 cents. The second leg (b) lost 34 cents. When the second leg is smaller, the third leg is normally equal to the first. Therefore, objective for the third leg (c) is 2.73. Stochastics gave a sell signal on 9/1/09, confirming the top objective.
Corn
Electronic Session Weekly Continuation ©2009 CQG Inc.
“HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.” COMMODITY INFORMATION SYSTEMS, INC. • 3030 NW EXPRESSWAY, #725 • OKLAHOMA CITY, OK 73112 • (405) 604-8726
recovery zone
wedge objective Stochastics Oversold
A bear wedge formation was completed in June, providing a downside objective of 2.70. The next recovery zone ranges from 3.25 to 3.48. Stochastics are in oversold territory, but remain in a negative mode. The next weekly buy signal should confirm a recovery toward the zone indicated.
Continued on page 5 . . .
PRICE PERCEPTIONS
#1393
9-5-09
4
CIS, Inc.
Phone: (800) 231-0477
©2009
Overview Although the possibility of an early frost has been a hazard for futures, the overbearing weight of potential record production and large carryover stocks from last year pressured prices to new contract lows. Even if a frost does reduce production prospects, it is doubtful enough damage could be done to avoid even lower prices during harvest.
We advise subscribers to keep in mind this year’s crop is very late in maturity. If a hard freeze occurs before the end of September, losses of 300 to 400 million bushels could be experienced. It would also present quality issues of high moisture and foreign matter content. On the other hand, if the first general freeze does not occur until the second week of October, this year would prove similar to 1992’s late crop that produced record high yields and was 108.8% of trend. An equivalent yield this year would be 166.8.
September Crop Report The USDA’s September crop estimate has been somewhat inconsistent in past years when measured against late August crop ratings. However, in most years when crop ratings improved from late July to late August, the September yield estimate was above August. Because of inconsistency with the September estimate, the following study is based on final yield . . .
Our forecast of the USDA September crop estimate is as follows . . .
Near Record Crop!
USDA Corn Production Estimate Million Acres and Bushels
Above Trend Yield!
Planted acreage % harvested Harvested acreage Yield
US Corn – August 30 Condition Report As Indicator of Final Yield
Year % Good/ Ranked 1/ Excellent 1986 85 1994 80 1990 79 1987 79 1992 78 2004 70 2009 69 1998 69 2000 66 1989 64 1997 62 1996 62
Trend Yield 2/ 109.4 124.6 117.0 111.3 120.8 143.7 153.2 132.3 136.1 115.1 130.4 128.4
Final Final % Yield of Trend 119.4 109.2 138.6 111.2 118.5 101.3 119.8 107.7 131.5 108.8 160.3 111.5 159.5 3/ 104.0 134.4 101.6 136.9 100.6 116.3 101.0 126.7 97.2 127.1 98.9
Production
9-5-09
12761
12864
We expect the USDA to lower harvested acreage slightly due to hail damage in Iowa. Our yield estimate is record high, but production is forecast below the historic 2007 crop of 13038 million due to lower acreage. However, when combining our crop estimate with the USDA carryover estimate, total supplies would reach a new record peak. China Situation Lack of August rainfall in northeast corn growing areas has reduced production prospects for China. Current estimates of corn production range from 155.0 to 158.0 million tonnes compared to the most recent USDA estimate of 162.5. Although this may become a temporary reason for corn to rally in weeks ahead, it would not point to large imports . . .
Over the past 23 years, there have been eleven years when the crop rating was 62% good/excellent near August 30. In all years of ratings 64% or higher, the final yield was above trend. Since 2003, yields have been above trend regardless of condition ratings due primarily to strides made in genetically modified seed. This year is also associated with two recent years of cool summers, 1992 and 2004. In both years, the final yield was well above trend. In addition, early harvest results from southern states show yields well above average. Based on our correlation studies and taking into consideration inconsistencies in past September USDA yield estimates, our forecast for the upcoming report is a record 161.0 bushels per acre.
#1393
12101
*8/12/09 USDA estimate
1/ Years of 62% and higher last week of August 2/ Thirty year trend yield 3/ 8/12/09 USDA estimate
PRICE PERCEPTIONS
2008 2009 Actual USDA* CIS Est 85.982 87.035 87.035 91.5 91.9 91.8 78.640 80.007 79.900 153.9 159.5 161.0
Continued on page 6 . . .
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Phone: (800) 231-0477
©2009
Although some analysts are forecasting yields as high as 164 to 165 bushels per acre, we prefer to remain conservative until more is known about harvest conditions. However, based on our usage estimates, a yield of 161 bushels per acre will produce more than adequate supplies. In fact, if 300 to 400 million bushels are lost due to a freeze, supplies project to be more than adequate to meet demand needs.
Chinese Crop Problems!
China Corn Supply/Demand – Million Tonnes
06-07 07-08 08-09 09-10 1/ Actual Actual USDA USDA1/ CIS Est Beg stocks 35.3 36.6 39.4 53.1 53.1 Production 151.6 152.3 165.9 162.5 155.02/ Imports 0.0 0.0 0.1 0.1 0.1 Total supply 186.9 188.9 205.4 215.6 208.2
Feed 104.0 105.0 110.0 Other 41.0 44.0 42.0 Exports 5.3 0.6 0.3 Total usage 150.3 149.6 152.3 End stocks
36.6
39.4
53.1
115.0 43.0 0.5 158.5
113.03/ 43.0 0.5 156.5
57.1
51.7
Our endings stocks forecast of 1989 million bushels would be the second largest since 1993 . . .
Second Largest Surplus in 17 years! US Corn Ending Stocks – Million Bushels
2.2
*
Note: Totals may not add due to rounding 1/ 8/12/09 USDA estimate 2/ Lowest current private estimate 3/ Below USDA due to losses in hog industry
2.0 1.8 1.6 1.4 1.2
Assuming production falls a significant 7.5 million tonnes below the USDA estimate, our ending stocks estimate of 51.7 million would be the second highest of the past six years. Therefore, even if production falls to the lowest current estimate, China will not require imports.
1.0 0.8 0.6 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
*CIS estimate
US Supply/Demand Barring extreme frost damage, ending stocks for the 200910 season are forecast at the highest level in four years . . .
Based on our current evaluation of potential supply/demand inputs, US corn supplies will border on surplus for the 2009-10 season.
Moving Toward Surplus!
The US corn crop is running two to three weeks behind normal maturity due to late planting and a cool, wet summer. As a result, some analysts are advocating long positions on the possibility of a freeze occurring in late September. However, our studies point to a harvest low near $2.75 in December futures if frost is delayed until after October 1. If a killing frost occurs in the last half of September, we would expect futures to rally no higher than the $3.50 level. Because an early frost would force farmers to market corn as soon as possible due to high moisture content, we would view a frost scare as a selling opportunity.
US Corn Supply/Demand – Million Bushels
06-07 07-08 Actual Actual Beg stocks 1967 1304 Production 10531 13038 Imports 12 20 Total supply 12510 14362
Feed 5591 Food/seed 1371 Ethanol 2119 Exports 2125 Total usage 11207 End stocks
08-09 09-10 USDA1/ USDA1/ CIS Est 1624 1720 16902/ 12101 12761 12864 15 15 15 13740 14496 14569
5913 5250 1338 1270 3049 3650 2437 1850 12737 12020
1304 1624
1720
5300 51003/ 1275 1280 4200 4200 2100 20004/ 12875 12580 1621
1989
1/ 8/12/09 USDA estimate 2/ Below USDA due to recent expansion of ethanol production 3/ Below USDA due to lower animal numbers and larger ethanol DDG production 4/ Based on current sales indicators
PRICE PERCEPTIONS
#1393
9-5-09
0.4
alerts fill the “void” between Price Perceptions issues. Call (800) 231-0477, or visit our web site at: www.cis-okc.com
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©2009
Wheat U.S. BECOMES RESIDUAL WORLD EXPORTER ! Record Imports to Record Exports!
December Chicago Wheat
FSU Net Wheat Imports/Exports – Million Tonnes
Electronic Session ©2009 CQG Inc.
35 30
Net exports
a
25 20 15 10
b
5 0 -5
a
-10
Fibonacci objective
Net imports
2nd leg objective Stochastics
-15 -20 -25
Sell signal 81
83
85
87
89
91
93
95
97
99
01
03
05
*CIS estimate
Note: The chart has been reconfigured since the last issue. A continuation top was completed in August. The first leg down (a) lost 99 cents. If the second leg (b) is a short Fibonacci ratio, an objective of 4.48 will be indicated. If the second leg is equal to the first, an objective of 4.18 is indicated. Stochastics gave a sell signal on 9/1/09, confirming continuation of the downtrend.
07
-30 09 *
The FSU experienced a major drought in the early Seventies and surprised the world by importing record quantities of wheat. At the time, the Soviet buying spree was termed the “Great Grain Robbery.” During the Eighties and early Nineties, the FSU became the world’s largest wheat importer. Many nations expanded wheat production during that period to meet their growing demand. However, following the breakup of the Soviet Union, collective farms were turned over to independent operators and production increased sharply. Also, the use of wheat as the primary feed for animals was replaced with greater production of coarse grains, freeing up wheat for export.
Overview The Former Soviet Union (FSU) has increased wheat production and substituted coarse grain for animal feed in recent years. As a result, it has become the largest world exporter, leaving the US as a residual supplier. With US supplies reaching burdensome proportions, prices must be reduced in months ahead to compete with the FSU. We continue to expect Chicago futures to trade near $4.00.
The US has been the world’s largest wheat exporter for decades. However, the FSU exceeded the US during the 2002-03 season for the first time in modern history. During the 2008-09 season, they became the world’s largest wheat exporter again and are forecast to retain that title during the current season.
Former Soviet Union Situation States of the Former Soviet Union (FSU) have shifted from one of the world’s largest importers to the world’s largest exporter . . .
Continued on page 8 . . .
“HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.” COMMODITY INFORMATION SYSTEMS, INC. • 3030 NW EXPRESSWAY, #725 • OKLAHOMA CITY, OK 73112 • (405) 604-8726
PRICE PERCEPTIONS
#1393
9-5-09
7
CIS, Inc.
Phone: (800) 231-0477
©2009
Although FSU production is expected to decline this season, they are forecast to remain the world’s largest exporter . . .
This season’s actual exports through August 27 are a significant 47% below last year’s poor level. When combined with outstanding sales, the total commitment is only 321 million bushels, down 42% from last year and the second lowest for this date since the USDA began reporting export commitments. Assuming sales will improve somewhat in the future, our export estimate for the season is 875 million bushels compared to the USDA forecast of 925 million.
FSU Overtakes US
FSU vs US Wheat Exports – Million Tonnes 40
FSU
36
US
32
US Ending Stocks As illustrated in the 8/22/09 issue of Price Perceptions, our ending stocks estimate for the current season is 853 million bushels. However, viewing ending stocks relative to usage provides a more complete picture of supply tightness or surplus . . .
28 24 20 16 12 8 96
97
98
99
00
01
02
03
04
05
06
07
08
09
Largest Surplus in 23 Years!
4 10
US Wheat “Free” Ending Stocks – Days of Usage Highest since 1987
*
Wheat exported through the Black Sea has a distinct freight advantage over the US to North Africa and the Middle East, the world’s largest importers. Also, severe financial stress in nations of the FSU has led to export subsidies, adding to their price advantage. US hopes for greater export demand appear slim for the current season. US Export Situation Exports are critical for US wheat values as they account for about half of total demand. Export sales of US wheat have been dismal so far this season . . .
88
91
93
95
97
99
01
03
05
07
09
94
96
98
00
02
04
06
08
10
During the Eighties, the government owned a large portion of ending wheat stocks due to chronic oversupply. However, the government has moved out of the storage business in recent years to allow the marketplace to better allocate supply and demand. Therefore, the graph above illustrates privately owned (free) stocks in relation to total usage.
US Wheat Export Commitment* – Million Bushels
89
92
*CIS estimate
Second Lowest!
87
90
170 160 150 140 130 120 110 100 90 80 70 60 50 40 30
650 625 600 575 550 525 500 475 450 425 400 375 350 325 300
Our forecast of “free” ending wheat stocks, in days of usage, is the highest since the chronic surplus of 1987. In that season, the low in March Chicago futures was $2.44 and the high was $2.98. We continue to expect Chicago futures to trade near $4.00.
*As of August 27
PRICE PERCEPTIONS
#1393
9-5-09
8
CIS, Inc.
Phone: (800) 231-0477
©2009
Baltic Dry Index
Other Markets
HEADED DOWN AGAIN ! Dollar Index ©2009 CQG Inc.
Baltic Dry Index
September 2008 – August 2009 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
Buy signal
Stochastics
1.5 1.0 09/26
11/07
12/19
01/30
03/13
04/24
06/05
07/17
0.5 08/28
The market continues to trade within the downtrend channel illustrated in previous issues. Two consecutive closes outside the formation are required to confirm a significant move. Recent consolidation has formed a triangle. Two consecutive closes outside the formation will indicate a move of 217 points in direction of the breakout. The stochastics buy signal on 9/1/09 should confirm a test of the upper triangle line.
The Baltic Dry Index is viewed widely as an indicator of global economic health. Last year, the index collapsed from a record high of 11612 in June to an historic low of 663 in December as financial panic spread throughout the world. Following a series of bailouts, stimulus packages, and quantitative money printing in major economies, the index recovered to a high of 4070 in June of this year. However, the recovery has faltered since that time with the latest reading at 2421, or a decline of 41% from the June high.
3rd leg objective zone bottom objective 2
Reasons given for the pullback include . . .
· ·
Australian Dollar
1
Electronic Session Weekly Continuation ©2009 CQG Inc.
New ships, ordered several years ago when the global economy was booming, are now coming into service. The additional capacity is not needed in today’s slow economy and rates are expected to remain under pressure for the foreseeable future.
3 pullback
zone
2 1
Stochastics
China’s financial stimulus policy encouraged speculation and hoarding of commodities. During the stocks building phase, shipping rates recovered. However, recent government moves to curb speculation and large stockpiles of unused raw materials have reduced demand. One import requiring heavy shipping is iron ore. With iron ore prices dropping by 20% in Shanghai since early August, it appears excessive inventories must be worked off before shipping demand can recover.
Overbought
A bottom was completed in May, providing an objective of .8797. The first leg (1) of the advance gained 1017 points. The second leg (2) gained 1331 points. As indicated in previous issues, objectives for the third leg (3) range from .8680 to .8994. The market is approaching the objective zone. The next pullback zone ranges from .7991 to .8193. Stochastics are in overbought territory. The next sell signal should confirm a pullback toward the zone indicated.
Whatever the reason for the recent plunge in shipping rates, it is an indicator the global economy continues to struggle. Whether it’s excess capacity or speculative inventory building, the indicator points to a continued lack of demand.
PRICE PERCEPTIONS
#1393
9-5-09
9
CIS, Inc.
Phone: (800) 231-0477
©2009
Livestock a
primary recovery zone b
December Live Cattle Electronic Session ©2009 CQG Inc.
recovery zone
next recovery zone
a
November Feeder Cattle
flag objective 2nd leg objective
©2009 CQG Inc.
Buy signal
Stochastics
Stochastics
As indicated in the previous issue, a top was completed in August and a three leg decline (arrows) followed. The next recovery zone ranges from 99.65 to 100.72. The primary recovery zone ranges from 100.22 to 101.90. Stochastics gave a buy signal on 9/2/09, confirming a recovery toward the zones indicated.
A bear flag was completed in early August, providing a downside objective of 85.60. The first leg (a) of the decline fell 3.50. If the second leg (b) is equal, an objective of 85.37 will be indicated. This week’s low of 85.72 may have been close enough to satisfy downside objectives. The next recovery zone ranges from 87.30 to 88.07. Stochastics showed divergence on recent lows, indicating a loss in bearish momentum. The next buy signal should confirm a recovery effort.
b
Live Cattle
c
a
Electronic Session Weekly Continuation ©2009 CQG Inc.
primary recovery zone initial recovery zone
b
December Lean Hogs Electronic Session ©2009 CQG Inc.
2nd leg objective 1
c 1
2
Overbought Oversold
Stochastics
Stochastics
As indicated previously, a three leg decline (a,b,c) was completed in mid-August. The initial recovery zone ranges from 49.22 to 53.05. The primary recovery zone ranges from 52.75 to 58.75. The first leg (1) of the recovery gained 4.77. If the second leg (2) is equal, an objective of 48.85 will be indicated. This week’s high of 48.62 may have been close enough to satisfy that objective. The recovery has formed a bear flag. A close below the lower line will provide an objective near August lows. Stochastics are in overbought territory, but remain in a positive mode. The next sell signal should confirm completion of the second leg up.
During the past eight months, the market has traded in a well defined channel. Two consecutive weekly closes outside the formation will indicate a move of 9.57 in direction of the breakout. Stochastics are approaching overbought territory, but remain in a positive mode. The next sell signal should confirm a pullback toward the lower channel line.
PRICE PERCEPTIONS
#1393
9-5-09
10
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Sugar
Other Softs 3 recovery
zone
reversal
December Cocoa
2
©2009 CQG Inc.
March Sugar ©2009 CQG Inc.
3
1
wedge objective
primary pullback zone
2 1
Stochastics
Buy signal
Sell signal
Stochastics
Note: The chart has been reconfigured since the last issue. A continuation bottom was completed in June and a new series of uplegs (1,2,3) followed. The advance ended this week with a downside reversal. This week’s high of 26.25 was close enough to satisfy the flag objective of 26.45 shown in the last issue. The primary pullback zone ranges from 20.29 to 22.57. The next recovery zone ranges from 23.81 to 24.74. Stochastics showed strong divergence on this week’s contract high, indicating of a loss in bullish momentum. A sell signal was given on 9/3/09, confirming the pullback.
Since late February, the market has traded in a well defined uptrend channel (solid lines). Once again, the market is headed toward the upper boundary line. Recent consolidation has formed a bear wedge (dashed lines). Two consecutive closes below the lower line will provide an objective near 2500. Stochastics gave a buy signal on 9/3/09, confirming the advance toward the upper boundary lines.
recovery zone
key reversal
Sugar
Weekly Continuation ©2009 CQG Inc.
December Cotton ©2009 CQG Inc.
wedge objective
primary pullback zone
Stochastics
Stochastics
Sell signal
A large bear wedge was completed in mid-August, providing a downside objective of 50.31. As shown in the previous issue, the recovery zone ranges from 60.24 to 62.23. The market is approaching the lower boundary of the zone. Stochastics gave a buy signal on 8/28/09 and remain in a positive mode.
A bull flag was completed early this year and a three leg advance (arrows) followed. The advance ended this week with a key downside reversal. The primary pullback zone ranges from 15.99 to 19.37. Stochastics showed divergence on this week’s high, indicating a loss in bullish momentum. A sell signal was given on 9/4/09, confirming a pullback toward the zone indicated.
PRICE PERCEPTIONS
#1393
9-5-09
Buy signal
11
CIS, Inc.
Phone: (800) 231-0477
©2009
Metals December Silver
2nd major leg objective 2nd minor leg objective
1
Electronic Session ©2009 CQG Inc.
December Gold Electronic Session ©2009 CQG Inc.
2nd major leg objective 1
2nd minor leg objective
pullback zone
pullback zone 2
2
1 Overbought
1
Oversold
Stochastics
Stochastics
A bottom was completed in May. The first major leg (1) of the advance gained 109.00. If the second leg (2) is equal, an objective of 1016.60 will be indicated. The second major leg consists of two minor legs (arrows). The first minor leg gained 66.70. Objective for the second minor leg was 998.00 and it was attained this week. The next pullback zone ranges from 957.40 to 973.40. Stochastics are deep in overbought territory, but remain in a positive mode. The next sell signal should confirm a pullback toward the zone indicated.
Note: The chart has been reconfigured since the last issue. A large bottom was completed in May. The first major leg (1) of the advance gained 4.15. If the second leg (2) is equal, an objective of 16.64 will be indicated. The second major leg consists of two minor legs (arrows). The first minor leg gained 2.73. Objective for the second minor leg was 16.26 and it was attained this week. The next pullback zone ranges from 14.59 to 15.25. Stochastics are deep in overbought territory and turning down. The next sell signal should confirm a pullback toward the zone indicated.
December Copper Electronic Session ©2009 CQG Inc.
3rd leg objective zone 2
top objective
1
Silver
2
Electronic Session Weekly Continuation ©2009 CQG Inc.
3
pullback zone
1
Stochastics
Stochastics
#1393
9-5-09
Sell signal
Since February, the market has been in an uptrend channel. To date, attempts to carry through the upper boundary have failed, indicating a possible test of the lower channel line. Recent consolidation formed a potential double top. A close below the neckline at 266.00 will provide an objective of 234.50. The next pullback zone ranges from 247.55 to 267.70. Stochastics showed strong divergence on this week’s contract high, indicating a loss in bullish momentum. The sell signal on 8/31/09 should confirm a pullback effort.
A bottom was completed in December. The first leg (1) of the advance gained 5.83. The second leg (2) gained 4.52. If the third leg (3) is equal to either, objectives will range from 17.00 to 18.31. The next pullback zone ranges from 13.93 to 14.82. Stochastics showed strong divergence on this week’s highs, indicating a loss in bullish momentum. The next sell signal should confirm a pullback toward the zone indicated.
PRICE PERCEPTIONS
pullback zone
12
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Energy recovery zone
Natural Gas
triangle objective
recovery zone
Electronic Session Weekly Continuation ©2009 CQG Inc.
December Crude Oil Electronic Session ©2009 CQG Inc.
triangle objective
Stochastics
Stochastics
Oversold
The triangle shown in the last issue was completed this week, providing a downside objective of 65.02. The next recovery zone ranges from 70.73 to 72.28. Stochastics are in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery effort.
As indicated in previous issues, a triangle was completed, providing an objective of 1.870. The next recovery zone ranges from 3.079 to 3.492. Stochastics continues showing divergence on new lows, indicating a loss in bearish momentum. The next buy signal should confirm a recovery effort.
COPYRIGHT WARNING Price Perceptions is protected under the U.S. Copyright Act. Violations are punishable by fines up to $100,000 per incident. Reproduction of all or any part of this publication and/or distribution without permission is a violation of federal copyright laws. Copyright 2009, Commodity Information Systems, Inc. All rights reserved.
3rd leg objective 2
Crude Oil
Electronic Session Weekly Continuation ©2009 CQG Inc.
1
3
2 1
initial pullback zone primary pullback zone
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Sell signal
Stochastics
A bottom was completed in March. The first leg (1) of the advance gained 21.11. The second leg (2) gained 29.55. Objective for the third leg (3) is 79.43. However, the market is struggling to carry through to the upside. As shown previously, the initial pullback zone ranges from 62.45 to 66.65. The market is approaching that area. The primary pullback zone ranges from 49.37 to 59.14. Stochastics show divergence on recent highs, indicating a loss in bullish momentum. A sell signal was given on 9/4/09, confirming a pullback toward the zones indicated.
PRICE PERCEPTIONS
#1393
9-5-09
13
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Phone: (800) 231-0477
©2009
41
Bill Gary’s
YE
AR
S
RICE ERCEPTIONS
©2009 Commodity Information Systems, Inc.
Issue #1393 • September 5, 2009
Soybean Complex USE A FROST “SCARE” TO SELL FUTURES ! Soybeans
a
reversal b
recovery zone
November Soybeans
Electronic Session ©2009 CQG Inc.
Electronic Session Weekly Continuation ©2009 CQG Inc.
next recovery zone
a
2nd leg objective
triangle objective
Oversold
Stochastics
The market rallied early this week to the top of the recovery zone shown previously from 9.89 to 10.18. A downside reversal occurred following the rally, confirming an end of the recovery. The first leg (a) of the decline lost 1.25. If the second leg (b) is equal, an objective of 8.94 will be indicated. The next recovery zone ranges from 9.58 to 9.81. Stochastics are in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery toward the zone indicated.
MACD
Sell signal
Buy signal
Sell signal
The market closed below the uptrend line this week, confirming resumption of the bear market. It also closed below the lower line of the triangle, shown previously. Two weekly closes below the triangle boundary will indicate an objective of 6.90. The MACD has been a good indicator of major moves over the past year. A sell signal was given on 7/17/09 and the indicator remains in a negative mode.
Continued on page 2 . . .
Price Perceptions is published twenty-four times per year and available by mail, email or fax. Technical Update supplements are available by email or fax the remaining weeks of the year. Annual subscription rate is $395 USD. For more information, phone: (800) 231-0477 or (405) 604-8726, or write: CIS, Inc., 3030 NW Expressway, #725, Oklahoma City, OK 73112. Send email to: [email protected] or visit our web site at www.cis-okc.com
Overview Farmers in the Delta are spraying to force beans to drop leaves. They are attempting to capitalize on the sharp premium in old crop beans before harvest gets underway in the Midwest. This should end the recent bull move in old crop futures. Although a frost in late September could still reduce yields, it appears supplies will be more than adequate to meet demand. Assuming no major crop losses, November futures could test the $7.50 level into harvest.
a
recovery zone
b
December Soybean Oil
Electronic Session ©2009 CQG Inc.
Stochastics
a
2nd leg objective
September Crop Report The USDA will issue the next crop estimate on September 11. In past years when the USDA forecast a record yield for the month of August, they tended to forecast a slightly higher yield in the September report . . .
Oversold
The market is currently testing the uptrend line. The first leg down (a) lost 370 points. As shown in the last issue, objective for the second leg (b) was 34.24. That objective was attained this week. The next recovery zone ranges from 35.60 to 36.50. Stochastics are deep in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery toward the zone indicated.
Higher September Yield?
USDA Soybean Yield Estimates Years of Record High August Estimate Bushels per Acre
Year 1979 1982 1986 1987 1992 1994 1997 1998 2000 2007 2009
extended recovery objective a
December Soybean Meal Electronic Session ©2009 CQG Inc.
b
a
2nd leg objective extended 2nd leg objective
Aug Yield 30.3 32.3 32.9 34.7 35.8 37.6 39.3 39.5 40.7 41.5 41.7
Sep Yield 30.9 32.6 33.1 34.0 35.9 38.2 39.3 40.6 39.5 41.4 ?
Change +0.6 +0.3 +0.2 –0.7 +0.1 +0.6 – +1.1 –1.2 –0.1 ?
In ten years since 1979, the USDA has released a record yield estimate for the month of August. In six years, the September estimate was higher. In three years the September estimate was lower and in one year it was unchanged. In only two years the estimate changed by more than one bushel per acre. Based on USDA history, odds favor a slightly higher yield estimate in the September report.
Sell signal
Stochastics
The market is once again testing the primary uptrend line. Two consecutive closes below the trend line would confirm continuation of the bear market. This week, the market rallied to the extended recovery objective of 309.50 indicated in the last issue and experienced a downside reversal. The first leg down (a) lost 42.00. If the second leg (b) is equal, an objective of 268.00 will be indicated. If the second leg is extended, an objective of 252.00 is possible. Stochastics gave a sell signal on 9/2/09, confirming the second leg is underway.
Also, since 1986, there have been eight years when the good/ excellent rating improved from late July to late August. In five of the eight years, the USDA increased their yield estimate. In one year, it was unchanged and in two years it was lower. Therefore, odds also favor a slightly higher September estimate based on condition ratings. Continued on page 3 . . .
PRICE PERCEPTIONS
#1393
9-5-09
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Over the past fifteen years, the USDA has changed the acreage estimate only twice. Therefore, the most important observation from the forgoing is: The September crop estimate should increase slightly from August.
Rumors have circulated in recent weeks that unprecedented Chinese commodity buying has been for speculation as well as normal consumption. If true, the recent price surge in copper, crude oil, soybeans and other commodities could prove to have been a false indicator of demand. China has a history of defaulting on contracts, especially when prices decline well below the contracted price. At this time, it is not clear whether or not China’s commodity buying spree represents true demand or contains an element of speculation. However, with the global banking system still in a fragile state, repercussions from contract cancellations could be much larger than generally expected.
Our forecast for the USDA September crop report is as follows . . .
Slightly Higher!
USDA Soybean Production Estimate Million Acres and Bushels
Planted acreage % harvested Harvested acreage Yield
2008 2009 Actual USDA* CIS Est 75.718 77.723 77.723 98.6 98.8 98.8 74.641 76.767 76.767 39.6 41.7 42.1
Production
2959
3199
US Supply/Demand China has contracted for a record volume of 325 million bushels of new crop soybeans as of August 27. In addition, they still have 41 million bushels under contract for the past season that are expected to be rolled to new crop. With new crop sales as of August 27 representing 41% of exports for the entire season, many analysts expect the USDA to increase their export estimate by 50 to 75 million bushels on September 11. Because there is now some doubt about China’s imports, we have an estimate of what we expect the USDA to show in September and also a forecast based on potential developments . . .
3232
*8/12/09 USDA estimate
Due to some reports of disease and lateness in maturity, we expect only a modest increase in the USDA yield estimate for September. Although the production estimate is forecast to increase only 33 million bushels from August, it would be a new record.
Adequate or Surplus?
US Soybean Supply/Demand – Million Bushels
China Situation China has been a mammoth buyer of soybeans in recent months. One reason for record imports has been the government building of a strategic reserve. However, it is highly doubtful the government will buy the same quantity of beans and double the reserve in the new season. Another reason for huge imports has been record large hog numbers requiring soybean meal in feed rations. But, hog producers are suffering significant losses due to a pork surplus. Meal demand could subside in months ahead if herds are reduced to meet the level of consumer demand. Therefore, while China has purchased record volumes of new crop soybeans from the US, cancellations may occur or future sales could slow dramatically.
07-08 Actual Beg stocks 574 Production 2677 Imports 10 Total supply 3261
#1393
9-5-09
Crush Seed Residual Exports Total usage
1803 93 0 1159 3056
1660 96 48 1265 3069
1670 94 80 1265 3109
End stocks
205
110
210
CIS3/ 110 33705/ 11 3491
1670 17106/ 94 96 80 80 13157/ 12308/ 3159 3116 194
375
1/ 8/12/09 USDA estimate 2/ What we expect the USDA to show on September 11 3/ Based on Chinese import cancellations and slower than expected global economy 4/ Based on forgoing study 5/ Based on past similar condition ratings, no early frost, and final yield of 43.9 6/ Assumes EU meal import situation is settled by late year 7/ Based on China’s current sales pace 8/ Assumes record South American production and no increase in China reserve
In four of the past six weeks, the US did not export any soybeans to China. This was unusual, especially since they paid about 60 cents more for old crop delivery. Early this week, China’s State Owned Assets Supervision and Administration declared that state owned companies would be allowed to default on commodity derivative contracts. This was believed to center around swaps made with foreign banks for airline fuel. Although authorities have attempted to downplay the incident, a new element of risk has been introduced for those selling commodities to China.
PRICE PERCEPTIONS
08-09 09-10 USDA1/ USDA1/ CIS2/ 205 110 110 2959 3199 32324/ 15 10 11 3179 3320 3353
Continued on page 4 . . .
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Corn
Forecasting supply/demand for the coming season is one of the most difficult we have encountered due to so many extreme variables. Our final production estimate of 3370 million bushels is based on the experience of past years (1987, 1992, 1994, 1998) of similar condition ratings on August 30. Because soybeans mature based on the angle of the sun, we do not expect significant yield losses unless frost occurs earlier than normal. Our crush forecast is above the USDA, but well below recent history in expectation of larger meal exports to the EU. However, if the EU continues to ban US imports due to traces of unapproved GMO corn dust, our crush estimate is too high. We expect the USDA to increase their export estimate by 50 million bushels for the September report based on record commitments to China. Our final export estimate of 1230 million bushels assumes record production in South America and unexpected cancellations of sales to China.
FROST DAMAGE UNLIKELY TO ALTER DOWNTREND !
a
December Corn Electronic Session ©2009 CQG Inc.
b
a
c
b
top objective 3rd leg objective
We expect future supply/demand estimates to vary widely from our forecasts as more becomes known about crop size, potential South American production, US animal numbers and meal demand, and whether or not China lives up to their import contracts. Because of the uncertain nature of so many variables, it is impossible to forecast price with any semblance of accuracy. However, if production estimates increase into fall and it is found that China’s import demand was overstated, we would not be surprised to see November futures trade as low as $7.50 into harvest. On the other hand, it frost occurs early, futures hold potential to rally back toward $11.00.
Sell signal
Stochastics
A continuation top was finally completed this week with a close below the neckline. The top objective is 2.88. The first leg down (a) lost 54 cents. The second leg (b) lost 34 cents. When the second leg is smaller, the third leg is normally equal to the first. Therefore, objective for the third leg (c) is 2.73. Stochastics gave a sell signal on 9/1/09, confirming the top objective.
Corn
Electronic Session Weekly Continuation ©2009 CQG Inc.
“HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.” COMMODITY INFORMATION SYSTEMS, INC. • 3030 NW EXPRESSWAY, #725 • OKLAHOMA CITY, OK 73112 • (405) 604-8726
recovery zone
wedge objective Stochastics Oversold
A bear wedge formation was completed in June, providing a downside objective of 2.70. The next recovery zone ranges from 3.25 to 3.48. Stochastics are in oversold territory, but remain in a negative mode. The next weekly buy signal should confirm a recovery toward the zone indicated.
Continued on page 5 . . .
PRICE PERCEPTIONS
#1393
9-5-09
4
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Phone: (800) 231-0477
©2009
Overview Although the possibility of an early frost has been a hazard for futures, the overbearing weight of potential record production and large carryover stocks from last year pressured prices to new contract lows. Even if a frost does reduce production prospects, it is doubtful enough damage could be done to avoid even lower prices during harvest.
We advise subscribers to keep in mind this year’s crop is very late in maturity. If a hard freeze occurs before the end of September, losses of 300 to 400 million bushels could be experienced. It would also present quality issues of high moisture and foreign matter content. On the other hand, if the first general freeze does not occur until the second week of October, this year would prove similar to 1992’s late crop that produced record high yields and was 108.8% of trend. An equivalent yield this year would be 166.8.
September Crop Report The USDA’s September crop estimate has been somewhat inconsistent in past years when measured against late August crop ratings. However, in most years when crop ratings improved from late July to late August, the September yield estimate was above August. Because of inconsistency with the September estimate, the following study is based on final yield . . .
Our forecast of the USDA September crop estimate is as follows . . .
Near Record Crop!
USDA Corn Production Estimate Million Acres and Bushels
Above Trend Yield!
Planted acreage % harvested Harvested acreage Yield
US Corn – August 30 Condition Report As Indicator of Final Yield
Year % Good/ Ranked 1/ Excellent 1986 85 1994 80 1990 79 1987 79 1992 78 2004 70 2009 69 1998 69 2000 66 1989 64 1997 62 1996 62
Trend Yield 2/ 109.4 124.6 117.0 111.3 120.8 143.7 153.2 132.3 136.1 115.1 130.4 128.4
Final Final % Yield of Trend 119.4 109.2 138.6 111.2 118.5 101.3 119.8 107.7 131.5 108.8 160.3 111.5 159.5 3/ 104.0 134.4 101.6 136.9 100.6 116.3 101.0 126.7 97.2 127.1 98.9
Production
9-5-09
12761
12864
We expect the USDA to lower harvested acreage slightly due to hail damage in Iowa. Our yield estimate is record high, but production is forecast below the historic 2007 crop of 13038 million due to lower acreage. However, when combining our crop estimate with the USDA carryover estimate, total supplies would reach a new record peak. China Situation Lack of August rainfall in northeast corn growing areas has reduced production prospects for China. Current estimates of corn production range from 155.0 to 158.0 million tonnes compared to the most recent USDA estimate of 162.5. Although this may become a temporary reason for corn to rally in weeks ahead, it would not point to large imports . . .
Over the past 23 years, there have been eleven years when the crop rating was 62% good/excellent near August 30. In all years of ratings 64% or higher, the final yield was above trend. Since 2003, yields have been above trend regardless of condition ratings due primarily to strides made in genetically modified seed. This year is also associated with two recent years of cool summers, 1992 and 2004. In both years, the final yield was well above trend. In addition, early harvest results from southern states show yields well above average. Based on our correlation studies and taking into consideration inconsistencies in past September USDA yield estimates, our forecast for the upcoming report is a record 161.0 bushels per acre.
#1393
12101
*8/12/09 USDA estimate
1/ Years of 62% and higher last week of August 2/ Thirty year trend yield 3/ 8/12/09 USDA estimate
PRICE PERCEPTIONS
2008 2009 Actual USDA* CIS Est 85.982 87.035 87.035 91.5 91.9 91.8 78.640 80.007 79.900 153.9 159.5 161.0
Continued on page 6 . . .
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©2009
Although some analysts are forecasting yields as high as 164 to 165 bushels per acre, we prefer to remain conservative until more is known about harvest conditions. However, based on our usage estimates, a yield of 161 bushels per acre will produce more than adequate supplies. In fact, if 300 to 400 million bushels are lost due to a freeze, supplies project to be more than adequate to meet demand needs.
Chinese Crop Problems!
China Corn Supply/Demand – Million Tonnes
06-07 07-08 08-09 09-10 1/ Actual Actual USDA USDA1/ CIS Est Beg stocks 35.3 36.6 39.4 53.1 53.1 Production 151.6 152.3 165.9 162.5 155.02/ Imports 0.0 0.0 0.1 0.1 0.1 Total supply 186.9 188.9 205.4 215.6 208.2
Feed 104.0 105.0 110.0 Other 41.0 44.0 42.0 Exports 5.3 0.6 0.3 Total usage 150.3 149.6 152.3 End stocks
36.6
39.4
53.1
115.0 43.0 0.5 158.5
113.03/ 43.0 0.5 156.5
57.1
51.7
Our endings stocks forecast of 1989 million bushels would be the second largest since 1993 . . .
Second Largest Surplus in 17 years! US Corn Ending Stocks – Million Bushels
2.2
*
Note: Totals may not add due to rounding 1/ 8/12/09 USDA estimate 2/ Lowest current private estimate 3/ Below USDA due to losses in hog industry
2.0 1.8 1.6 1.4 1.2
Assuming production falls a significant 7.5 million tonnes below the USDA estimate, our ending stocks estimate of 51.7 million would be the second highest of the past six years. Therefore, even if production falls to the lowest current estimate, China will not require imports.
1.0 0.8 0.6 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10
*CIS estimate
US Supply/Demand Barring extreme frost damage, ending stocks for the 200910 season are forecast at the highest level in four years . . .
Based on our current evaluation of potential supply/demand inputs, US corn supplies will border on surplus for the 2009-10 season.
Moving Toward Surplus!
The US corn crop is running two to three weeks behind normal maturity due to late planting and a cool, wet summer. As a result, some analysts are advocating long positions on the possibility of a freeze occurring in late September. However, our studies point to a harvest low near $2.75 in December futures if frost is delayed until after October 1. If a killing frost occurs in the last half of September, we would expect futures to rally no higher than the $3.50 level. Because an early frost would force farmers to market corn as soon as possible due to high moisture content, we would view a frost scare as a selling opportunity.
US Corn Supply/Demand – Million Bushels
06-07 07-08 Actual Actual Beg stocks 1967 1304 Production 10531 13038 Imports 12 20 Total supply 12510 14362
Feed 5591 Food/seed 1371 Ethanol 2119 Exports 2125 Total usage 11207 End stocks
08-09 09-10 USDA1/ USDA1/ CIS Est 1624 1720 16902/ 12101 12761 12864 15 15 15 13740 14496 14569
5913 5250 1338 1270 3049 3650 2437 1850 12737 12020
1304 1624
1720
5300 51003/ 1275 1280 4200 4200 2100 20004/ 12875 12580 1621
1989
1/ 8/12/09 USDA estimate 2/ Below USDA due to recent expansion of ethanol production 3/ Below USDA due to lower animal numbers and larger ethanol DDG production 4/ Based on current sales indicators
PRICE PERCEPTIONS
#1393
9-5-09
0.4
alerts fill the “void” between Price Perceptions issues. Call (800) 231-0477, or visit our web site at: www.cis-okc.com
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Wheat U.S. BECOMES RESIDUAL WORLD EXPORTER ! Record Imports to Record Exports!
December Chicago Wheat
FSU Net Wheat Imports/Exports – Million Tonnes
Electronic Session ©2009 CQG Inc.
35 30
Net exports
a
25 20 15 10
b
5 0 -5
a
-10
Fibonacci objective
Net imports
2nd leg objective Stochastics
-15 -20 -25
Sell signal 81
83
85
87
89
91
93
95
97
99
01
03
05
*CIS estimate
Note: The chart has been reconfigured since the last issue. A continuation top was completed in August. The first leg down (a) lost 99 cents. If the second leg (b) is a short Fibonacci ratio, an objective of 4.48 will be indicated. If the second leg is equal to the first, an objective of 4.18 is indicated. Stochastics gave a sell signal on 9/1/09, confirming continuation of the downtrend.
07
-30 09 *
The FSU experienced a major drought in the early Seventies and surprised the world by importing record quantities of wheat. At the time, the Soviet buying spree was termed the “Great Grain Robbery.” During the Eighties and early Nineties, the FSU became the world’s largest wheat importer. Many nations expanded wheat production during that period to meet their growing demand. However, following the breakup of the Soviet Union, collective farms were turned over to independent operators and production increased sharply. Also, the use of wheat as the primary feed for animals was replaced with greater production of coarse grains, freeing up wheat for export.
Overview The Former Soviet Union (FSU) has increased wheat production and substituted coarse grain for animal feed in recent years. As a result, it has become the largest world exporter, leaving the US as a residual supplier. With US supplies reaching burdensome proportions, prices must be reduced in months ahead to compete with the FSU. We continue to expect Chicago futures to trade near $4.00.
The US has been the world’s largest wheat exporter for decades. However, the FSU exceeded the US during the 2002-03 season for the first time in modern history. During the 2008-09 season, they became the world’s largest wheat exporter again and are forecast to retain that title during the current season.
Former Soviet Union Situation States of the Former Soviet Union (FSU) have shifted from one of the world’s largest importers to the world’s largest exporter . . .
Continued on page 8 . . .
“HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.” COMMODITY INFORMATION SYSTEMS, INC. • 3030 NW EXPRESSWAY, #725 • OKLAHOMA CITY, OK 73112 • (405) 604-8726
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Although FSU production is expected to decline this season, they are forecast to remain the world’s largest exporter . . .
This season’s actual exports through August 27 are a significant 47% below last year’s poor level. When combined with outstanding sales, the total commitment is only 321 million bushels, down 42% from last year and the second lowest for this date since the USDA began reporting export commitments. Assuming sales will improve somewhat in the future, our export estimate for the season is 875 million bushels compared to the USDA forecast of 925 million.
FSU Overtakes US
FSU vs US Wheat Exports – Million Tonnes 40
FSU
36
US
32
US Ending Stocks As illustrated in the 8/22/09 issue of Price Perceptions, our ending stocks estimate for the current season is 853 million bushels. However, viewing ending stocks relative to usage provides a more complete picture of supply tightness or surplus . . .
28 24 20 16 12 8 96
97
98
99
00
01
02
03
04
05
06
07
08
09
Largest Surplus in 23 Years!
4 10
US Wheat “Free” Ending Stocks – Days of Usage Highest since 1987
*
Wheat exported through the Black Sea has a distinct freight advantage over the US to North Africa and the Middle East, the world’s largest importers. Also, severe financial stress in nations of the FSU has led to export subsidies, adding to their price advantage. US hopes for greater export demand appear slim for the current season. US Export Situation Exports are critical for US wheat values as they account for about half of total demand. Export sales of US wheat have been dismal so far this season . . .
88
91
93
95
97
99
01
03
05
07
09
94
96
98
00
02
04
06
08
10
During the Eighties, the government owned a large portion of ending wheat stocks due to chronic oversupply. However, the government has moved out of the storage business in recent years to allow the marketplace to better allocate supply and demand. Therefore, the graph above illustrates privately owned (free) stocks in relation to total usage.
US Wheat Export Commitment* – Million Bushels
89
92
*CIS estimate
Second Lowest!
87
90
170 160 150 140 130 120 110 100 90 80 70 60 50 40 30
650 625 600 575 550 525 500 475 450 425 400 375 350 325 300
Our forecast of “free” ending wheat stocks, in days of usage, is the highest since the chronic surplus of 1987. In that season, the low in March Chicago futures was $2.44 and the high was $2.98. We continue to expect Chicago futures to trade near $4.00.
*As of August 27
PRICE PERCEPTIONS
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©2009
Baltic Dry Index
Other Markets
HEADED DOWN AGAIN ! Dollar Index ©2009 CQG Inc.
Baltic Dry Index
September 2008 – August 2009 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0
Buy signal
Stochastics
1.5 1.0 09/26
11/07
12/19
01/30
03/13
04/24
06/05
07/17
0.5 08/28
The market continues to trade within the downtrend channel illustrated in previous issues. Two consecutive closes outside the formation are required to confirm a significant move. Recent consolidation has formed a triangle. Two consecutive closes outside the formation will indicate a move of 217 points in direction of the breakout. The stochastics buy signal on 9/1/09 should confirm a test of the upper triangle line.
The Baltic Dry Index is viewed widely as an indicator of global economic health. Last year, the index collapsed from a record high of 11612 in June to an historic low of 663 in December as financial panic spread throughout the world. Following a series of bailouts, stimulus packages, and quantitative money printing in major economies, the index recovered to a high of 4070 in June of this year. However, the recovery has faltered since that time with the latest reading at 2421, or a decline of 41% from the June high.
3rd leg objective zone bottom objective 2
Reasons given for the pullback include . . .
· ·
Australian Dollar
1
Electronic Session Weekly Continuation ©2009 CQG Inc.
New ships, ordered several years ago when the global economy was booming, are now coming into service. The additional capacity is not needed in today’s slow economy and rates are expected to remain under pressure for the foreseeable future.
3 pullback
zone
2 1
Stochastics
China’s financial stimulus policy encouraged speculation and hoarding of commodities. During the stocks building phase, shipping rates recovered. However, recent government moves to curb speculation and large stockpiles of unused raw materials have reduced demand. One import requiring heavy shipping is iron ore. With iron ore prices dropping by 20% in Shanghai since early August, it appears excessive inventories must be worked off before shipping demand can recover.
Overbought
A bottom was completed in May, providing an objective of .8797. The first leg (1) of the advance gained 1017 points. The second leg (2) gained 1331 points. As indicated in previous issues, objectives for the third leg (3) range from .8680 to .8994. The market is approaching the objective zone. The next pullback zone ranges from .7991 to .8193. Stochastics are in overbought territory. The next sell signal should confirm a pullback toward the zone indicated.
Whatever the reason for the recent plunge in shipping rates, it is an indicator the global economy continues to struggle. Whether it’s excess capacity or speculative inventory building, the indicator points to a continued lack of demand.
PRICE PERCEPTIONS
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9-5-09
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Phone: (800) 231-0477
©2009
Livestock a
primary recovery zone b
December Live Cattle Electronic Session ©2009 CQG Inc.
recovery zone
next recovery zone
a
November Feeder Cattle
flag objective 2nd leg objective
©2009 CQG Inc.
Buy signal
Stochastics
Stochastics
As indicated in the previous issue, a top was completed in August and a three leg decline (arrows) followed. The next recovery zone ranges from 99.65 to 100.72. The primary recovery zone ranges from 100.22 to 101.90. Stochastics gave a buy signal on 9/2/09, confirming a recovery toward the zones indicated.
A bear flag was completed in early August, providing a downside objective of 85.60. The first leg (a) of the decline fell 3.50. If the second leg (b) is equal, an objective of 85.37 will be indicated. This week’s low of 85.72 may have been close enough to satisfy downside objectives. The next recovery zone ranges from 87.30 to 88.07. Stochastics showed divergence on recent lows, indicating a loss in bearish momentum. The next buy signal should confirm a recovery effort.
b
Live Cattle
c
a
Electronic Session Weekly Continuation ©2009 CQG Inc.
primary recovery zone initial recovery zone
b
December Lean Hogs Electronic Session ©2009 CQG Inc.
2nd leg objective 1
c 1
2
Overbought Oversold
Stochastics
Stochastics
As indicated previously, a three leg decline (a,b,c) was completed in mid-August. The initial recovery zone ranges from 49.22 to 53.05. The primary recovery zone ranges from 52.75 to 58.75. The first leg (1) of the recovery gained 4.77. If the second leg (2) is equal, an objective of 48.85 will be indicated. This week’s high of 48.62 may have been close enough to satisfy that objective. The recovery has formed a bear flag. A close below the lower line will provide an objective near August lows. Stochastics are in overbought territory, but remain in a positive mode. The next sell signal should confirm completion of the second leg up.
During the past eight months, the market has traded in a well defined channel. Two consecutive weekly closes outside the formation will indicate a move of 9.57 in direction of the breakout. Stochastics are approaching overbought territory, but remain in a positive mode. The next sell signal should confirm a pullback toward the lower channel line.
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©2009
Sugar
Other Softs 3 recovery
zone
reversal
December Cocoa
2
©2009 CQG Inc.
March Sugar ©2009 CQG Inc.
3
1
wedge objective
primary pullback zone
2 1
Stochastics
Buy signal
Sell signal
Stochastics
Note: The chart has been reconfigured since the last issue. A continuation bottom was completed in June and a new series of uplegs (1,2,3) followed. The advance ended this week with a downside reversal. This week’s high of 26.25 was close enough to satisfy the flag objective of 26.45 shown in the last issue. The primary pullback zone ranges from 20.29 to 22.57. The next recovery zone ranges from 23.81 to 24.74. Stochastics showed strong divergence on this week’s contract high, indicating of a loss in bullish momentum. A sell signal was given on 9/3/09, confirming the pullback.
Since late February, the market has traded in a well defined uptrend channel (solid lines). Once again, the market is headed toward the upper boundary line. Recent consolidation has formed a bear wedge (dashed lines). Two consecutive closes below the lower line will provide an objective near 2500. Stochastics gave a buy signal on 9/3/09, confirming the advance toward the upper boundary lines.
recovery zone
key reversal
Sugar
Weekly Continuation ©2009 CQG Inc.
December Cotton ©2009 CQG Inc.
wedge objective
primary pullback zone
Stochastics
Stochastics
Sell signal
A large bear wedge was completed in mid-August, providing a downside objective of 50.31. As shown in the previous issue, the recovery zone ranges from 60.24 to 62.23. The market is approaching the lower boundary of the zone. Stochastics gave a buy signal on 8/28/09 and remain in a positive mode.
A bull flag was completed early this year and a three leg advance (arrows) followed. The advance ended this week with a key downside reversal. The primary pullback zone ranges from 15.99 to 19.37. Stochastics showed divergence on this week’s high, indicating a loss in bullish momentum. A sell signal was given on 9/4/09, confirming a pullback toward the zone indicated.
PRICE PERCEPTIONS
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Buy signal
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©2009
Metals December Silver
2nd major leg objective 2nd minor leg objective
1
Electronic Session ©2009 CQG Inc.
December Gold Electronic Session ©2009 CQG Inc.
2nd major leg objective 1
2nd minor leg objective
pullback zone
pullback zone 2
2
1 Overbought
1
Oversold
Stochastics
Stochastics
A bottom was completed in May. The first major leg (1) of the advance gained 109.00. If the second leg (2) is equal, an objective of 1016.60 will be indicated. The second major leg consists of two minor legs (arrows). The first minor leg gained 66.70. Objective for the second minor leg was 998.00 and it was attained this week. The next pullback zone ranges from 957.40 to 973.40. Stochastics are deep in overbought territory, but remain in a positive mode. The next sell signal should confirm a pullback toward the zone indicated.
Note: The chart has been reconfigured since the last issue. A large bottom was completed in May. The first major leg (1) of the advance gained 4.15. If the second leg (2) is equal, an objective of 16.64 will be indicated. The second major leg consists of two minor legs (arrows). The first minor leg gained 2.73. Objective for the second minor leg was 16.26 and it was attained this week. The next pullback zone ranges from 14.59 to 15.25. Stochastics are deep in overbought territory and turning down. The next sell signal should confirm a pullback toward the zone indicated.
December Copper Electronic Session ©2009 CQG Inc.
3rd leg objective zone 2
top objective
1
Silver
2
Electronic Session Weekly Continuation ©2009 CQG Inc.
3
pullback zone
1
Stochastics
Stochastics
#1393
9-5-09
Sell signal
Since February, the market has been in an uptrend channel. To date, attempts to carry through the upper boundary have failed, indicating a possible test of the lower channel line. Recent consolidation formed a potential double top. A close below the neckline at 266.00 will provide an objective of 234.50. The next pullback zone ranges from 247.55 to 267.70. Stochastics showed strong divergence on this week’s contract high, indicating a loss in bullish momentum. The sell signal on 8/31/09 should confirm a pullback effort.
A bottom was completed in December. The first leg (1) of the advance gained 5.83. The second leg (2) gained 4.52. If the third leg (3) is equal to either, objectives will range from 17.00 to 18.31. The next pullback zone ranges from 13.93 to 14.82. Stochastics showed strong divergence on this week’s highs, indicating a loss in bullish momentum. The next sell signal should confirm a pullback toward the zone indicated.
PRICE PERCEPTIONS
pullback zone
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Energy recovery zone
Natural Gas
triangle objective
recovery zone
Electronic Session Weekly Continuation ©2009 CQG Inc.
December Crude Oil Electronic Session ©2009 CQG Inc.
triangle objective
Stochastics
Stochastics
Oversold
The triangle shown in the last issue was completed this week, providing a downside objective of 65.02. The next recovery zone ranges from 70.73 to 72.28. Stochastics are in oversold territory, but remain in a negative mode. The next buy signal should confirm a recovery effort.
As indicated in previous issues, a triangle was completed, providing an objective of 1.870. The next recovery zone ranges from 3.079 to 3.492. Stochastics continues showing divergence on new lows, indicating a loss in bearish momentum. The next buy signal should confirm a recovery effort.
COPYRIGHT WARNING Price Perceptions is protected under the U.S. Copyright Act. Violations are punishable by fines up to $100,000 per incident. Reproduction of all or any part of this publication and/or distribution without permission is a violation of federal copyright laws. Copyright 2009, Commodity Information Systems, Inc. All rights reserved.
3rd leg objective 2
Crude Oil
Electronic Session Weekly Continuation ©2009 CQG Inc.
1
3
2 1
initial pullback zone primary pullback zone
Commodity Information Systems, Inc. 3030 NW Expressway, Suite 725 Oklahoma City, OK 73112 Phone: (800) 231-0477 or (405) 604-8726 Fax: (405) 604-9696 Email: [email protected] www.cis-okc.com
Sell signal
Stochastics
A bottom was completed in March. The first leg (1) of the advance gained 21.11. The second leg (2) gained 29.55. Objective for the third leg (3) is 79.43. However, the market is struggling to carry through to the upside. As shown previously, the initial pullback zone ranges from 62.45 to 66.65. The market is approaching that area. The primary pullback zone ranges from 49.37 to 59.14. Stochastics show divergence on recent highs, indicating a loss in bullish momentum. A sell signal was given on 9/4/09, confirming a pullback toward the zones indicated.
PRICE PERCEPTIONS
#1393
9-5-09
13
CIS, Inc.
Phone: (800) 231-0477
©2009
