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| Daily Jurojin - Friday, June 12, 2009 |
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Friday, June 12, 2009 Risk and rewardYou know things are bad when farmers are bragging about how much rain they didn't get!That's how we introduced our buy recommendation to Jurojin Weekly readers this week as we assessed the soybean market. But you have to spare a thought for the nation's farmers these days. For sure, it's always been the case that they can't predict the weather and if it's not too much rain one day, there isn't enough the next. It's a mistake to believe that surging grain costs last year lined farmers' pockets. You have to consider what goes into the ground to begin with - the bull market for commodities came back to bite them in the behind in the shape of sky-high fertilizer and seed costs. Yet the farming community can't claim to be as hurt as other parts of the U.S. economy and certainly has fared better than many other apparently innocent sectors and industries across other nations. Worldwide banks and business have written off or faced credit losses of $1.47 trillion. And while the debt load amongst American farmers is the lowest in five decades according to government data, the U.S. Farm Credit Association recently reported a 16% surge in bad loans to $3 billion. That number is in line with net income of the farming sector of $2.9 billion. The worsening amount of delinquencies in the sector is causing lenders to back away from coming to terms with farmers. But because of decent returns over the last few years, farmers have become better capitalized allowing them to withstand slumping grain prices as the economy came to a virtual standstill, with corn, grain and wheat prices roughly one quarter lower than a year ago. This week dollar weakness, weather concerns and ongoing broad bullish sentiment in the commodity market has propelled soybeans to a seven month high. On Thursday, regular readers to Jurojin Weekly should have been able to bank gains on half of their soybean position entered into on Tuesday morning. The $1,500 per contract profit is twice the loss we took on Wednesday when a vicious pullback robbed us of remaining long of Kansas City wheat. The remaining half of readers' soybean position is intact and we're raising our stop loss to prevent losses. Risk and reward. Who'd want to be without it? But who knows how we'll end the week? Grains grew in stature on Thursday in response to a slump in the dollar, which crept back up to end in a strong position to start the Asian session. Whether this will dampen grain prices early Friday remains a big question. Since equity prices bottomed in March, the dollar's loss of 10% on a trade-weighted basis has prodded commodity prices to rise sharply. May was the strongest month in 35 years for commodity indices. Higher soybean prices as we've noted before are part and parcel of strong global demand and drought in Argentina which is the world's largest grower. Rising bean pries are once again dissuading farmers from planting cotton - an alternative crop. However, a glut of fiber amidst weak demand has seen its price fall. Fear over ongoing weakness in farmers' planting intentions has fuelled higher cotton prices once again this week. Farmers are expected to devote 7% less acreage to cotton this year on account of low cotton prices. So futures traders are now expecting silly cotton prices later this year as supply and demand dysfunction plays out. Whether it's psychology or reverse psychology, we can't tell. Our role is to keep our readers abreast of what's happening. Profits along the way are why we're here! The Supreme Council of the Secret Order of Jurojin |
