BearNaked and BullHeaded

Market Signs

2009-09-07T19:30:00.000-07:00

As I said previously I am going to try and update more frequently. So far so good I guess. As I went for my jog this evening I started to think about things that the market is telling us right now. As we all have heard the market is a predicative mechanism. I think the market tells us things as long as we listen.

There are a couple of examples that show us that the market is talking. Lets take the wheat market as I am more familar with it. Right now the market is the around 90% full carry. This means that the market is paying you to store wheat. The world right now is full of wheat and no demand thus the market creates the incentive to store the inventories.

There are a lot of talking heads and market indicators that all say they have the answer. As one economics professor told me if its common knowledge its harder to make money. Right now I think the stock market is paying you to buy high yielding stocks. You can get good companies that are cash rich and high yielding. The yields on some of these companies is 6%, which is better than a CD. So in my opinion the market is telling us to put money in those compaines.

With the fed already talking about inflation and so forth were bound to start seeing interest rates rise and with this it might be time to put it back in the savings account but we'll have to have our ear to the ground to listen to the market.

Bull Market or Bear Market Rally

2009-08-07T11:09:00.000-07:00

Are the bull's showing their horns or is it just the bears standing back up. This is a question that ways on everyone's minds as they look to captialize on the markets. Right now as I write there are a number of stocks that are breaking out and making new highs. Jobless claims are declining manufacturing picking back up and were selling automobiles.
Personally I still think its a bear market rally. There are still to many things in the world that need to be fixed but we have to remember that market is a forward looking mechanism.

Way to Long

2009-07-29T14:22:00.000-07:00

Alright so it has been way to long since I last posted. At the time of my last post I just moved from Dallas, TX to Omaha, NE to start trading PNW corn. Wow what a difference a year makes. Now I am managing an elevator in Catoosa, OK. I went from wheat to corn and back to wheat. Markets have drastically changed in the same respect.

This is an interesting journey as I go from a commodity that has 3 limiting factors (corn) back to a commodity that has 6-7 limiting factors (wheat). For those not involved in grain merchandising or have a limited knowledge of grain specs everything on the cash side is trade according to specs that make up a grade. All of the exchanges use a base #2 grade on commodities. The cash markets trade on #2 as well but there is more flexiablity to trade #3 with some discount or trade as is grain. For example you can buy wheat that is #2 all factors except for test weight. It creates plenty of oppurtunites for arbitrage and/or headaches.

Needless to say I am going to try and get back in the habit of posting on here seeing as I have been posting on Twitter.

The Boom is Still on and I am Back

2008-05-19T09:29:00.001-07:00

The past couple of months have been a rough transition. My wife and I were in the process of moving from an elevator to the corporate office. Well that all got held off on the account that I had to make a pit stop in Oklahoma and straighten out an elevator. Now I am taking my post as a buyer for an Ethanol plant in the PNW (Pacific North West).

This is going to be a very interesting position as I will still be doing some of the container freight and some shuttle freight as well as the corn buying. It will require me to max out my time management and logistic skills. I am looking forward to the challenges that await.

Right now the commodity markets are still in boom mode. All of the major grain commodities are down from there highs, but oil and other energy commodities are making new highs. I will only speak authoritatively on the grain side. I could try to give some insight on the energies but it would not be very accurate. I will not claim to be the expert on grain markets for sure, but here goes my educated try at it.

WHEAT-The grain markets are starting off with a bang. Right now new crop wheat is up 20-30 cents but for no apparent reason. It may be some people getting back in after the sell off from last week. There were some rumors that Iraq had another tender of wheat over the weekend, but we have yet to see all the details. On to new crop which looks as though it is going to be one of the largest we have seen in a couple of years. There is only one problem with a large crop that is the lack of protein that we can find. This is going to make the spring wheat much more valuable. We will probably see the Minneapolis board continue to spread from the Chicago and KC.

-We also continue to see the SRW basis be soft as there is a big expectation that some of it is going to be fed instead of Corn. I think that we will see it firm up in some areas as we near harvest. There are some people that holding off on being aggressive on their bids till the crop comes off.

CORN-On the other hand we're still not sure about the corn crop. It looks as though were going to 80-85% in the ground today, which will still be lagging behind the trend average but it will show that once again the American farmer can still get it done. If the number is at 83 or better we will have planted 33% of the corn crop in a week. Anything above that number means that we have had a record week.

SOYBEANS-The report that come out on May 9th was very bullish on soybeans and since then it has been up and down. The key number in the report was the carryout on the beans. Average estimates were 230-245 million bushel carryout and the USDA came out with a 180 million bushel carryout. There have been some profit takers and bulls that have run the board ragged the last week and from the looks of it they will continue to run the board.

The rest of the week should be relativity quiet as far as the news side of things go. We have all the corn in the ground. The wheat is looking excellent (47% to be exact) and nothing is threatening it. The only thing is going to be the soybean planting and possibly corn emergence. I am going to try to update this thing more often going forward.

Giants Win

2008-02-06T19:25:00.000-08:00

I never thought that I would say this but thank goodness the Giants won. There are two reasons why everyone should be happy for the Giants. The biggest one is that 80% of the time when a NFC team wins the Super Bowl the stock market goes positive (www.ThinkEquity.com). The other reason is we don’t have to listen to the talk about the Patriots being the best team ever.

Average Annual Returns for markets based on the Super Bowl Winners NFC AFC
Dow 14.3% Dow 2.0%
S&P 13.8% S&P 3.0%
NASDQ 15.6% NASDQ 8.6%

It has been some time since I have posted. I was working on a couple of different posts about the food vs. fuel debate that continues to litter the headlines. After I wrote a bit I thought that I needed to add some more and the more I looked into the subject the more that I found. I think it would have been easy for me to write my thesis over the topic.
Plain and simple I believe the US is stupid for thinking that it can produce enough ethanol to sustain ourselves. To produce the amount of ethanol that the new energy bill is going to require would use up half of our stocks a year. What are we going to do during a dry year? If we are going to make ethanol a viable option we need to reduce the import tax and accept Brazilian ethanol.

Don’t get me wrong I agree with lowering our dependence on oil, but there are fundamental ideas that the guys in DC are going to have realize in the coming year. If we continue to produce ethanol from corn were wasting money. It takes 29% more energy to produce it than what it generates. Not to mention the fact that farmers can’t plant corn every year. There has to be a rotation between crops.

The statistics are staggering for the amount of ethanol used in Brazil and the biggest factor behind the numbers is that they use sugar cane instead of corn. It is pretty simple you can produce more ethanol per pound with sugar cane than you can with corn. Sugar cane grows the best in Brazil. Here are some stats on the use of ethanol in Brazil: 75% of all cars are flex fuel, and 40% of their fuel comes from ethanol. They are willing to export if we take the 54 cent import tax off. It is interesting because it is slated to be taken off the books in the coming year.
Hopefully the guys in DC awake and see the green light. Tom Friedman says that “Green is the new Red, White and Blue”. The reduction of the import tax would be benifical to everyone. I don’t care what kind of argument that you make for the farmers or the ethanol plants this won’t kill them. Brazil will increase sugar cane production which will reduce the amount of corn and soybeans they produce. And if the ethanol plants can’t make money then they shouldn’t be in business.

Comments?

USDA Report

2008-01-12T07:42:00.000-08:00

Alright so I know it has been a while since I have posted anything, but who ever told me shipping grain in contianers was going to be easy money deserves a butt whopping. I have run into so many problems as of late it has really been a pain. But alas I live to see another day and another week of container loading out of the way. I was pretty proud of our guys for loading 185 this week alone. There are no doubts it could be increased when we get a couple of things lined out.

Back to the topic at hand the USDA Report came out surprising yesterday and nearly had all the markets locked up the limit all day long. This killed my bet with the boss that new crop hrw was going to be at 8.20 on Jan. 18th. We had the upper hand until yesterday damn feds. Anyways the corn ending stocks was lowered by 10 million bushels which was not expected. It all went to feeding the animals. They held ethanol usage and export the same.

What does this mean, one might ask. Well the way I see it corn is still having to fight for acres and right now they are losing the battle to wheat and soybeans. Wheat is projected to have one of its lowest ending stocks in recent memory and the seeding was down on the last report. I think that we are going to see a very dramatic increase in areable land in the coming years because of the high commodity prices.

Back to the corn mess. By recent calcualtions corn is going to need 4 million more acres to restore the balance. This is a very unique situation because we are going to see more and more farmers planting rotational crops.

Personally I think Monday morning we may see the markets locked up the limit or we may see them down the limit. I expect we will see them up the limit because there has been no significant weather event over the weekend to change the status of crops. The only reason we may see it down is because there are going to be a ton of margin calls. At these prices farmers are going to stop worrying about hedging their bets. We are definately in a time of uncharted waters in the markets.

Your thoughts.

Fundamental T /A

2008-01-01T19:39:00.000-08:00

No it’s not what you’re thinking. T/A stands for what we in the market world like to call Technical Analysis. There are basically two different types of analysis that are used on all markets. People on TV throw out all kinds of analyses and big words but when you boil it all down it comes out to Fundamental or Technical analysis.
Fundamental trading occurs based on the underlying fundamentals of the security that you’re trading. Fundamental factors can range from wheat acres to stocks earnings. The fundamental side does not pay any attention to the market or the overall feel of the market. The fundamental trader makes trades solely based on the numbers behind the security. This method has rewarded investors such as Warren Buffet and Peter Lynch. Some times this doesn’t always prove to be a get rich scenario.
This concept is more for the people that want to go long and hold for a gain, which for the novice is a good idea. Most of the times there are not going to be a lot of price action based on fundamental numbers. Exception: if earnings beat or miss by an unexpected large margin there is a good chance that you could see a big movement in the respective direction.
The technical side of trading is based more off of the feel of the market. Technical traders are going to focus on the chart aspects and market information. Day traders are probably the most prevalent technical traders. They are making decisions solely on what the market is doing at one point in time or how the charts look. There are many patterns that they look for in the market and try to determine if they should buy or sell based on the patterns. There are many patterns that are used here are just a couple of them: double top or bottom, head and shoulders,
I like a combination of both the fundamental and technical. It is interesting to see them at work. Right now in the stock market any decisions you make need to be backed by solid fundamentals because in this market anything can happen. You can at least feel safe if the fundamentals are on your side. In the grain market I would base a lot on the technical of the market. I think that the grain market is screwy right now on the fundamental side for a number of reasons.

Spreads

2007-12-21T04:22:00.000-08:00

Spreads are an integral part of the grain markets and there are a numerous ways to play these spreads. The most common is taking a position on the new crop vs. the nearby. Basically any two commodities that have a relationship can be spread.

For example gold and oil can be spread as a play on the inflation compared to oil prices. A good rule of thumb is that one ounce of gold should buy 15 barrels of oil. This is certainly out of whack right now, but economic theory tells us that it should head back to the mean. Oil and Natural Gas can also be compared. One barrel of oil produces a the same number of BTU’s as 6 cubic feet of natural gas. This one is also skewed at the moment, but it is a little different because there is actually a way to compare the two on the same scale.

The spreads in the wheat market have been fairly interesting as of late. Today at the close the nearby is down 18 3/4 cents and the new crop is up 4 cents, which makes the spread $1.55. The spread has been narrowing the last couple of days but there was a point when it was as high as $2.25 earlier in the week. Historically this is a high spread but on that note we set a historic high on wheat this past week when we crossed the $10 mark. We are definitely in uncharted waters at these high price levels.

Another interesting spread is the spread between hard wheat and soft wheat, otherwise known as a KC/Chicago spread. Historically the KC is always higher than the Chicago, but last year was a different story. Last harvest the Chicago was almost a full dollar spread. This year for the new crop the spread is about 42 cents which has increased of the past couple of weeks. Hard wheat is typically more valuable because it has more uses than soft wheat. Last year soft wheat was hit harder by the harvest conditions.

The spreads are a very influential part in the markets. If you don’t think so you can ask some of the guys that lost their jobs last year when the market inversed suddenly and they didn’t have a chance to get out of the way. I think that we will continue to see this spread continue to grow. My thinking behind this is that we are going to find out that there is less old crop wheat out there than what people think. New crop is going to continue to fall, because of the good weather. The combination of favorable weather and a large number of acres planted could lead to a record crop.

USDA Market Report

2007-12-13T19:23:00.000-08:00

On Tuesday the USDA World Supply and Estimates report came out before the open of the market. As I had eluded to in the previous post this has a significant impact on the market. It generally comes out on the second Tuesday of the month before the market opens. Private companies tend to make their own predictions that are close to the USDA report most of the time. Therefore the report doesn't have a lot of sticker shock to it most of the time. This report had a little shock to it but not much. Everyone expected the carryouts to decrease for US grains.
Wheat stocks were lowered from 312 million bushels to 280 million bushels, but the World wheat ending stocks were raised by 300 MT to 110.1 MMT. The increase in the World stocks came from an increase in Australia's production. The report also showed that wheat for seed was up by 8.6% from last year. There has also been an increase in the exports of wheat with India sucking up 250k MT over the last couple of days. In the last day an unknown tender was canceled for 150k MT. There have been many bullish factors and bearish factors for wheat in the past couple of days. One of the most telling signs that we are in uncharted territory is that an at the money July put on either of the boards is almost 90 cents, and the call is over $1. Where this market goes is any ones guess. The recent rains in the HRW would suggest that we are going to have a decent crop this year. Once again it must compete for acres. Right now I wouldn't be short old crop wheat. There are people sucking it up left and right and paying top dollar for good wheat. New crop wheat is a different story from my point of view. Its still to early to tell what is going to happen with the US crop but South America's crop is going to be good.
I think the best play for right now is a volatility play if you can afford it I would put a straddle on the July month and let it go. I can't see a reason why the price would continue to rise. We are making new highs in the new crop right now and historically by the time harvest rolls around the market falls.

More on the other grains to come when I get a chance tomorrow.

Strong Ending of the week for Grain Markets

2007-12-09T15:35:00.000-08:00

As stated in the description this blog is about a number of different markets. I will touch on 5 different markets that I am familiar with and deal with on a daily basis. As a grain merchandiser their are several markets that become integrated when trying to find the value of a product. The markets that I tend to follow are the grain, shipping, dollar, energy and lastly the stock market. I firmly believe that all of the markets are integrated in one way or another. It may be hard to understand how the stock market can be Incorporated in with the grain market but it is pretty simple the "funds". The funds are groups of people that have money in the markets its evident when the funds take a hit in the stock market you can see the rippling effects in the grain market depending on the day.

The grain market is influenced by the energy market, and no I am not just talking about ethanol. I am talking about oil more importantly. Ethanol is a whole different topic that I will steer clear of for now. Oil influences just about everything we do in our lives but the oil market can have a major influence on the grain market. The reason being that grain has to be moved from the bread basket to other regions. I would make the argument that grain is third only to oil and coal in the amount that is shipped around the country. The cost of transportation affects the local basis which in turns moves the overall market. The cost of shipping grain on rail cars and ocean going frieght is at its highest cost in the last decade.

The Wheat markets in KC and Chicago ended the week with strong surge and were up the limit on Friday afternoon. I could not find a good indication of why it was up the limit at the close other than the fact that there was light volume on the day and the USDA has a report coming out on Tuesday. The market has been highly volatile since about May. I would look for the market to be down Monday in the early going because of profit taking, but I don't think that they will keep it down for long. There have been other events outside of the US to prop the price up. Recent Estimates on Australia's wheat crop are below what USDA has and the Argentinan wheat crop suffered a freeze at the worst possible time (the flowering stage). The freeze will not be figured into the USDA World Estimates report, but it has been priced. The ending stocks for wheat are expected to be the lowest in recent years. The next report should be an interesting as the world production is expected to decline.

The stock market was mixed but up over the last week. The common addage is that when the rates fall stocks go up. The same pattern seems to be following although this may be considered somewhat of a bounce since we are off of our previous highs. There are a couple of stock groups that have caught my eye in the past months. One of the most interesting ones is the shipping companies. Everything that you can read says that ships are tight and running at full capacity allowing them to charge higher rates and the Baltic Dry Index is just off its all time high. Many of these stocks present a good cashflow and have decent dividends. In all cases though due dilligence is needed when determining the stock to buy.

The other stock group that is interesting at this point are the REIT's they have had a rough time as of recently with the housing market faltering, but there are some good deals out there. The other nice thing about these stocks are that they pay good dividends, but I am not fully aware of everything that is involved in the REIT stocks. The structuring of their debt is the most important aspect of this sector. Some of these stocks are unfairly getting beat up and present some good bargins.

That should be long enough for the first post.

Disclaimer: I do not claim to be an expert in the markets nor do I advise anyone to make rash decisions.