Early Call On Chicago

05/07/12 -- Welcome back to the early call on Chicago. I, for one, kind of miss it. Trust the CME Group to go and spoil it with their 21 hours a day trading money-making machine.

Still, we're stuck with it I suppose. Well, today always threatened to be explosive, and with an hour and a half to go to kick-off time it's looking unlikely to disappoint.

The European markets are doing their best to point the Septics in the right direction, with London and Paris wheat both sharply higher despite crop conditions here looking generally favourable.

A quick scan across the news wires sees phrases like "dust bowl" and "decimated" being used this morning, so the only thing surprising about the early call of 20-30 cents up on soybeans, 10-15 cents up on wheat and 10-20 cents up on corn is that they aren't even higher. They may well be soon after the opening.

When the bulls are this ravenous there's only one thing you can do, stand back and let them gorge themselves. They will inevitably overeat, they always do, so just make sure that you also stand well back when the projectile vomiting begins.

The market is almost certainly going higher short-term, but what about medium-term and beyond? Almost universally unopposed rhetoric that it's going up and up is where we are going to stay always makes me nervous.

Especially when that rhetoric is trotted out in the very month when the market frequently tops at the height of mass weather-related hysteria.

For one, it's never gone up and stayed there before, not even in 1988, which is the year that we have supposedly been carried back in time to.

For two, the cure for high prices is high prices, they say. The higher we go the more demand will be choked-off. You can ask a dairy farmer or ethanol producer about that if you're in doubt. A fillip of high prices is also of course increased production. Every farmer in South America is currently thinking, "blimey, put me down for a slice of this cake."

So, pardon me if I don't buy into the longevity of this particular rally, no matter how good and utterly convincing the arguments that the only way is up are.

What will cause a sudden reversal, and when it will happen, sadly I don't know.

The FAO have today cut their forecast on US corn production this year to 350 MMT. Still a record. And who is going to want it all is it's USD8.00/bushel, or even more as some are now suggesting?

CONAB have raised their Brazilian corn crop estimate for 2011/12 to 69.48 MMT, thanks to a bumper second crop and increased their export estimate to 12 MMT, which is 2 MMT more than the USDA currently project.

They've also increased their Brazilian soybean crop estimate to 69.48 MMT, some 2.5 MMT more than the USDA say.