Nov. 21, 2006 — Three separate countries were discussed to ban or delay corn exports during today's trade. However, after the close, India's Food Minister suggested they would not ban corn exports. It needs to be mentioned India's annual corn exports have averaged 316,000 tonnes (12 million bushels) over the past three years, with 2006/07 estimated at 200,000 tonnes. Due to warm-weather harvest delays, China announced it would slow exports and may be forced to buy back earlier sales at a penalty. Translation may be they sold cash corn too soon and now want to resell at higher prices. And finally, after today's close Argentina says they have not banned corn exports, they just want to be certain the export commitments total is accurate and they can be certain to collect their 20% export tariff from its exporters. It should be noted Argentina is still in the process of planting corn with a harvest date of March 2007. Given the tightness in world corn stocks, we do not expect an end to export limitation talk anytime soon.
Harvest Pace: We hope to have a special report for you within the next 24 to 48 hours zeroing in on what kind of an adjustment may be anticipated in the Dec WASDE report given the fact Indiana, Ohio and MI remain well behind its five-year average corn harvest. Our preliminary thoughts are USDA may be forced to lower total corn production due to field loss.
Weekend Article: An article written by a Washington DC writer for the Des Moines Register summed up the corn for ethanol paradox. More corn supply dedicated to ethanol has placed a strain on end users and ultimately passed onto the consumers. U.S. consumers are expected to make a choice in the near future, pay more at the pump or more at the grocery store.
The article also addressed future concerns of artificial nitrogen products use corn on corn rotations and how run off could hurt water supplies. The National Corn Growers Association is having a difficult time in trying to understand the hysteria. Certainly end stocks projected under 1 billion bushels was to be expected. However the speculative trade has a much different perception of the long-term supply and demand levels for corn than wheat the NCGA has as the non-commercial group continues to push futures higher.
NGFA: More news is surfacing how high cash corn prices are turning profit margins from black to red for ranchers and livestock-poultry farmers. Several months ago the National Grain and Feed Association pled for these end users to Washington DC officials, suggesting it was time to open up more CRP acres to ease cash corn cost. There are plans for ethanol facilities to be added but as long as cash corn prices float in the mid three-dollar level, these recent plans have been placed on the back burner. They may not move forward until the NGFA gets there wish by adding CRP acres to the spring plantings of 2007, have corn futures drop for end users. However just as quickly added CRP acres could cheapen feedstock for ethanol and watch these plants begin take shape and drive corn prices higher. Is it NGFA plan to attempt to lower cash corn prices for the farmers and ranchers or merely add more bushels for its members to handle as they miss a big piece of the grain handling pie as long as ethanol processors have placed a crimp on bushels, which used to be free flowing to the NGFA member elevators? What do you think?
Cash Corn: The Dec-Mar corn spread is at 15¢ carry. At $3.47 spot cash prices, the cost of carry is 4.2¢ per bushels per month or 12.7¢. Anything less than 12.7 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 12.7 or more. We fully anticipate futures and cash to work higher into the March-April period.
Corn Technicals: March futures close is 3750 vs. last Friday's 3704. Our key custom Moving Averages are 3670, 3670 and uses a 2830 bull to bear pivot point. July futures close is 3792 vs. last Friday's 3760. Our key custom Moving Averages are 3750, 3770 and a 2950 bull to bear pivot point.
Trade Position: We are willing buyers of corn futures but on a pull back. Tight world stocks, no next new supply of corn until Argentina harvest in March 2007. We remain aware of the fact of early warning signs of economic rationing as outlined in the poultry section above.
Ethanol: Technically ethanol is immediately trading sideways and intermediately trading higher. Key technical resistance is 2.09 per gallon for Jan futures while key support is 1.958 per gallon, tonight's close 2.04. Fundamentals are bullish if you are processing ethanol, as there remains positive-profit margins, even with $3.50 per bushel feedstock input and $112 per tonne DDG by product feed. However in the background we are very aware of the building stock levels of ethanol. The very latest Energy Administration data has monthly production of 10.2 million barrels vs. 8.1 a year earlier and stock levels of 9.2 million barrels vs. year earlier levels of 5.2 million!
Soybean Fundamentals: Brazil soybean plantings are said to be 70% completed with the estimated production range of 53 MMT to 58 MMT vs. last years 55 MMT. Argentina soybean farmers are gearing up for record soybean production of 42.5 MMT. Last year Argentina produced 39 MMT. In this months WASDE report, the USDA estimates the 2006/07 Argentina soybean crop at 41.3 MMT.
Cash Soybeans: The Jan-Mar futures spread is 12.4¢. With the spot cash market at $6.37 per bushels, cost of carry per month is 6.5¢/bushel/month or 13¢. If the cost of carry is below the spread, it signals to move soybeans to the cash market. Use this present rally to sell any small overages, which will not fit into your on farm storage. As long as corn futures continue to trend higher and pull soybeans higher we will hold off to announce to sell the 2006 soybean cash crop.
Soybean Technicals: Jan futures close is 6674 vs. last Friday's 6604. Our key custom Moving Averages are 6640, 6620, and has bull to bear pivot point of 6120. March futures close is 6800 vs. last Friday's 6744. Our key custom MA's are 6770, 6740 and bull to bear pivot point of 6200.
Trade Position: We are willing buyers of soybeans on a technical pullback and as long as corn futures continue to stay in an up trend. We are at present long both the Jan and March soybean futures with risk and objectives outlined within our Grain Trading Strategies page.
Wheat Fundamentals: The bottom line is wheat futures are technically weak performers. Weekly crop conditions dropped 2% and it comes to no surprise, as it proceeds into dormancy. Kansas wheat is rated 55% good to excellent vs. last weeks 59% good to excellent vs. year earlier levels of 65% good to excellent only to fall to 22% by mid June of 2005. The Australian Minister is expected to strip the Australian Wheat Board of its veto authority over competing private grain exporting companies. AWB is very simply over extending its power in a year when farmers are looking for that next big sale. AWB's bully tactics are no longer viewed as the single greatest power within Australia but it is the farmers, which are gaining the upper hand in short cropped years. Positive news is how Japan did buy a much more normal amount of wheat in its weekly tender of 125 K tonnes last Thursday and announced today it will seek 170 K tonnes this week but the floor trade sentiment towards the tender is it is routine business and not influential to CBOT wheat futures as the tender excludes CBOT's SRWW but could offer some support to the MGEX and KCBT wheat futures. Of the 170 K tonne tender, the USA share is expected to be 90 K tonnes and the balance split between Canada and Australia.
Exports: Sales of 11.9 million bushels are weaker than the five-week average of 20.1 million bushels and 18.6 million bushels ten-week average. Neither the sales nor shipments were enough to help trim the amount needed on a per week basis to meet USDA's final export target of 925 million bushels. The nastiest part of the whole debacle is how the present sales pace thus far this marketing year suggests final exports of 676 million bushels.
Cash Wheat: The Dec-Mar CBOT spread is at 18.6¢ carry. At $4.45 spot cash prices, the cost of carry is 5¢ per bushels per month or 15¢. Anything less than 15 is a warning flag to move cash soft wheat. The Dec-Mar KCBT spread is at 12.4¢ carry. At $4.60 spot cash prices, the cost of carry is 5.1¢ per bushels per month or 15.4¢. Anything less than 15.4 is a warning flag to move cash hard wheat. The Dec-Mar MGEX spread is at 15¢ carry. At $5.50 spot cash prices, the cost of carry is 5.8¢ per bushels per month or 17.5¢. Anything less than 17.5 is a warning flag to move cash spring wheat.
Wheat Technicals: March CBOT SRWW futures close is 4936 vs. last Friday's 4940. Our key custom Moving Averages are 4950, 5020 and 5120. March KCBT HRWW futures close is 5274 vs. last Friday's 5294. Our key custom Moving Averages are 5290, 5310 and 5370.
March MGEX spring wheat futures close is 5110 vs. last Friday's 5120. Our key custom Moving Averages are 5160, 5160 and 5190.
Trade Position: We remain long MGEX, KCBT and CBOT July wheat futures. Tight world stocks, shrinking Australia crop and no new supplies until India begins to harvest next March are all bullish to wheat futures. Technicals are bearish as all three Dec old crop contracts remain in a downward trending channel. New crop July wheat futures are expected to sensitive to winter kill stories throughout the world in the coming months, unlike the old crop Dec wheat futures which are reacting accordingly to poor export sales performance.
— Joe Victor
Allendale Lean Hogs: Packers are seen running a good kill this week. Margins have improved over the last week as cash hog prices fell and wholesale pork prices were almost unchanged. Cash hogs traded steady today with some locations noting steady to higher trade. Also supportive, today's pork cutout closed up 99¢. The average guess for tomorrow afternoon's monthly Cold Storage report is to see 16.4 million lbs of pork bellies in storage. This number is right next to our 16.056 million lb estimate. The range of guesses is from 14 to 19 million lbs. For other categories, ham stocks are seen from 105 to 110 million lbs and total pork stocks from 474 to 484 million lbs. This week's CME price action for lean hogs could be steady to a little higher. Overall, the December contract appears fairly priced.
Allendale Live Cattle: The CME traded the Cattle on Feed report about as expected. Bear spreading (selling December and buying differed) was seen.
Near term, we still have some concerns about this market. Wholesale beef prices are still on shaky ground and there are signs feedlots are holding onto cattle a little longer than they should. Also, the latest data on feedlot animal weights is discouraging. Average steer weights are 5 lbs higher than last year at this time and heifer carcass weights are 11 lbs larger. One positive factor for fat cattle prices is the fact placements will be lighter than usual for a couple more months. That could keep the pressure limited to the first quarter 2007 with lighter slaughters hitting the second quarter. With the holiday-shortened week, it is likely both feeders and packers will want to get this week's cash cattle trading over quickly at prices near last week. Cash cattle offers to sell at $89 to $90 while no bids have been posted.
— Rich Nelson
Rich Nelson and Joe Victor
Allendale Research
(800) 551-4626
research@allendale-inc.com
www.allendale-inc.com
Happy Thanksgiving from all of us at Allendale Inc.!
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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.
