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Fusion Industry Research - Ag Outlook

Fusion Industry Research - Ag Outlook

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Published by: annawitkowski88 on Jul 12, 2012
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08/15/2012

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Fundamentally Driven Technically Confirmed

Ag. Outlook - Corn Has Worked
Overview

Industry Note: Ag Outlook
July 12th 2012

Since we became bullish on the corn market, corn futures are up sharply by over 35 %. Yesterday’s USDA report on corn yields was indeed surprisingly bullish for corn prices. In fact, while the government has historically lagged the curve, yield forecasts dropped much more than expected, based on the worst drought condition since 1988 in the Midwest. But while yield forecasts may continue to decline, this is the major drop we had been expecting, and we think the news likely doesn’t get much worse than this. Which also suggests corn prices may be getting toppy here. So we would suggest some profit taking on the commodity, and selectively lightening up on fertilizer stocks, depending on the tone of the tape. For the longer term, we suggest AGU and DD as core holdings.

Executive Summary of the Call
• • • • • • • • • • • • • Corn prices have surged over 35 % in last few weeks WASDE report yesterday very bullish, corn expectations worsen Amount of corn rated good dropped to 40 %, lowest in many years (69 % 2011) USDA brought corn yield forecast down more than expected from 166 to 146 b/a We see a further drop next month, but not by the same amount Year end carry-out stocks declined to 1.2 mm bu, though not as low as 2009 At $7.50 corn, talk may begin about demand destruction Political chatter about food costs could threaten ethanol subsidies Fertilizer use should continue to increase with yield concerns And N, P and K prices should firm further Fertilizer stocks correlate with grain pricing -> could be vulnerable in any weak tape Soybean yields down sharply as well, and prices rising Longer term core fertilizer holding should be AGU

Reasons for the Call
Rather than reiterate the lousy weather conditions, it is clear that a drought has come to pass and the corn crop looks to be the worst in 25 years. While the USDA usually lags in its forecasts, this time they could not ignore the weather and dropped yield forecasts much more than expected. However, at these sharply higher corn prices, they suggest demand may be impacted, and that ending corn stocks will be lower, though not by the same amount and a stocks-to-use ratio of 9 % would not be as bad as three years ago. So while there is likely to be incremental bullish news from here, the second derivative call is that the trade is likely to tire here. While the fertilizer stocks are vulnerable to corn pricing, we think soybean prices have more upside, which should help. We believe earnings and the outlook from managements should be surprisingly strong. Having said that, the high trade correlation, and any mid-earnings cautious tape action could lead to some profit taking in CF, MOS and POT, though we think the more diversified AGU has more staying power. DD, which is also seeds and chemicals, hasn’t really gotten credit on the upside yet for what we think is a stellar ag story. DuPont also benefits disproportionately from soy and chemicals, more than MON, which is later season and helps the 3Q as well.
Fusion Analytics Research Partners LLC ©2012 FusionAnalytics P 212-661-2022

Fundamentally Driven Technically Confirmed

Ag. Outlook - Corn Has Worked
July 12th 2012

Tecrium Corn Fund (CORN) - Daily Chart

After our bullish call on CORN near $ 38.00, and as seen in the chart above, CORN has reversed on massive volume at prior resistance near $ 48.00 (red line) This massive volume sell-off, after a near parabolic short-term move, suggests CORN has topped for the time being. Initial supports below the market lie near $ 43.00, then $ 40.00. The intensity of the volume on the sell-off would suggest the lower target is very likely to be achieved.

Fusion Analytics Research Partners LLC

©2012 FusionAnalytics

P 212-661-2022

Fundamentally Driven Technically Confirmed

Ag. Outlook - Corn Has Worked
July 12th 2012

July 2012 Soybean Futures - Daily Chart

The recent breakout above $ 1,500 (green line) is very bullish. Short-term, prices maybe need to pull back to the $ 1,600 - $1,550 range, to digest the recent upward prices explosion, however pullbacks in Soybeans look like a buying opportunity.

Fusion Analytics Research Partners LLC

©2012 FusionAnalytics

P 212-661-2022

Technically Driven Fundamentally Confirmed

Important Disclosures

This communication is for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. All market prices, data and other information are not warranted as to completeness or accuracy and are subject to change without notice. Any comments or statements made herein do not necessarily reflect those of Fusion Holdings LLC, its subsidiaries and affiliates. This transmission may contain information that is privileged, confidential, legally privileged, and/or exempt from disclosure under applicable law. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or use of the information contained herein (including any reliance thereon) is STRICTLY PROHIBITED. Although this transmission and any attachments are believed to be free of any virus or other defect that might affect any computer system into which it is received and opened, it is the responsibility of the recipient to ensure that it is virus free and no responsibility is accepted by Fusion Holdings LLC., its subsidiaries and affiliates, as applicable, for any loss or damage arising in any way from its use. If you received this transmission in error, please immediately contact the sender and destroy the material in its entirety, whether in electronic or hard copy format. Fusion Analytics Research Partners, LLC (“FARP”) is not registered as an investment adviser with the SEC or any state securities agency. Rather, FARP relies upon the “publisher’s exclusion” from the definition of “investment adviser” as provided under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. The site content and services offered thereon are bona fide publications of general and regular circulation offering impersonalized investmentrelated information to users and/or prospective users (e.g., not tailored to the specific investment needs of current and/or prospective users). To the extent any of the content published as part of the site or services offered thereon may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Fusion Analytics Research Partners LLC

©2012 FusionAnalytics

P 212-661-2022

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