Corn fundamentals: The export and domestic demand is bullish to corn, as are technical developments over the past week. Last week's threatening forecast of frequent wet weather for this week gave way to a call of mostly dry weather and tonight’s six-to-10-day forecast more of the same.
Odds for December Futures: Five of the most recent eight years have found December corn futures at least trading at the same level which September futures expired at. Even in the fall of 2003, when projected global stocks to use were tight, December futures did trade at the September expiration price of 2270. September futures 2006 expired at 2234.
Harvest Progress: Today before its release, the trade was estimating 14% to 15% complete. After Monday's futures trade closed, NASS reported the corn harvest is 13% complete vs. a five-year average of 15%, which in all likelihood can be quickly made up this week and more.
CFTC/price report: based on multi year history it is not uncommon for the funds combined futures and options position to have one last crack at short covering before the harvest begins in earnest then breaks. Given the fundamental fact that the United States is carrying heavy old-crop stocks and beginning to harvest what could be the second largest corn crop in history, we suggest this season will be no different from others.
End of the Day: it is estimated by the end of the day, wheat futures contracts sold on the day were 2,600, soybeans 4,200, soybean meal 2,500 and soybean oil 4,000 and corn even. We anticipate follow through selling on Tuesday and would suggest corn might not be able to withstand a second-consecutive day of outside influenced bearishness.
Weekly export sales: as our custom "Weekly Export Corn Sales" graphic within our website suggest, the five-year average sales pace typically is sideways to higher into the middle-late October then weakens into the end of the calendar year. As of the most recent official USDA export sales data, 537-million bushels of corn have been sold vs. last years 332-million bushels (up 62%!) and most recent three-year average level of 339-million bushels (up 58%).
Corn Technicals: December futures close is 2546 vs. last Friday's 2552. Our key custom moving averages (MAs) are 2500, 2470 (support) and uses a 2580 bear-to-bull-pivot point. It was predominantly the punch through the first MA of 2410 on Sept. 15 that allowed futures to rally. Our research suggests a similar setup for December corn that a breach of the first key custom MA of 2500 which could lead futures back to the chart gap of 2424 to 2440. March futures close is 2682 vs. last Friday's 2684. Our key custom MAs are 2640, 2600 (support) and its 2680 bull to bear pivot point. July 2007 futures close is 2832 and its 50% retracement level is 2880. A chart gap in the July futures remains below between 2774 to 2780.
Corn end stocks to Use: projected end stocks to use now at 10.2% vs. 9.4% in 2003 for the domestic situation. Globally a level of 11.5% vs. 2003's 14.3%.
Projected world end stocks for 2006-07 now 92 MMT vs. 103 in 2003. You need to travel back to 1983 to find smaller stocks of 89 MMT!
LDP: Both the six-, and seven-year LDP average peak for corn has been Oct. 11 while soybeans finds its peak in a range of Oct. 14th through Oct. 27.
Ten Year Historical Price Trends: for this week through the four-week total:
The immediate trend is up, change to sideways on a close Below 2490 As you are able to view, odds weigh on corn futures for this week based on the most recent ten year historical values as well as the four week total. Soybeans, soybean meal, CBOT and KCBT wheat, cattle and hogs HPT full description can be found within our Historical Price Trend page.
Trade position: We are long December futures long based strictly on positive technicals, which began last Wednesday. A breakdown through 2500 sets the stage for 2470. We remain short March corn futures based on new crop harvest seasonal tendencies, heavy old crop stocks and technicals, which at this point are non threatening. Allendale remains long term very bullish from a yet to arrive projected October, July futures, low into a late winter, early spring high based on our research in years when projected global and stocks to use are uniquely tight.
Eggs set-chicks placed: The single largest sector of protein meal use is poultry at 50%, second are hogs at 25%. The largest sector of corn use is beef cattle at near 34% and then poultry at a shade over 27%. The latest weekly broiler report has eggs set up 1% above year ago same week levels with chicks placed unchanged. Domestic demand remains strong.
Feed needs: please be certain to continue to check the updates on our Hedge Advice page for feed purchasing recommendations. The potential bullish "Island Bottom" formation, which developed on Thursday, is null and void after futures crashed on Friday.
Soybean fundamentals: Before today's close at the CBOT, floor trade suggested the soybean harvest to be 10% to 12% complete. After the close today, NASS reported the harvest completion at 9% vs. its five-year average of 12% complete. Like corn, we suggest with this weeks dryer forecast than how maps were read the middle of last week, delays may easily be made up. Brazil suggest new crop production will be closer to 52 to 55 MMT, equal to the 2005 harvest and not the extreme low 50's as very early preliminary estimates has suggested. Argentina suggests over 41 MMT, which would be a record and could add if wheat acres are abandoned and rains arrive in time for month of Nov plantings.
Export sales: Only two weeks into the 2006-07 marketing year and sales of soybeans to foreign buyers have reached 293-million bushels vs. last years 168-million bushels and three-year average of 244-million bushels, up 20%.
Soybean technicals: November futures close is 5450 vs. last Friday's 5492. Our key custom MAs are 5470, 5490 and bear-to-bull-pivot point at 6040. January futures close is 5586 vs. last Friday's 5622. Our key custom MA's are 5630, 5610 and bear-to-bull-pivot point at 6130.
50/50 Odds: From the September USDA crop report to the January annual report, odds are not nearly as impressive as corn over the past ten years. Odds that soybean production could increase are only 50% whereas corn production has increased from the September to Jan annual report 90% of the most recent ten years. By looking at today's updated custom crop condition report for corn, it’s not unreasonable to suggest the January annual report could make that 10 out of the past 11; and after three-consecutive weeks of improving conditions for soybeans, it is likely it the may rest on the side of odds which suggest bigger soybean production by the January annual report.
Historical peaks and valleys: For Soybeans, research dating back to the year 2000 has two time periods which could benefit the end user as a result of harvest in North America and then South America. The research suggests cash price lows concentrate in the October to November and January to February time frame. For soybean producers the research suggest if you have to identify the one time period when history has shown cash price highs it has been the month of August.
Trade position: We have futures orders written to sell a corrective bounce in the January and November soybeans. We do not have equal bullish enthusiasm for soybeans that we do the corn and wheat. We are bullish the demand scenario for exports and domestic use but we realize this year’s production is likely to be more than capable to meet projected demand. Nearby bullish surprises are typically weather related to the U.S. soybean harvest and early soybean plantings in Brazil, which at this point, there are none.
Wheat fundamentals: Iraq suggest it is not ready to tell the world where they have chosen to buy wheat from, at least not until they finish their visit with U.S. Secretary of Agriculture Mike Johanns. Look for an announcement late Tuesday or Wednesday. Take it for what it is worth but one of the key wheat team buying members suggest they will have good news for the U.S. wheat market. Wheat planting progress of 36% is 3% less than the five-year average of 39% and may easily be made up this week with cooperative weather forecasted.
Export sales are hurting: The floor trade has been bulled up when weekly export sales of wheat came in above their pre release expectations last Thursday. At 519.5 K tonnes, sales were a robust 54% above week ago values. Now for the facts, we lost ground vs. where we were a week ago. Before today’s export sales release, 2006-07 export sales were 22% behind last years pace. After today's release, we are now officially 23% behind. Sales thus far this year are now 358-million bushels and they pale in comparison to the previous three yr average of 489-million bushels or 26.7% lower! Rumors persist that Iraq may have already bought the wheat, 750 K tonnes USA and 500 K tonnes from Canada and may make the announcement on Monday. 750 K tonnes is equal to 27.5-million bushels. Add this the total for export sales thus far this year and the level would be 386-million bushels vs. year ago levels of 466-million bushels and three-year average of 488-million bushels. Compared to the three-year average sales would then only be 21% behind for 2006-07 vs. present level of 26.7% behind. For a clear picture, take a look at the Special Reports section within our website and click on the wheat export sales link on the left. It is there you will see how weekly sales are struggling to meet up with last year and the five-year average levels. Wheat futures NEED this Iraq purchase.
Heavy dependency of wheat exports: Of the 1.801-billion bushels of wheat production in 2006, 900-million bushels are marked for exports or 50%. When export sales are starting as slow as they are this year, it creates the ability for projected stocks to build in the background. Until the United States is able to land more big-ticket exports sales, we may have to temper a portion of our bullish enthusiasm. With this in mind, look for July 2007 wheat futures to find its peak price in late March, very early April.
Odds from September to January: Odds have been 70% over the most recent ten years that USDA lowers wheat production in the Jan annual crop production report vs. its September report.
Wheat technicals: DECEMBER CBOT SRWW futures close is 4136 vs. last Friday's 4190. Our key custom MAs are 4160, 4050 and 4100. DECEMBER KCBT HRWW futures close is 4710 vs. last Friday's 4814. Our key custom MAs are 4780, 4720 and 4770. DECEMBER MGEX spring wheat futures close is 4540 vs. last Friday's 4610. Our key custom MAs are 4540, 4570 and 4580 (key support). Be aware of that 4540 level!
- Joe Victor
Allendale Lean Hogs: Lower CME action still shows this market is concerned about heavy supplies in the past few weeks. This week is so far no different. Cash hogs traded 50¢ to $1 lower on those concerns. One good thing we can note is we have had two days of relative calm in the cash pork market. Friday's pork cutout was up 2¢ and today's was down 13¢. There is no confirmation of a cash based bottom but no longer is that a good sign. Until we have confirmation of a cash bottom, it would appear bears have a shot at filling that $61 chart based objective from the Head-and-Shoulders formation on the October contract.
Fundamentally, we say weakness for a few more days then rally into early October. The way to play this one out is to buy only on a close above $64.50.
Allendale live cattle: The trade passed over Friday's Cattle on Feed report pretty quickly. The big placement number was based on large numbers of
-Rich Nelson
www.allendale-inc.com
If you have questions or comments, please call (800) 551 4626, or send an e-mail to: research@allendale-inc.com.
Allendale is registered with the CFTC and NFA and is a member of the NIBA. The bottom line is we are a regulated firm, which can be extremely these days.
The thoughts expressed, and the 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
