Wheat
Wheat fundamentals: The first domino fell into the second during the overnight electronic trade, when spec traders were shocked to learn that the funds combined futures and options position estimates were not 12,000 contracts long, but as the CFTC official data estimated 12,000 contracts short.
Funds immediately saw this as an opportunity to buy on ideas there is plenty of elbow room above. The second domino to fall into the third was world demand for wheat was real as Algeria and Egypt were both strong buyers of the physical supply with India receiving 8 official bids for its tender of 1.67 MMT of wheat with Morocco announcing it needed to buy 140 K tonnes of wheat. The third domino which resisted the first two dominos strength to push higher was news of beneficial rains for BOTH Australia and Argentina and more rains forecasted. This sent futures off highs of the day as well as pre paring for next Tuesday's WASDE report. After weekend rains the certainty USDA would have to lower crop production yields for both southern hemisphere countries, is now not so certain.
Wheat technicals: December CBOT SRWW futures close is 4220 vs. last Friday's 34194. Our key custom Moving Averages are 4200, 4070 and 4000. DECEMBER KCBT HRWW futures close is 4834 vs. last Friday's 4850. Our key custom Moving Averages are 4870, 4790 and 4750. DECEMBER MGEX spring wheat futures close is 4696 vs. last Friday's 4704. Our key custom moving averages (MA) are 4610, 4610 and 4650.
Trade positions: Long CBOT SRWW futures position and today's high was our objective. We are also long MGEX Dec wheat and trying to buy KCBT wheat but on a sizeable correction. We do anticipate that as we get into the meat of the corn harvest it is likely to have a negative bias against the wheat futures and will need to enter short term short positions on corn and wheat futures. Once the seasonal corn harvest low is in then begin to build sizable long positions in both corn and wheat.
Wheat marketing: Projected domestic end stocks to use are 21.3% vs. 2005-06 26.3% and five-year-average levels of 26.94%. Projected global stocks to use are 17.7% vs. 19.7% the previous year and five year average of 22.44% and most importantly smaller than 2003's 18.9% which caused futures to rally. Based on this data timing is expected to be extremely important to move 2006 wheat production in the March-April 2007 time frame. Dec 2006 wheat futures hedges were rolled to the July 2007 futures to cover storage cost. Spring wheat farmers may want to seriously consider moving wheat into cash sales as futures spreads do not coverage storage cost (tonight’s close is 11¢ or 3.66¢ per bu per month). You will have to decide for your own individual operation. At 4950 cash value, storage and interest are likely to run a minimum of 4.7¢ per bu per month. Cash sales are to be replaced with March futures or options, or bull-call spreads, or combination of all, as we anticipate a similar rally in futures from Oct 2006 to March of 2007. From Oct 2003 into March of 2004, futures rallied nearly 90¢ then nosed dived.
Five-year average cash price: The five year average cash price for SRWW for the month of August $3.25, month of Sept $3.43, month of Oct $3.51, month of Dec $3.51.
Corn
Corn fundamentals: Corn continues to support itself based on strong domestic and foreign demand but we do anticipate weakness as we enter the forthcoming harvest with larger than usual old crop corn stocks. Corn recent climb has been at the work of wheat futures, which was technically driven.
Crop conditions: The CBOT floor trade was looking for corn and soybean conditions to drop because of seasonal crop maturing tendency.
Corn actually improved 2% and soybeans were left unchanged, viewed as negative to futures. According to our crop condition models, it now suggests the following: corn yields are 151.1 bushels per acre, which is above last week's 150.6 model. Soybean yields at 48.1 bushels per acre. That is up from last week's model of 47.3.
CornSoybeans
USDA / ALDL USDA / ALDL
Yield (bu/acre):152.2 / 151.139.6 / 48.1
Production (billion bu):10.976 / 10.8932.928 / 3.556
Historical price trend: Be certain to see the HPT page for this week as well as the next four week cumulative. The odds swing from this week out, four weeks is huge for the corn and soybeans and just as impressive odds for the cattle and hogs.
Corn marketing: Only move enough old crop to make room for new crop supplies as old crop basis is weak and expected to remain weak into the end of the year. Our new crop hedges were rolled to the July to pay for storage on farm and added an additional 9¢ to our storage revenue for the 2006 corn crop. May 2700 calls to cover a third of the hedges were bought 08-15-06 and are doing well to remove margin pressure. If you do not have new crop hedges placed you may want to consider our anticipation of March futures rallying 80¢ into the first quarter of 2007 to a level of 3400. We advise to not wait for a top, but rather scale up hedge into the last 40 cent of the move and be certain to cover with at the money May call options. We advise to anticipate cash prices peaking in the Feb-Mar-April 2007 time frame. Call if you have questions about your own particular farm operation.
From Aug to Sept: On average USDA is 50/50 when adjusting corn yield from the Aug to Sept crop report. When they do raise production, it has been by an average of 1.7 bu per acre (range of .2 bpa to 4 bpa) or 147 mil bu. When the adjustment is lower, the yield on average has dropped .9 bu per acre (range of .1 bpa to 2.5 bpa) or minus 63 million bu. The USDA's most recent new crop production estimate is 10.976 billion bu.
Five-year average cash price: The five year average cash price for corn for the month of August $2.14, month of Sept $2.13, month of Oct $2.05, month of Dec $2.11.
Corn technicals: Dec futures close is 24420 vs. last Friday's 2456. Our key custom Moving Averages are 2430, 2420 and uses a 2580 bear to bull pivot point. March futures close is 2590 vs. last Friday's 2604. Our key custom Moving Averages are 2580, 2570 and a 2670 bear to bull pivot point.
Trade position: We have written new spec trader recommendations and they can be found within our Grain Trading Strategies page. The monthly free Allendale E-Newsletter was e mailed Sept 1. If you would like your copy then please enter most recent e mail address at this site: www.allendale-inc.com/default.aspx.
Soybeans
Soybean fundamentals: Combine heavy old crop stocks, drop in crude oil futures which have created weakness in the soybean oils futures and add in beneficial, timely rains for 2006 soybean production and all are bearish to new crop futures. Demand for soybeans has been melancholy as of late. Soybean oil had been the legs under the beans. However as China's appetite for soybean oil has switched 180 degrees over top much cheaper Palm oil and it comes as no surprise how soybean oil exports are running 29% behind its five yr average with only 5 weeks remaining in the marketing year.
Soybean end stocks to use: projected end stocks to use now at 15% vs. 18.2% last year and 7.6% from 2000-2004 average. Globally a level of 17.3% vs. 18.8% last yr and 15.3% from 2000 to 2004 average.
From Aug to Sept: On average USDA is 30 (increase)/60 when adjusting yield from the Aug to Sept crop report. When they do raise production, it has been by an average of .8 bu per acre (range of .5 bpa to 1.1 bpa) or 45 mil bu. When the adjustment is lower, the yield on average has dropped 1.2 bu per acre (range of .5 bpa to 3 bpa) or minus 84 mil bu. The USDA's most recent new crop production estimate is 2.928 billion bu.
Nov soybean five-year average: The most recent five year historical average suggests Nov futures begin to drive higher into the middle of Sept with an average gain of 20¢. From the middle of September, futures fall into early October by 15¢ to 20¢.
Soybean marketing: Only move enough old crop to make room for new crop supplies as old crop basis is weak and expected to remain weak into the end of the year. Our new crop hedges were rolled to the July to pay for storage on farm. Long range projections suggest when the March 31 planting intentions report is released, more corn and wheat acres to be planted at the expense of fewer soybean acres and thus friendly to futures and cash.
End users and spec longs are advised to be long into the glut of the 2006 soybean harvest and keep an ear open to S American planting progress.
Five-year average cash price: The five year average cash price for soybean for the month of August $5.81, month of Sept $5.52, month of Oct $5.53, month of Dec $5.61.
End stocks to use: Projected 2005-06 end stocks are 81% higher than the previous four year average. Projected 2006-07 end stocks are 48% higher than that same four year average.
Soybean technicals: Nov futures close is 5542 vs. last Friday's 5514. Our key custom Moving Averages are 5580, 5600, and bear to bull pivot point at 6090. Jan 2007 futures close is 5672 vs. last Friday's 5646. Our key custom moving averages (MA) are 5670, 5700 and bear to bull pivot point at 6150.
Trade position: We are short new crop soybeans on increasing yield and heavy old crop stocks. We bought of Jan 2007 futures based on the need for a technical correction but were quickly stopped out and reversed to a short position and based on today's close well off of its highs are fortunate to have reversed to the short position.
- Joe Victor
Allendale Lean Hogs
Labor Day pork clearance was generally okay. Today's wholesale pork trade closed up 45¢.
Packers ran a record 416,000 head kill today. They will run big numbers the rest of the week to make up for yesterday's weak 3,000 head holiday showing. Cash hog prices were steady today and are expected to firm into the end of the week. In the big picture, this is simply a blip higher in what will become a bear trend going into fall and winter for cash hog prices. We still feel nearby futures may be disconnected from the day to day fluctuations in cash hog prices as October is still too discounted. Last week we indicated seasonally futures rally from late August into mid to late September. It appears that is the case here. In other news, we noted USDA is in the process of confirming avian flu (the low pathogenic H5N1 strain) in wild ducks in Maryland. This would be the second US case this year and the eighth since 1975. It is not expected to have any market impact as it has not been found in commercial poultry flocks.
Allendale Live Cattle
South Korea finished their audit of US beef plants and may have an announcement on restarting beef trade with the US in a week or so. That news, combined with Hong Kong restarting trade over the weekend, helped futures today. We can also note the trade is expecting cash cattle to trade steady to $2 higher on top of last week's $90 to $92.50 action. Wholesale beef, via the boxed beef report, closed up $1.77 and $2.90 for choice and select beef respectively. That is a strong showing for beef when the East Coast saw part of the weekend disrupted by last week's storm. For this week's action, there is talk that showlists will be larger as feedlots put some unfinished numbers up for sale. We have been right about the overall direction of cattle prices here but have been surprised by how quickly this market has moved. Our upside goal for February futures is $94. That is not to far away and could be filled in a couple weeks or so. Originally we did not plan on seeing that objective filled until December or so. There is no reason to add to the limited hedges already in place at this time.
- Rich Nelson
As always, if you have questions or comments, please call (800) 551 4626 to discuss or send an e mail to: research@allendale-inc.com
The thoughts expressed and the basic data from which they are drawn are believed to be reliable but cannot be guaranteed. Any opinions expressed herein are subject to change without notice. Hypothetical or simulated performance results have certain inherent limitations. Simulated results do not represent actual trading. Simulated trading programs are subject to the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. Commodity trading may not be suitable for recipients of this publication. This is not a solicitation of the purchase or sale of any commodities. Those acting on this information are responsible for their own actions. Any republication, or other use of this information and thoughts expressed herein without the written permission of Allendale Inc. is strictly prohibited. Allendale Inc. c2006
