Corn Fundamentals: continued strong export sales and inspections are bullish to corn futures. Bullish to Dec corn futures are the prospects of fewer planted acres in 2008 sending end stocks from 1.4 billion into a range of 600 to 700 million. Slightly bearish to Dec corn futures is the declining Nov bean to Dec corn ratio to a level of 2.24 to 1. Recently the ratio was clearly in favor of planting soybeans over corn at a ratio of 2.5 to 1. The interest is gaining on new corn acres, decreasing on soybeans.
March 11: USDA is scheduled to release its March World Ag Supply and Demand estimates on Tuesday, March 11 at 7:30 am central time. Allendale estimates 2007/08 end stocks of 1.422 billion bushels vs. last months estimate of 1.438 billion bushels vs. 2006/07 end stocks of 1.304 billion bushels. Allendale's reduction is based on month of Feb stronger than usual export sales. Range of estimates for the report are 1.388 billion bushels to 1.488 billion bushels.
Odds: The most recent ten year history suggest 80% of the time, USDA increase US corn end stocks by an average of 87 million bushels in those years when there is an increase. The low end increase has been 5 million bushels with a high end increase of 260 million bushels. In the two years when USDA decreased end stocks it was by an average of 48 mil bushels with a low end range of 45 million bushels and a high end of 50 million bushels. The overall 10 year average adjustment has been for a 60 million bushel increase. What would be fundamentally bearish to old crop futures could be if USDA were to flash end stocks above 1.5 billion. Fundamentally bullish to futures could be if USDA were to flash end stocks below 1.3 billion bushels.
Technically: July corn has immediate technical support at 5370 and resistance at 5900, trend is up. Dec corn futures has technical support at 5372 and resistance of 5850, trend is up.
Trade Posture: Long term Allendale remains bullish to old and new crop given our outlook for reduced corn plantings in the spring of 2008. Allendale bought July corn futures on strong performing fundamental demand and support technicals. Surprisingly the new crop wheat is lending a sense of support for July corn.
Soybean Fundamentals: bearish to futures is China releasing vegetable oil stocks to temper food inflation. Also bearish to old crop futures is additional crop production estimates from Brazil suggesting record production of 60 to 62 million tonnes, its declining currency and a cash divergence between Brazil and US soybeans of $20 per tonne. Bullish to soybean futures is tightening old crop stocks because of positive crusher margins and active exports of soybeans and soybean oil.
Technically: July soybeans have immediate technical support at 13400 and resistance at 14750, the technical trend is down. November futures has technical support at 12500 and resistance of 13850, the technical trend is down.
Technically: July soybean oil has immediate technical support at 6160 and resistance at 6533, the technical trend is down.
Technically: July soybean meal has immediate technical support at 3350 and resistance at 3680, the technical trend is down.
March 11: USDA is scheduled to release its March World Ag Supply and Demand estimates on Tuesday, March 11 at 7:30 am central time. Allendale estimates 2007/08 end stocks of 130 million bushels vs. last months estimate of 160 million bushels vs. 2006/07 end stocks of 574 million bushels. Allendale's reduction is based on month of Feb stronger than usual export sales for soybeans as well as soybean meal and soybean oil. Range of estimates for the report is 130 mil bushels to 160 mil bushels.
Odds: The most recent ten year history suggest 70% of the time, USDA decrease US end stocks by an average of 24 million bushels in those years when there is a decrease. The low end increase has been 10 million bushels with a high end decrease of 40 million bushels. In the one year when USDA increased end stocks, it was by 20 mil bushels. The overall 10 year average adjustment has been for a 15 million bushel decrease. What would be fundamentally bearish to old crop futures could be if USDA were to flash end stocks above 160 million. Fundamentally bullish to futures could be if USDA were to flash end stocks below 125 million bushels.
Trade Posture: Allendale is bullish to soybean, soybean meal and soybean oil futures based on firm domestic and world fundamentals. Allendale will stand aside from trading July soybeans, meal and oil until after the USDA WASDE report on Tuesday. Allendale is technically bearish to futures.
Wheat Fundamentals: It is becoming much more apparent old crop futures are loosing trade interest as end users are focusing on less expensive new crop. Bearish to wheat is a global increase in planted acres and projected increase in 2008/09 end stocks. Bullish to wheat futures is dryness in south west Canada and northern China and early US weekly wheat conditions.
Texas Winter Wheat Conditions: according to the Texas Statistics Service, its weekly wheat condition report released Monday estimates the good to excellent conditions at 14% vs. 10% a week earlier and compares to one year ago levels of 45% good to excellent.
Technically: July CBOT SRWW has immediate technical support at 10400, trendline support of 10050 and resistance at 10450, the immediate trend is up. July KCBT HRWW futures has technical support at 10950 and resistance of 12020, the immediate technical trend is up. July MGEX Spring Wheat futures has technical support at 11400 and resistance of 12850, the immediate technical trend is down.
March 11: USDA is scheduled to release its March World Ag Supply and Demand estimates on Tuesday, March 11 at 7:30 am central time. Allendale estimates 2007/08 end stocks of 242 million bushels vs. last months estimate of 272 million bushels vs. 2006/07 end stocks of 456 million bushels. Allendale's reduction is based on month of Feb stronger than usual export sales for wheat as traditional suppliers of Russia, Argentina and Kazakhstan continue to place economic restrictions of its exports to help try to control domestic food inflation.
Odds: The most recent ten year history suggests USDA is nearly equally divided for an increase vs. decrease vs. unchanged. Over the most recent ten years, USDA has increased US end stocks 3 years, decreased 3 years and left unchanged 4 years. 30% of the time, USDA decrease US end stocks by an average of 12 million bushels. The low end decrease has been 5 million bushels with a high end decrease of 25 million bushels. In the three years when USDA increased end stocks it was by an average of 20 mil bushels. The low end increase has been 10 mil bushels with high end of 30 mil bushels. The overall 10 year average adjustment has been for a 3 million bushel increase. What would be fundamentally bearish to old crop futures could be if USDA were to flash end stocks above 280 million. Fundamentally bullish to futures could be if USDA were to flash end stocks below 240 million bushels.
Trade Posture: Technically the new crop trend is up for KCBT and CBOT. Signs of economic rationing are apparent for old crop futures. There is less than 23% 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 is technically bearish to MGEX July wheat futures
Lean Hogs: With corn prices back on track, we will refocus on sow slaughter numbers. Will we finally see some solid numbers to back up the hopes? If it does show up keep in mind, it will only help the 2009 contracts at this point. In the short term, we wonder if the April and May contracts are undervalued now. The May contract has a gap at $69 which may need to be filled. We will begin looking for a buy point in the nearby's. We are not bullish any deferreds though. Hold your hedges for now.
Beef: A Matter of Demand: The table below shows a few economic measures the nightly news has discussed in the past few months. We have gone a few months back to give you a little context on how these numbers may have changed.
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Unemployment % Chg vs. Last Yr
4.8%
4.7%
4.8%
4.7%
5.0%
4.9%
4.8%
Non-Farm Payroll (Job Growth Chg in 1,000's)
+74
+81
+140
+60
+41
-22
-63
Inflation % Chg vs. Last Yr
+2.0%
+2.8%
3.5%
4.3%
4.1%
4.3%
It is no coincidence last week's break in CME futures (and cash cattle prices, came at the same time as newly released job growth (or loss in this case) information. Job related data came out last week while the inflation figures (Consumer Price Index) are next released on March 14. Though unemployment is not a problem at around 5% the change in job growth since the first of the year is an issue. On top of that, inflationary fears are here. Beef has historically been the "premium" protein and has historically seen demand fall during energy price rallies or times of economic uncertainty. Seeing the above information beef demand "should" be falling right now, right? Tomorrow we will show what actually is happening and also explain the 2007 situation. We have noted before that 2007 beef demand was not impacted by energy prices or the sub-prime crises. Near term, the trade reacted about as expected given the sharply lower cash cattle trade on Friday ($90 and $90.50). This week we are starting out with larger show lists. Bears are running the show in the near term. New lows were made today in the April and June futures. Having said all this news we have to note much of the break recently has been made on demand fears. Have we gone too far? While the nearby contracts are wallowing around look at the October and December fed cattle. We would advise starting a buy program there. We also like that fundamentals (lower placements are coming) will support those contracts. It is interesting to note the June contract did not hold that double bottom at $92 we pointed out two days ago.
Rich Nelson and Joe Victor
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.
