The Facts: there has been plenty interest as of late as to when, according to history has the seasonal low been placed for corn and soybeans. After late last weeks futures rally, more of the trade is convinced the harvest low has been set at 2360 on Sept. 15. Before we get into specifics we need to look at those years when the August through month of Dec. has taken out the Dec. futures have met or exceeded the June-July, Dec. futures low. Knowing the peak of the Loan Deficiency Payment typically for the recent six-, and seven-year average has been Oct. 11th, one may assume, the seasonal low could typically congregate in the month of Oct. Not so, it is the month of November when the majority of these seasonal lows set and then a three-way tie for August, September and December, at three and the month with the weakest odds is October. Of the most recent five years, the seasonal low has been in October once, November and December each twice.
The fifteen yr average low date is Oct. 18, with the 10-year average low set on Oct. 31. Of the most recent 10 years, the earliest the harvest low has been found was Aug. 11, 2000, with a price of 1860. The latest has been Dec. 20 of 1999 at 1800. The last time projected world stocks to use were near as tight as projected for 2006-07 was in 2003-04 and the seasonal low was set on Oct. 20 with a level of 2132.
Of interest, there were four years in which after the harvest low was found, significant rallies in the Dec. futures were made before futures expired. Those years were 2003, 2000, 1998 and 1995. More significantly is how two of the four years, were years we have discussed most recently. They are 1995 when the U.S. end stocks to use were the tightest dating back to 1980 and the second tightest in 2003. It is important to understand, projected end stocks to use for 2006-07 are presently the third tightest dating back to 1980. End stocks to use for 1995 were 5%, 2003 at 9.4% and 2006-07 projected at 10.2%.
In 1995 after finding a low of 2700, Dec. futures rallied to 3440 by expiration for a gain of 74¢, while in 2003 after finding a harvest low of 2132, Dec. futures rallied to 2550 for a near 42¢ gain. Thus far, the present 2006 Dec. futures have rallied from 2334 to today's high of 2694 or 36¢. Given the fact that present projected end stocks to use are not as tight as 1995 or 2003, is it possible this 36¢ rally may be unable to surpass the rally of 2003's 42¢ gain? The answer may lie with the wheat, which has been given the lead for this present rally for corn. In 1995, domestic end stocks to use for wheat were 15.8% while in 2003, levels were 23.2% and projected for 2003 are 21%. As you can see, 2006-07 tighter than 2003-04 but not as tight as 1995. The supply tightness rally at present has allowed wheat futures to haul corn futures higher but based on the data presented above, facts could suggest a corn rally more similar to 2003 than the extreme tightness levels for corn and wheat in 1995.
Soybean Seasonal Low: using the same parameters as corn above, Allendale's research has found the average date for the Nov. futures harvest low is Sept. 13 with the 10-year average of Sept. 10. The 2006 Nov. futures low has been 5374 and the date it occurred: Sept. 12. Of the 15 years, seven occurred in August, five in October, two in November and one in September. Of the five which had occurred in the month of Oct, the most recent was Oct. 10 of 2005, then in 2001, Oct. 22, then three consecutive from 1994's Oct. 10, 1993's Oct. 4 and finally 1992's Oct. 5. Throw out the extreme high of 6030 in 1993, the extreme low of 4206 in 2001 and the remaining three years have a low of 5240 to a high of 5544, with a price average of 5352, this September's low, 5384. Could it be the investment funds are more interested in timing this years seasonal low versus how projected U.S. end stocks to use of 17.4% versus 2005's 19.8% versus 1992's 13.4% and 1994's 14% is very much in the mix? What do you think? Are the 2006 harvest lows in for soybeans?
Crop Progress: floor trader's pre release estimate for the corn harvest was 20 to 25% complete before USDA's NASS releases its findings today at 3 pm. They estimated soybeans to be 15 to 20% harvested. Last week soybean harvest was 9% complete and corn 13% harvested. Today NASS reported the corn harvest to be 20% with a five-year average of 23% while estimating the soybean harvest at 19% versus a five yr average of 26%. We view the corn findings neutral to friendly Dec. corn futures while viewing the soybean findings neutral to slightly bearish.
NWS 6 to 10 Forecast: private weather services suggest no serious harvest delays for corn or soybeans for this week. Rains yes, but not with great enough amounts or coverage to stall a large area of the Midwest for a period of length. Tonight’s 6-10 day forecast is viewed as neutral to bullish corn and soybean futures but could be thought of as bearish to July 2007 new crop wheat futures as it does suggest above normal rains for the southern Plains.
Wheat Plantings: 2006 fall winter wheat seedings have run into high temps, and less than average rainfall for the most recent 30 days.
Wheat plantings as of Sunday morning are 54% complete versus a five-year average of 56%. #1 wheat producing state of Kansas at 50% planted is 3% behind its five-year average, versus yr ago levels of 51% versus last week levels of 24%. Kansas Topsoil moisture was rated 19% very short, 34% short, and 47% adequate. Subsoil moisture was rated 26 percent very short, 40 percent short, and 34% adequate. It may come as a surprise that only 5.7% of Kansas farmland is irrigated and is likely to be very dependent on the NWS 6-10 forecast in order to plant with signs of success. The bottom line is moisture is needed for germination purposes. Kansas wheat emergence is estimated at 21% versus 22% five yr average and last years 23%. Bigger emergence problems exist in OK and MT. We also need to advise, today we were able to hedge 20% of the 2007 new crop wheat as planned and will continue to follow instructions within our Hedge Advice page. We will continue to use our scale up plan to a level of 60% hedged before reassessing.
Corn Technicals: Dec. futures close is 2676 versus last Friday's 2624. Our key custom Moving Averages are 2600, 2570 and uses a 2590 bull to bear pivot point. March futures close is 2806 versus last Friday's 2752. Our key custom Moving Averages are 2730, 2700 and a 2690 bull to bear pivot point.
Soybean Technicals: Nov. futures close is 5452 versus last Friday's 5474. Our key custom Moving Averages are 5480, 5470, and bear to bull pivot point at 6030. January futures close is 5602 versus last Friday's 5622. Our key custom MA's are 5610, 5620 and bear to bull pivot point at 6110.
Wheat Technicals: DECEMBER CBOT SRWW futures close is 4460 versus last Friday's 4430. Our key custom Moving Averages are 4400, 4270 and 4160. DECEMBER KCBT HRWW futures close is 4980 versus last Friday's 4960. Our key custom Moving Averages are 4920, 4850 and 4780. DECEMBER MGEX spring wheat futures close is 4744 versus last Friday's 4686. Our key custom Moving Averages are 4580, 4570 and 4580.
One Last Question: today news wire reports direct from the CBOT trade floor suggested the wheat traders are asking, "At what futures price does wheat begin to ration itself?" With 50% of this years annual wheat production earmarked for exports, wheat export sales thus far this year are 373 mil bushels versus last years 487 mil bushels or down 23% and the three-year average of 510 mil bushels or down 27%. Isn't wheat already experiencing rationing? -- Joe Victor
Allendale Lean Hogs: Though Friday's Hogs and Pigs report was bearish, the trade is focusing right now on a rebounding cash hog market. The first higher quote in two weeks was seen today. With harvest picking up in the main hog producing areas, packers are reaching out to secure supplies. On other small positive was the 29¢ higher finish to the pork cutout. That is not a big amount by any measure but anything not negative is good news.
Usually this up move lasts for two to three weeks. In the big picture this up move, we are expecting to happen, is typically the last hurrah for December futures before they make a decent decline. It is also usually a good place to establish short-term hedges for the early 2007 contracts. In the big picture, we noted pork production figures for 2007 might run up to 3% larger than the record 2006 levels. Price projections imply a $62.34 average for first quarter lean weight cash hog prices. A move to $63 on the December and $64 on the February could be places to add hedges. Traders are watching that $61 chart based objective from the Head and Shoulders formation on the October contract. The way to play this one out is to buy only on a close above the upside gap which is at $64.50.
Allendale Live Cattle: Cash cattle traded strong on Friday, wholesale beef closed higher for the third day in a row now, and packers ran a big Monday kill which was 6,000 head higher than last year. Also, feeder cattle futures are doing very well considering the stronger corn prices and market talk of further corn price gains. It still appears the CME live cattle contract will have to do some catch up this week to price in current cash cattle prices. This could confirm our thoughts the recent bearish action is only short term and our $94 objective for February futures is intact. -Rich Nelson
As always, if you have questions or comments, contact us at:
Allendale Inc.
(800) 551 4626
research@allendale-inc.com
www.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
