Corn Fundamentals: South Korea buys 250 K tonnes of China corn over the weekend. It is now estimated China has locked in Jan-Feb corn export sales of 2 MMT (78.7 million bushels). Present USDA estimates suggest China to be an exporter for 2006-07 marketing year of 4 MMT. Support for corn futures may be found with Mexico's overnight purchase of 109 K tonnes of USA corn and delays in the corn harvest.
Harvest Progress. National Ag Statistics Service estimates the corn harvest to be 53% complete with a five-year average of 57%. Pre release estimates at the close of futures trade today suggested a range of 54 to 58%. Double-digit delays can be found in CO, IN, MI, NE, and OH. This data is supportive to futures. Trader mentality is looking for a lot of lag time to be made up over the next week to two-week period. Quality issues are not yet a concern.
2007 Corn Acres: Based on an Allendale Research study released last Friday, 5.3 million more corn acres may be planted in 2007 over 2006. Allendale's Research estimates the amount of ethanol needed to blend into gasoline in 2007 could be met with a 2.2 million acre increase. Acres planted above the 2.2 million could ultimately build ethanol stocks unless corn for feed use or exports picks up the additional production.
July Corn Futures: An update to advise the low end of Allendale's July corn futures price projection of 3400 has officially been met as of today's trade. The high side of the range remains 3600. The price objective was unveiled well before the August WASDE report.
Six to Ten Day and Two Week Forecast: Tonight’s 6 to 10 and two week forecast call for below average precipitation and are viewed as bearish to corn and soybean futures.
Five-year average cash price: The five year average cash price for corn for the month of month of Oct $2.05, month of Dec $2.11. Fall delivered corn price for this year, this evening is quoted at an average of $2.93.
DDG vs. Corn and Meal: There may be plans in the works for USDA to adjust how much corn is displaced by distillers dried grain (a by product of ethanol production). USDA could revise the amount of corn replaced by DDG by as much as 40% and decrease the amount of meal displaced by DDG by as much as 60%. Rather than estimate 50% of corn and 50% of meal replaced when a pound of DDG is fed, the new ratio could wind up closer to 70% corn and 30% soybean meal. The impact of this new ratio could be discovered by the January annual crop production, supply-demand report. The bottom line is USDA could be willing to increase corn stocks and decrease soybean meal stocks.
Cash Corn: The Dec Mar corn spread is at 12 ¢ carry. At $2.93 spot cash prices, the cost of carry is 3.2¢ per bushels per month or 9.6¢. Anything less than 9.6 is a warning flag to move cash corn. As you work through your harvest, you might have a much better idea if there is sufficient storage on farm. If not, we would strongly advise to sell surplus bushels into the cash market when the spread strengthens to 9.6 or more. We fully anticipate futures and cash to work higher into the March-April period.
Corn Technicals: Dec futures close is 3182 vs. last Friday's 3126. Our key custom Moving Averages are 3160, 3070 and uses a 2620 bull to bear pivot point. March futures close is 3302 vs. last Friday's 3246. Our key custom Moving Averages are 3270, 3180 and a 2730 bull to bear pivot point.
Trade Position: Fundamentals have caught up with technicals and paint a bullish scenario into the winter of 2006-07. World end stocks to use are in a unique class and have very close company with the "other starch,” wheat. Our long-range objective on July 2007 corn futures remain unchanged from our August release of 3400-3600. Without out any major surprises in the March 2007 period, we are expected to be busy moving all 2005-2006 cash crops and hedged aggressively our anticipated 2007 corn production. We have new orders published in our Grain Trading Strategies page to stop into short positions for a small fundamental and technical correction.
Soybean Fundamentals: Soybeans are experiencing strong domestic and export demand. S America is planting its new soybean crop and farmers are locking in $6 and above for new crop delivery when harvest begins in March of 2007. Weather remains very conducive for S American plantings and early growth.
Export Sales: Six weeks into the 2006-07 marketing year and sales of soybeans to foreign buyers have reached 440-million bushels vs. last years 266 mil bushels and three yr average of 359-million bushels. Only two weeks into the new marketing year for soybean meal and soybean oil, its export sales lag the five yr average. The good news is soybean meal export sales are above last years pace but soybean oil is weaker than last year, which at the time was miserable.
Soybean Harvest: National Ag Statistics Service estimates the harvest to be 76% complete with a five-year average of 78%. Pre release estimates at the close of futures trade today suggested a range of 77 to 80%. Double-digit delays can be found in IN, KY, MI, and OH. States exceeding their five yr average harvest pace are AR, LA, MN, MS, MO, ND, SD and TN. This data is viewed as neutral to soybean futures.
Five-year average cash price: The five-year average cash price for soybean for the month of Oct $5.53, month of Dec $5.61. Fall delivered soybeans are presently quoted at an average of $5.82 per bushel.
2007 Corn to Soybean Ratio: The floor trade mentality is when corn to soybean futures price ratio (when dealing with new crop futures) is mainly neutral to planting corn or soybeans at 2.3:1. Tonight’s closing ratio is clearly in favor of planting new crop corn in the spring of 2007 at a ratio of 1.98:1. In order to make certain not enough soybean acres have been planted, either corn futures for Dec 2007 need to pull back or Nov 2007 soybean futures need to correct higher. As of late, it has been the corn futures dragging soybean futures higher. This action suggest new crop soybean futures may be well under valued and in order to catch up need to rally up to 7700. How this is accomplished with projected 2006-07 soybean end stocks 140% higher than its previous five-year average may be very difficult. Global end stocks are projected to be 37% higher than the average dating back to the year 2000, and 77% higher than in the year 2000.
Cash Soybeans: The Nov-Mar futures spread is 20.4¢. With the spot cash market at $5.82 per bushel, cost of carry per month is 4.8 cts/bu/mt or 19.2¢. If the spread fell back below 19¢, it would be an indication that it cost more to store soybeans than to sell to the cash market. Use this present rally to sell any small overages, which will not fit into your on farm storage.
Soybean Technicals: Nov futures close is 6174 vs. last Friday's 6064. Our key custom Moving Averages are 5870, 5790, and has bull to bear pivot point of 5990. January futures close is 6304 vs. last Friday's 6202. Our key custom MA's are 6160, 6060 and bull to bear pivot point of 6080.
Trade Position: Fundamentally, we remain bearish to soybeans and the Oct WASDE report only reaffirmed our conviction. Technically, we are cautiously approaching more of a bullish stance. We have written new speculative trade recommendations within our Grain Trading Strategies page. We are short soybean oil on a technical and fundamental correction and have resting orders to sell soybean futures on a break below the bull to bear pivot point. See our Grain Trading Strategies page.
Wheat Fundamentals: Bullish to wheat is tight world stocks and the speculative driven futures rally. China sells for export 500,000 tonnes of wheat. Declining wheat crop size for Australia but the highest level of beginning stocks. Australia exports of 11.5 MMT to exceed its crop production, has never happened dating back to 1990. Iraq seeks 300,000 to 600,000 tonnes of hard wheat. China winter wheat region is dryer than normal. Ukraine has a limit on its grain exports but the country's own milling industry wants to sell wheat flour. Chicago exporter possibly anticipating large SRWW delivers when first notice day for the Dec futures rolls around on Nov 30th as they have requested an additional 1-million bushels of storage space.
Planting Pace: The National Ag Statistics Service estimates USA new crop winter wheat plantings at 86% complete vs. its five yr average of 87%. Double-digit delays can be found in MI and OH, of the 18 key winter wheat states. This report is viewed as neutral to July 2007 wheat futures.
Cash Wheat: Spreads have widened back to full carry for MGEX spring wheat, and CBOT SRWW but strengthened for KCBT HRWW. The spreads did narrow enough to allow us to move a third of our wheat inventory a week ago Tuesday before the open on Wed. Apparently domestic and foreign demand has been satisfied for the month for both MGEX and CBOT wheat. However it may be the potential Iraq tender, which may have been the helping hand to strengthen its spread and call for wheat from off farm. Given the tightness in domestic and world stocks, Allendale's research suggests the peak for the cash wheat market could arrive in late March early April 2007. However there is a second period that has also shown strength, and that is October to November. Allendale officially recommended moving the 15% of unhedged wheat from the 2006 crop to the cash market and the first 20% of its hedged wheat at the end of trade on Tuesday of last week, before the open Wednesday. Please see our Hedge Recommendation page for complete details about the results of our moving the first 35% of 2006 wheat production into the cash market.
Wheat Technicals: DECEMBER CBOT SRWW futures close is 5170 vs. last Friday's 5050. Our key custom Moving Averages are 5120, 5210 and 4850. DECEMBER KCBT HRWW futures close is 5422 vs. last Friday's 5310. Our key custom Moving Averages are 5320, 5360 and 5160. DECEMBER MGEX spring wheat futures close is 5182 vs. last Friday's 5096. Our key custom Moving Averages are 5100, 5040 and 4960.
Export Sales Are Hurting: 2006-07 export sales are now 20% behind last years pace and at only 428 mil bushel, pale in comparison to the previous three yr average of 563 mil bushel. First quarter marketing year wheat exports are down 21% and since 1987-88 had one other year which began as weak, only to wind up 15% below the USDA target. 15% below USDA's present target of 925-million bushels is 786-million bushels.
Trade Position: We remain long CBOT and KCBT and have written new orders for MGEX wheat after successfully reaching long objectives at all three exchanges just recently.
-Joe Victor
Allendale Lean Hogs:
Pork processors are running another big kill. In fact, today's 422,000 head run was larger than last week's Monday by 4,000 head. Along with expectations for another big Saturday run, this week could be equal to or larger than last. With an aggressive kill in mind packers could move bids for cash hogs to steady. In the big picture, it is hard to see them push those bids for longer than a day or two. Wholesale pork prices would likely remain under pressure with this heavy pork tonnage hitting the market. Typically lean hog futures continue to show pressure going into the end of this month. We are fully hedged on marketings through the rest of the year using the December contract and would recommend shorts on the speculative side.
Allendale Live Cattle: The CME trade threw out Friday's neutral COF report and instead focused in on the cash cattle trade. Action occurred late Friday at an average of $88 live and $137 dressed. Those prices were steady with the previous week. Along with today's $1 gain in wholesale beef and talk of lower showlists there are expectations of steady to $1 higher cash cattle action this week. Chartwise there is also an upside target of $89.30 which is the top of the gap left to fill. Now, if it were not for the last four weeks of market changes we would say current prices are near the low end of a sideways trading range for the next two months. Instead, we have to suggest after filling the gap there is not much upside support left. We still feel bounces in this market should be used for speculative sales and hedges as long as corn prices remain high. -Rich Nelson
Rich Nelson and Joe Victor
Allendale Research
(800) 551 4626
research@allendale-inc.com
www.allendale-inc.com
Allendale is registered with the CFTC and NFA and is a member of the NIBA.
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
