After hiring into the market newsletter biz 30 years ago, my new bosses informed me that I’d sink or swim on how well I learned either fundamental or technical market analysis. I had two weeks to master one.
Since fundamental analysis centers on farm and ranch facts and figures and technical analysis relies on charts and graphs that resemble more astrology than agronomy, I swam to what I knew — acres, yields, sows and cows — and away from double-bottoms and upside down bear pennants. Besides, what self-respecting farm boy wanted to be an “elf,” a chart watcher who trusted squiggles on dry paper rather than a July rain in Iowa?
Curiously, however, it soon became apparent that most successful elves used market fundamentals to confirm their chart biases and, likewise, the best fundamentalists often leaned on charts to back up their facts and figures.
When I pointed out this anomaly to the office’s resident elf, he offered a Yogi Berra-like insight that explains everything from cotton exports to the Fed’s monetary policy: “No one wearing a belt and suspenders ever lost his shirt.”
That view fits today’s markets to a T.
Everywhere you look there are chart patterns, production facts and usage figures — belts, suspenders and even twine string — to support today’s fabulously high commodity prices.
Monthly futures charts show cotton at record prices, corn and soybeans on a steady march toward 2008 records, wheat feeling its oats at $9-plus and hogs dancing around $90. Only cattle futures seem to be drifting for direction but, even then, they are adrift in extremely deep water — $110 a hundredweight. Wow.
Jittery day trading aside, there’s not much argument over what is likely to happen when the weather heats up: the markets will heat up, also, because today’s demand and tomorrow’s anticipated supply just don’t jibe.
Two weeks ago, veteran University of Illinois market watcher Darrel Good highlighted 2011’s high-priced battle for acres between corn, soybeans and cotton. (www.farmdoc.illinois.edu/marketing/weekly/html/012411.html)
With record low corn stocks and stable-to-slightly-less 2011/12 demand, Good reckons this year’s corn plantings “need to be near 90.3 million acres, 2.1 million more than planted in 2010.”
If corn demand increases or “stock rebuilding” begins or “some allowance for yield risk” is added into the equation, then “planted acreage may need to be… 92 to 93 million acres.”
Where’s corn going to find a coupla’ or three million more acres? Beans? Not a chance, given this year’s juicy bean prices. In fact, notes Good, global soy demand and record low American supplies suggests 2011 planted acres need to grow, not shrink, by at least “1.1 million more than planted in 2010.” That total, 78.5 million, will climb by another million if “rebuilding of stocks” and some “yield risk” get built into spring plantings, he notes.
All told, then — and few market watchers argue with his math — total corn and soybean acres need to grow by a collective 6.5 million “to allow for some modest rebuilding of (domestic) inventories.”
One look at today’s world record cotton prices suggests the cotton crowd, whose younger generation has seen far more red ink than blue sky, will not give one acre to corn and very few — if any — to beans. Indeed, if the National Cotton Council’s 2011 survey of growers is correct, cotton won’t give grains even a pea patch, let alone an acre.
Released Feb. 7, the National Cotton Council report forecasts a 14 percent jump in U.S. cotton acreage this year over last.
So where will we get the acres?
All I know is that March markets, through higher prices, will try to pick a winner and both elves and fundamentalists will claim they saw it coming.