Weather is bullish. Sales too. The $ is bearish, but in an indirect manner. Technicals and timing suggest a seasonal high was made right on the exact average date. What to do? Perhaps trade elsewhere, for the moment. More importantly, what are the cowboys in Muleshoe, Notrees, and Adobe Falls to do? Right now the insurance option is a cinch for dryland, and irrigated farms are on the bubble. That rain forecast for Lubbock on 4 May was zeroed out a day after it was put in. We will begin looking at scenarios for hard drought in districts 1N and 1S, and try to come up with some reasonable abandonments and yields. This market is about to enter perhaps the wildest month of all. No rain in May shoots the moon, and a couple of good rains will wreck the train.
Lets look at tow yardsticks one can use to estimate final exports. This year is just below that of year ago, final was 14.512 Mrb. The slope of the export plot this year matches well with that of 05/06, a record year that saw 17.547 Mrb shipped. This year is 1.152 Mrb below that year, so the final estimate would be 16.395 Mrb. There is a gap of about 1.9 Mrb between these two measurements, and the current estimate is 14.590 Mrb. The total sales year ago this week was 13.813 Mrb, compared to 16.228 Mrb this year. Our bias is that shipments will run much above average, even if the seasonal peak has passed. The current USDA estimate is at the lower edge of a broad range, while the upper extreme would be 16.4 Mrb. Something between 15.0 to 15.5 Mrb looks right. Our figure is 15.25 Mrb, or 15.675 Mb (480#).
Varner View
Gartman bought the July/Dec bull spread at +500. Regards shipments, given that we are within the ballpark with an estimate of 15.675 Mb export, that moves the carryout to 4.625 Mb and the ratio drops to 24.1%. The carryout and ratio last year was much lower, while the futures high is almost the same. In order to match exactly the carryout of year ago, the export would have to be 17.55 Mb, a figure outside even the extreme possibility. A price comparison to just one year usually doesnt work, so one has to assume that the market is guessing an export substantially above the current USDA figure. And that would be ____? Another point, with an avalanche of bullish news recently, the market has wild volatility, but has been unable to bust out. We still own some July Puts, bought at 8250 and 8450.
Technicals
A try to break out failed, again. Check out chart and how important the 55 day avg is for Dec. And for How High the Moon, it was published in 1940 by Benny Goodman. Great tune.
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