Grains In 2012, Who’ll Win: Depends on the Day

Grains 2012In the next few weeks, I’ll be speaking about the grain markets in several places across Ontario, starting Wednesday in Lindsay Ontario.  Grains were hit hard today, as a series of rallies were wiped out in one bad day on the market.  A weather market created from high temperatures and dry conditions in parts of Argentina and Brazil has kept considerable risk premium in the grains over the last few weeks.  The simple threat of rain next week was part of the reason grains retreated so much today.

So where do we stand as we look into 2012 with regard to the grain markets.  Is the vision of $7 corn still dancing in your heads from this past summer?  Do you think the corn soybean ratio is out of whack favouring corn?  Will the noncommercial’s come back into the market pumping up the demand for grains?  What will our respective currencies act like?  Will the US greenback continue to rise, the proverbial safe haven for everybody’s money?  What will come along on some unexpected Tuesday to throw a wrench in all our grain marketing plans?

Looking into January, we’ll surely have to get by next week’s USDA report on final production.  That report in the past has been a bombshell for farmers with limit moves common.  In fact, the January report is often more criticized by US producers than any other month in USDA’s schedule.  It’s that way, because the January USDA sets the table for the rest of the year.  The final production numbers will affect ending stocks going forward, any surprise will certainly affect price action short term.  You can bet our speculator friends will be watching.

Flying under the radar this January is the value of the US dollar.  The US dollar index is the measure I use to calibrate opinion versus commodity prices.  On October 27th of 2011 the USDX was at 75.386, while today it was at 81.245, a huge jump, telling from the standpoint as a safe haven.  Despite the machinations of European political leaders the US dollar is still seen as a safe haven.  Noncommercial capital is flooding into US securities and the value of the US dollar goes up because of that.  Grains become more expensive, negating fundamentals, negating noncommercial demand.

To me this is one of the biggest factors for the grain markets as we move through 2012.  With all things equal, benign weather through the upcoming growing season and a low US greenback means good prices.  However, if the US greenback continues to climb, and there are those out there predicting that, grain prices will retreat. That’s how important the value of the US Greenback is to North American farmers.

The Americans are seeing the greenback jump at the same time as their Federal Reserve is printing money.  Printing money usually adds up to inflation.  The difference however with out American friends, is that they are printing the world’s “default currency”.  With it’s value going up, they are getting the best of both worlds, increasing their purchasing power, and stimulating their economy at the same time.  With the rest of the world measuring against the US greenback, the US will benefit.

Into this fiscal environment the grains must trade.  With the US greenback feeling its “oats”, it almost like market bulls have a hand tied behind their back.  Add the European slow moving train wreck into the equation and some other outlier event not yet named and grains will surely be in for a volatile year.

It’s that “outlier” event which always piques my imagination.  For instance, who saw Libya coming a year ago?  This year will it be the Straits of Hormuz, with Iranian rockets buzzing overhead slamming shut 40% of the world’s oil supply?  All of this or none of it will surely weigh on the grains in 2012.

It all leans on the bearish side, despite the fundamentals which tells me the world is demanding more corn and so far is willing to pay for it.  World demand for corn is projected at 868.61 MMT for 2011-12 and will grow another 20 MMT in 2012-13.  This means the US will have to grow nearly 95 million acres of corn at 160 bushels per acre to begin to rebuild world ending stock.  I can’t see that happening without major price moves in all three grains.

So the bearish outside markets, including the currencies will be fighting the grain fundamentals in 2012.  Who’ll win?  Something tells me it will depend on the day.  And on those days, you market your crop.  2012 will continue the volatile trend.  Fasten your seats belts, after 2011, its not like you aren’t used to it.

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