Email of the day (1)
Comment of the Day

November 12 2013

Commentary by Eoin Treacy

Email of the day (1)

on agriculture prices and genetic innovations
“I thought I would give you a heads up before Friday's USDA report. Because of the Government shut down last month, the USDA was unable to collect many of their test plots, and this has led to questions about the validity of the report. The average guess for the corn yield is 159, up from 155 in September, and the average for soybeans is just under 43, up from 41.2.

“From farm reports and the countless test plots that I have seen, I think the trade is underestimating both crops, especially the corn crop. The growing season certainly had its problems. The latest planted crops ever, followed by the driest ever July and August for Iowa, Illinois and Indiana. So, it is of no surprise that the average guess for corn is 5 bushels below the record set in 2009. However, my data shows that the final yield will be above the previous record of 165. For, while the headlines shout that Mother Nature is winning the battle of Global Warming with the scientists, in a dark alley the Crop Scientists are giving Mother Nature a real hiding.

“Since last November I had kept a print out on my desk of a test plot of irrigated corn in Nebraska that averaged 304 bushels, with the top variety yielding 390. That print out was recently consigned to the bin as this year I witnessed 301 in Illinois as an average on non-irrigated corn with hardly any rain at all for July and August. Perhaps even more amazing is an average of 244 for a whole region on the Eastern seaboard, or 274 in S Michigan, with a 9 year previous average of 157, and a previous record of 208, all non-irrigated. From 2010 to 2012 the Corn Belt was visited by multiple biblical plagues which kept us from fulfilling the promises of the geneticist, but I believe that the top end of the corn yield has increased some 30 bushels in the last 4 years. There is an old adage "big crops get bigger" that should soon be changed to "big crops get much bigger".

“The soybean data that I have seen supports a yield north of 44, more than a bushel above the average guess. Last year's final bean yield surprised massively on the upside, and after many years of iffy bean yields, it looks like the soybean geneticist are also getting their act together. A 43 yield keeps the carry out tight, 44 plus makes it quite comfortable.

“It may be asking too much of our fickle and abused planet to give us both a good growing season in S America this winter as well as the Midwest next summer, but if it does, it should take prices down to levels that discourage acres , and we are a long way from those prices. One day we may wake up and realise that the cure for high prices was high prices.

“If I am right it could soon be "lights out" for the grain markets. That perhaps is apt and fitting, as the deserted grain pits in the CBOT building more and more resemble wards of a hospice.

“As you know, these are my thoughts only, as no one else would want to be tarnished with my reputation.”

Eoin Treacy's view Thank you for this informative email which arrived last week and for your humility in sharing your views. Genetics represent the promise of a second green revolution that could help alleviate the issues relating to competition between energy, food and high pricing. Your assertion that new seeds are contributing to higher yields is a welcome development from the perspective of consumers but one must wonder just how much of this news is already in the price.

Corn has been trending lower for more than a year but has lost momentum somewhat over the last couple of months. It formed an upside key day reversal on Friday and followed through to the upside yesterday, suggesting a short-term low has been found. However, it will need to extend the rally and break the progression of lower rally highs, with a sustained move above at least 450¢, to challenge medium-term supply dominance.

Soybeans found support above the August low last week and a sustained move below 1250¢ would now be required to question potential for additional higher to lateral ranging.

The roll out of advanced seeds to farms beyond the USA will need to overcome ingrained suspicion of genetically modified foods in Europe and price pressures elsewhere. Nevertheless it remains a growth sector that holds out great promise if it can deliver the higher yields many expect.

DuPont De Nemours is among the companies likely to benefit from this evolution. The share broke out of a 10-year range in August and continues to hold a progression of higher reaction lows. A sustained move below $55 would now be required to question medium-term scope for additional upside.

has held a progression of higher major reaction lows since 2011 and found support in the region of the 200-day MA from August. It has returned to rest the May peak and a sustained move below $100 would be required to question medium-term scope for additional higher to lateral ranging.

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