Wide-ranging Sentiment
Wide-ranging Sentiment, 7-19-07, 9:30 am
Summer weather-infested markets always manage to produce diverse opinions, but this year's expectations seem to be exceptionally wide. Let's look at corn first.
Most have now come to accept the idea that 2007 production will be high enough to avoid supply concerns for the 2007-08 marketing season. Some believe supplies could be large enough to generate a 2.0 bil bushel carryout. However, most have price expectations that clearly signal we can't, or at least aren't using historical S&D examples to arrive at price objectives.
The current perception of reality says that the demand base will remain large and grow enough that we may still need to offer US producers price incentives to plant larger than "normal" acreage to corn in 2008. This and the entire biofuel issue have apparently raised trader expectations of what a floor value should be. It appears that current values have encouraged some to say we are cheap enough and that the biofuel demand and long-term acreage needs will support values at current levels.
My perception is that we have too many spec longs in the market and suffering severe equity declines to consider the liquidation aspects should be over. It would also seem that if weather finishes the 2007 growing season in an acceptable manner, then we should not underestimate the price influence of handling the largest-ever production supplies and the storage challenges likely to be faced. This suggest spreads can weaken further, basis can stay wide and all this should keep the pressure on the spec length, which will likely lead to a continual bleeding of spec length.
The soybean story can't yet be so confidently assessed, as the always important month of August is still ahead. However, at the present time, national yield potential remains exceptionally high. Current prices still have a notable amount of "what if" premium attached. The wildcards beyond of course production will again be the acreage battle discussion. The world needs to entice South American soybean acreage expansion, with 10% being a common hopeful target. Yet ideas about prices needed to accomplish such a task remain wide-ranging.
The "step-back" assessment suggests the markets have no great urgency to force acreage developments like they did a year ago--that is providing we finish the 2007 growing season in an acceptable manner. This lack of urgency will allow the supply glut of harvest to weigh on values before the next acreage battle unfolds. If true, current spec length isn't likely to avoid greater liquidation pressures.
Producers need to respect short-term downside price potential during the next few months and formulate a marketing strategy that tries to avoid sales into the depressed harvest window. Better prices may exist in the future, but don't underestimate the seasonal weight of harvest this year. We do not have the same level of urgency as we did last year, regarding the acreage battle.
