Allendale Inc. has announced its 2008 Annual Acreage Farmer Survey, including corn, soybean and wheat acreage intentions. The survey spans from Feb 11 through Feb 28.
According to the report, corn planting intentions of 86.438 million acres would be the second largest since 1944 when 95.475 million acres were planted. Peak planted acres of 113.024 million occurred in 1932. Using Allendale Inc. 155.28 bushel/acre trend yield, it would imply production of 12.220 billion bushels versus last year’s 13.074 billion bushel crop.
Soybean planting intentions of 74.239 million acres would represent the fourth largest. Using Allendale Inc. 42.29 bushel/acre trend yield, it would imply soybean production of 3.098 billion bushels versus last year’s 2.585 billion bushel crop.
Wheat acreage is estimated at 62.330 million acres. This is the largest since 2000, when 62.549 million acres were planted. Using Allendale Inc. 41.50 bushel/acre trend yield, it would imply wheat production of 2.259 billion bushels vs. last year’s 2.067 billion bushel production.
Observation: as new crop November soybean futures gain on new crop December corn futures, it may prove difficult for an increase in corn acres vs. those stated above. Allendale suggest much of the underlying support for soybeans is associated with the investment funds interest in both Malaysian palm oil and US soybean oil as a hedge against food inflation.
For The Month: for the month of February, May corn futures value increased 8%, May soybean futures value increased 18.8% and July CBOT SRWW value increased by 14.5%. By comparison, April crude oil futures value increased by 11%.
For The First Two Months: of 2008, the DJIA has lost 10% of its value, corn up 21%, soybeans up 26%, wheat up 21%, soybean meal up 15%, soybean oil up 40% and crude oil up 6%.
Observation: when looking at the values above, it may be easier to understand how major investments funds are willing to tout the strong return on investments in grains, oilseed and its products vs. investing in stocks. New money continues to flow into commodities as long as technical trends continue onward and upward.
In millions of acres
% Change
ALDL 08
Chg vs. 07
Vs 2007
Corn
86.438
-7.162
-7.7
Soybeans
74.239
+10.608
+16.7
Total Wheat
62.330
+1.897
+3.1
Winter Wheat
46.670
+1.683
+3.7
Durum Wheat
2.149
0.000
0
Spring Wheat
13.511
+.214
+1.6%
Technicals: Old and New crop corn and soybeans and new crop wheat. For the short term trader, Allendale uses its own unique custom Moving Averages to monitor price momentum, define key support and resistance levels as well as advise where key pivot points are located when bulls may turn bearish and bears to turn bulls. We also include last week’s closing price for the weekly chartist as we draw closer to the end of the week to anticipate the possibility for futures to have a positive weekly close or if weakness is ensuing. A detailed technical look at the grains and livestock are available within our Allendale Advanced Charts.
Observation: be aware of how close the key short term Moving Averages are for old crop corn futures. July CBOT closes below both short term Moving
Averages and now used as overhead resistance.
Soybean Fundamentals: the main driver of higher soybean prices is funds investing in soybean oil and palm oil futures.
India trade suggests its rapeseed crop to be down 15% because of poor weather. China anticipates its oilseed plantings to be up 7% in 2008 to meet rising demand. Weather for Brazil and Argentina is viewed as beneficial to crop development and harvest. With 50% of the marketing year remaining, weekly soybean inspections were three times more than needed on a per week basis in order to meet USDA final export target of 1.005 billion bushels.
Technically: July soybeans have immediate technical support at 15150 and resistance at 16000, the technical trend is up. November futures have technical support at 13960 and resistance of 14750, the technical trend is up.
Technically: July soybean meal has immediate technical support at 3790 and resistance at 4000, the technical trend is up. July soybean meal trend has been holding very firm since Jan 23, 2008.
Trade Posture: Allendale is bullish to soybean, soybean meal and soybean oil futures based on firm fundamentals and upward technical trends. As outlined within our Grain Trading Strategies page, Allendale is willing to buy soybeans, soybean oil and soybean meal on a technical correction.
Wheat Fundamentals: Russia, Kazakhstan and Argentina continue to restrict the flow of its grains to temper its food inflation. Taiwan seeks 75 K tonnes of wheat for imports. The Australian Bureau of Agricultural and Resource Economics forecast its 2008 wheat production at 25.953 million tonnes vs. last year’s drought crop of 13.1 million tonnes. ABARE estimates 2008/09 wheat exports at 15.391 million tonnes vs. 6.411 in 2007/08. Weekly wheat inspections were 3 mil bushels less than what is required on a per week basis in order to met USDA's final export target of 1.2 billion bushels. There is 23% of the present marketing year remaining.
Texas Winter Wheat Conditions: according to the Texas Statistics Service, its weekly wheat condition report released Monday estimates the good to excellent conditions at 10% vs. 10% a week earlier and compares to one year ago levels of 46% good to excellent.
Technically: July CBOT SRWW has immediate technical support at 9920 and resistance at 10550, the immediate trend is up. July KCBT HRWW futures has technical support at 10650 and resistance of 11310, the immediate technical trend is up. July MGEX Spring Wheat futures has technical support at 12820 and resistance of 13970, the immediate technical trend is up.
Trade Posture: Technically the trend is up. Signs of economic rationing are apparent for old crop.
There is less than 25% remaining for the old crop marketing year and likely a buyer’s transition shifting from old crop to new crop. Longer term, Allendale remains supportive to new crop wheat futures based on how weak 2008 winter wheat conditions went into dormancy. Allendale's research suggest odds are against for those poor conditions to show a marked turn around.
Corn Fundamentals: weekly export inspections were about 1.5 million bushels more than the minimum amount needed on a per week basis in order to reach USDA export target of 2.45 billion bushels. Argentina's futures exchange suggest harvest yields are running 36% less than year earlier levels but is willing to maintain a production target of 20.5 million tonnes vs. 22.5 million tonnes a year earlier. With the weak US dollar, exports from the world's largest exporter remain firm. Higher cash corn prices are viewed as bearish for those ethanol manufactures which are not covered. Distillers dried grain prices are largely unchanged for the most recent two weeks.
Something to Consider: If Federal Reserve Chairman Ben Bernanke suggest a way to reduce high food cost is to cut high import tariffs on Brazil ethanol imports, be prepared to witness sugar futures to rally. At this point and time, any cut to domestic use of corn for ethanol is likely to show up as additional potential for corn exports.
Technically: July corn has immediate technical support at 5610 and resistance at 5900, trend is up. Dec corn futures has technical support at 5600 and resistance of 5900, trend is up.
Trade Posture: Allendale is fundamentally neutral to old crop corn futures as the decline in corn use for ethanol is likely to show up for exports as long as the US dollar remains weak. World end stocks remain tight along with sister starches of rice and wheat is well known. For the short term are willing to buy corrective dips based on a bullish short term technical trend. Long term Allendale remains bullish to old and new crop given our outlook for reduced corn plantings in the spring of 2008.
Lean Hogs: Still higher than expected slaughter levels on top of a weakened demand is the story of the day.
Last week wholesale pork prices fell a moderate 63 cents. Today the cash pork market fell 54 cents more. There is a moderately lower trend. It is not unusual for pork to flounder a little at this time of year. Cash pork and cash hog prices typically start their higher run into summer until mid April. Our current thought is $58 for a downside target on the April. On the deferreds we continue to note they are overvalued by a good deal. There is nothing wrong with them implying higher prices than right now. Supplies tighten and demand increases in the summer. Our problem lies in the premium 2008 contracts hold to 2007 levels. Demand will have to be massive to overcome the larger pork production levels that are set through September. On the liquidation issue...if you must be bullish based on the idea massive liquidation is/will be happening, then do not consider buying any 2008 contracts. There is no reason to be buying October or December based on liquidation hopes. Any big liquidation affects pork production 10 months later. If liquidation picks up in March, it will affect production in early 2009. In the big picture, it still appears the trade will hold these unrealistic premiums to 2007 levels until each contract gets closer to its expiration.
Live Cattle: We have made the point before that both fed and feeder cattle had surprisingly not reacted to recent gains in corn prices. That changed today. Though near term beef related news is bullish (higher cash cattle and wholesale beef) the trade is turning back to corn. Big gains in corn increase the cost of feeding cattle in feedlots. Feedlots are already losing good money on each head and may start marketing cattle early (they are not yet). The other change is it could limit future placements, which reduces future production. This supports far deferred prices. On the feeder end there is a direct inverse relationship with corn. Without a top in corn, there appears no reason why feeders will not retest their January lows ($99.30 on the March and $102.70 on the April). If corn tests $6, then a $100 April feeder contract would be very realistic. On the export side, a Smithfield beef plant included some beef that was not ordered to a Japanese buyer. This backs up our idea there will be no deal for expanded beef trade for the next six months at least. Our biggest concern with CME pricing is with the June. We may have to wait for the month of May or so but feel it will be $90 or sub-$90 near its expiration. We are still not worried about downside on second half 2008 futures...
Rich Nelson and Joe Victor
research@allendale-inc.com
www.allendale-inc.com
(800) 551-4626
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. 2008.
