The Debts of the Spenders: US Grain Futures

While much of the financial blogosphere remains riveted on the continuing drama of banking bubbles, another market has been quietly but steadily preparing itself for the inflationary effects of a jobless US recovery.

The Chicago and Kansas trading floors (the grains pits and their electronic equivalents) are more often associated w/more traditional and somewhat boring commodity traders. Unlike the sexy OTC market of off balance sheet derivatives, questionable bond spreads, and no limit political Texas Hold'Em, grains traders are a stodgy bunch. They operate under something called RULES, TRANSPARENCY, and MARGIN. Old fashioned concepts to be sure but we are talking about your dad's generation of traders and not a bunch of jumped up quants pushing arcane black box models.

For a brief shining moment last summer and spring the grain traders were able to feel the heat of the world's spotlight when corn breached $7 and the world press could not repeat the words "ethanol" and "oil alternative" enough. Then came the deflationary plunge in the fall and winter.
Fortunes were lost and agriculture hedging desks were crucified at the packaged food conglomerates.

But agriculture traders are a hardy and resistant lot. Their business is built around cycles and the ageless rhythm of the seasons. (Trivia tip - did you know that agriculture traders were the first to invent futures trading and technical analysis? Ancient Egyptian and feudal Japanese traders used cycle analysis and candlesticks respectively).

Savvy traders knew that the fundamentals have not changed - in fact they have become more bullish than ever. The world economic crisis has transformed from individual government money printing (US and G7) to coordinated money printing (G20 and pan-Asian fiscal stimuli attempts).

Commodity guru Jim Rogers has often pointed out that farmers are not getting any younger (populated w/aging boomers the world over) while the global population continues to increase.

Bullish US grain traders agreed and booked a solid month of profits for March and early April based off the USDA reports. Prices were mixed as of Thursday's close but sentiment remains bullish ahead of strong fundamentals.

Here are some highlights for this season:

-USDA Raises Forecast For US 2008-09 Soybean Exports

The U.S. Department of Agriculture said Thursday that it is increasing its U.S. soybean export forecast for the 2008-09 marketing year to a record-high 1.21 billion
bushels, up from the March prediction of 1.185 billion.

-USDA Lowers Forecast For 2008-09 US Wheat Ending Stocks

The U.S. Department of Agriculture lowered its forecast for U.S. wheat ending stocks for the 2008-09 marketing year by 16 million bushels just a month after raising that forecast by 57 million bushels.

The new ending stocks forecast, released Thursday with the USDA’s monthly
World Agricultural Supply and Demand Estimates report, is 696 million bushels, up
from the March forecast of 712 million bushels. On March 11, the USDA set that
712-million-bushel forecast by raising it from the February forecast of 655 million
bushels.

-Global Soybean Prices Likely To Rise Further In ‘09 - Indus

Global soybean prices are likely to rise further later this year, fueled by sustained Chinese demand, industry participants attending a grain and oils conference said Thursday. “Soybean prices have room to go up” further as China’s edible oil demand is expected to grow by 3%-4% this year, based on the assumption that the country’s gross domestic product will grow by 6%, Robert Horster, risk director of Cargill Investments (China) Ltd., said at a conference held by the China National Grain and Oils Information Center.

-USDA Sharply Lowers US Rice End Stocks Forecast

The U.S. Department of Agriculture on Thursday lowered its 2008-09 forecast for U.S. rice ending stocks to just 22.2 million hundredweight, down from the March
prediction of 30.2 million hundredweight.

“All rice ending stocks are projected ... 27% below last month and the lowest stocks since 1998-99,” the USDA said in its monthly World Agricultural Supply and Demand Estimates report.

Source: Commodity News for Tomorrow CME Report For Thursday, April 9, 2009