Allendale Wrap-Up for Business Day 8/27/07
Corn Fundamentals: Still very much attached to wheat as both starch grains world stocks are at extremely tight levels with record low levels of end stocks to use, dating back 27 years. Trade is beginning to place a little more emphasis on early harvest reports and still keeping an eye on projected demand.
NASS Corn Conditions: Trade was preparing for NASS good to excellent crop conditions to come in unchanged vs. last week’s 58% and last year’s 57% and five-year average of 57%. Monday afternoon NASS reported the most recent crop conditions at 59% good to excellent. This week’s 1% improvement cuts against the most recent 5-year average, which typically has corn conditions not only dropping this week but for the next two weeks.
Harvest Reports: Carlyle IL just cut 100 acres - ran 150+. This was his worst field. The farm will average much better the 140 acres expected. Columbia IL customer harvested 150 acres and found 160 bu. average on his worst ground. He is finding better than 180 bu. on the field he is in now. He is very surprised by these yields and was figuring about 120 - 130 bu. average. Another customer in Columbia harvested his sand ground that usually gets 100 bu. or less. He was shocked when he averaged 135.
Export Inspections: one week remains for the 2006-07 marketing year. The amount of corn needed to be inspected within next Monday's report is 95.26 million bushels. With past few weeks within the 35 mil bu. area, it looks as though USDA may have to carry in 60 million bushels from the 2006-07 marketing year to the 2007-08 marketing year.
Price Projection: similar to wheat, seasonals are running about 30 to 45 days advanced when looking at our Dec corn futures price projections. Our seasonal bottom objective has been met and projections now suggest a recovery to the 3800 level before Dec futures expire.
New Crop Marketing: Based on our most recent price projections, Dec corn futures corrected and estimated bottom near the 3200-3300 level. With the recent low of 3244 made on 7/23/07 Dec corn has met our downside objective. Before Dec corn expiration futures are expected to work back towards 3800 level, 8/23/07 high of 3720 may have met the target. In order to switch trader attitude from neutral to bullish, Dec futures must clear 3750 at least twice consecutively on a closing basis. End users and producers, use the preceding information for your individual marketing needs.
Old Crop Marketing: The Sept-Dec corn spread closed at 17.4¢ carry. With the Midwest cash price of $3.24 per bushel, the cost to carry inventory is 3.4¢ per bu. per month or 10.2¢ for the time frame. The futures market is paying you to store but the biggest problem could be to find adequate storage for the 2007 crop. The longer you hold the odds could increase for subjecting inventory to weakening basis for old crop.
Allendale Yield: From the Aug. to Sept. USDA crop report, USDA has lowered yield as many times as they have increased yield over the most recent ten years. When USDA does increase yield it has been by an average of 2 bushels per acre (BPA) and when lowered it is by an average of 0.9 BPA. Over the most recent ten years the single largest increase was by 4 BPA in 2005. If USDA were to increase yield by the 2 BPA in the Sept crop report, it could increase corn production to 13.223 billion bu. vs. USDA's present level of 13.054 billion bu.
Trade Position: we have written new orders to sell Dec and March futures based solely on technicals. We remain bullish fundamentals.
Soybean Fundamentals: Not nearly the amount or frequency of rain this week vs. last week. Demand remains firm for soybeans, questionable soybean meal and soybean oil. As a percent of the total commitment met of USDA's target for the marketing year, sales are 1% better than last year for soybeans, 11% below for soybean meal and 12% below for soybean oil. Projected soybean oil end stocks to use at 10.4% vs. 15.1% the previous year and 15.7% in 2005/06.
NASS Soybean Conditions: Trade was preparing for NASS good to excellent crop conditions to come in 1-2% lower than last weeks 54%. Monday afternoon NASS reported the most recent crop conditions at 55% good to excellent or 1% better. This weeks 1% improvement cuts against the most recent 5 year average which typically has conditions not only dropping this week but for the next three weeks.
Labor Day Study: the parameters are what happens to futures if traded at the close of business the Friday before Labor Day, held though the three day weekend and then exited at the close of business on the Tuesday after Labor Day. The time period pulls in historical data from the most recent ten years. For Nov soybeans, 80% of the time futures close an average of 8¢ higher. The maximum gain has been 22¢ with the minimum gain of 3¢. Twenty percent of the time futures close lower with a max loss of 28¢ and minimum loss has been 2¢.
End Stocks to Use: domestic end stocks to use for old crop are 18.8%, for new crop 7.4%. Dating back to 1980 the USA has never experienced such a monumental drop. World end stocks to use 16.7% projected for new crop vs. 21.9%; once again dating back to 1980 the world has never experienced such a big correction. 16.7% compare to 2002's 16.2% and are double the all time low of 8.4% of 1996 which had a season average farm price of $7.35 vs. $7.75 projected for 2007-08.
Price Projections: by the looks of our Nov futures Price Projections, soybeans appear to be destined for downward movement. Our raw target suggest a low of $7.00 before expiring at $7.75.
Allendale Yield Research: Over the last ten years, odds suggest 40% of the time, USDA increases soybean yield from the Aug to Sept by an average of 1.2 bu. per acre with the single largest increase of 2.2 bu. per acre in 2006. Add 1.2 bpa to the present Allendale yield estimate and production is raised to 2.728 billion bu. and end stocks raised by nearly 70 million bu. to a level of 329 million bu.
Old Crop Soybeans: The Sept-Nov soybean spread is offering 16 cents carry for two months to store. Not indicative of short supplies. With a cash average of $7.82, the cost to carry the crop for the time period needs to be 12 cents. If you still hold old crop inventory your most significant dilemma may be needed storage space on farm to hold the 2007 harvest. We strongly advised moving old crop as soon as possible.
2008 Soybeans: Allendale officially hedged it first portion of 2008 anticipated production on July 5th and has written orders to add as outlined in our Hedge Advice page. Allendale had resting orders to hedge 10% more new crop 2007 at 9200 filled Thursday, July 12.
Trade Position: we have written new orders to sell new crop soybeans on a breakdown in technical support.
Wheat Fundamentals: after the close on Monday, the CBOT notified the trade it is raising the margins on wheat and min wheat futures. The amount is not expected to move funds or commercials from present positions. The first time in three consecutive Mondays Egypt was not a major buyer of world wheat supplies. The bull needs to be kept fed daily and we see the present trade activity as a breather for the futures market. World stocks are not likely going to be repaired overnight. Bullish to wheat futures is tight world stocks and present strong demand. Bearish to wheat is time and price. We draw another day closer to the Australia wheat harvest. Critical to wheat's strength is its ability to hold trend line support established 6/19/07.
Wheat Inspections: weekly wheat inspections of nearly 35 million bushels is 15 mil bu. more than needed on a per week basis in order to reach USDA annual export target of 1.075 billion bushels.
Price Projections: those with access within our website, Dec wheat price projections show how recent values have exceeded our maximum target of 7000. You can see how the seasonal tendency change in momentum are running about 30-40 days advanced. Given the present state of affairs with regards to the stock and financial market instability, we may look to the seasonals and be prepared for a price break without much if any notice.
Allendale Supply-Demand: Allendale's research suggest USDA is 9 million bu. too high in its end stocks as we estimate 395 mil bu. and a season average farm price of $5.10/bu. Dating back to 1996 444 million bu. was the smallest end stocks with the largest at 950 mil bu. in 1999. Only in 1995 have end stocks of 377 million bu. been smaller dating back to 1980.
World Stocks to Use: present world stocks of 115 MMT may be the second tightest on record with only 1980 and 1981 tighter at 113 MMT, but present end stocks to use have never been tighter than the present 15.7%. The record before this year was last years 17.2%. Only three times dating back to 1980 have world end stocks to use been below 20%. They are this year, last year and 2003. That's three times in the last four years.
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 important in this day and age.
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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. c2007
