Technicals: 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: May and July corn did breech the #1 & #2 Moving Average early last week, following the technical weakness for CBOT and KCBT wheat. Those #1 & 2 MA for corn are now considered resistance. If neutral consider selling a technical correction to those resistance points. Make note the MGEX July wheat did test, and then broke the pivot point on Monday. By breaking the pivot point, it would suggest trader momentum may have shifted to more of a long term bearish outlook. Allendale suggest confirming this change in momentum be have a second consecutive day of a lower close.
Crop Progress: the National Ag Statistics Service released its second of 2008 crop progress and conditions report after the close. The trade was anticipating 2-3% of the corn crop planted, vs. a five year average of 7%. NASS estimates corn planting at 2% vs. 4% last year. The most recent year when only 2% of the corn crop was planted for this week of the calendar year was 1993, the year of the great Midwest Flood.
Spring wheat planting progress is said to be 8% complete vs. 5% the previous week and vs. a five year average of 12%. The winter wheat crop condition report was released for the second time in 2008. The 18 states which made up the majority of 2007 production came in at 47% good to excellent vs. 45% the previous week. One year ago, conditions were closer to 55% good to excellent with a five year average closer to 53%. The trade was anticipating today's report to come in a range of 45% to 47% good to excellent.
Individual states we have been reporting on for several weeks are as follows, Texas good to excellent conditions at 22% vs. 21% a week earlier, Oklahoma good to excellent conditions at 56% vs. 51% a week earlier and Kansas good to excellent conditions at 45% vs. 44% a week earlier.
Corn Fundamentals: be aware, next Tuesday, the 22nd of April, the CFTC will conduct open hearings with regards to the concern of divergence between cash and futures. This date could cause a minor cooling period by the funds as we approach the date. Bullish to corn is the new Israel tender for 64 K tonnes of corn, the overnight purchase of 116 K tonnes of old crop corn by an unknown destination and 50 K tonnes of old crop and 50 K tonnes of new crop corn, all from the US. Weather delays remain a concern for corn planting progress. A small open window is provided Monday through Wed-Thursday before 70% coverage of .20 to .80 inch rains cover the Midwest. Allendale suggest the present window is less than ideal in scope. Monday's 6 to 10 day forecast calls for above normal precipitation for the north central Midwest (April 20-24th) and a two week forecast calling for above normal precipitation for a much greater region of the Midwest (April 22-28th) If these forecast hold true, they could be viewed as bullish to new crop corn futures.
Old Crop Marketing: 5480 cash corn requires 4.2 cents per bushel per month to store on farm. The present spread between May and July futures is offering 6.6 cents per bushel per month. Make certain unhedged corn meets the criteria. Allendale has its old crop corn hedged in the May futures.
Cash Peak: Dating back to 2000, odds favor a national cash corn peak for the months of April and May. Given the present timing consideration as First Notice Day is April 30th, and futures are holding well despite seasonal pressure, Allendale will sell half of its 2007 inventory hedged in the May futures, rather than roll to the July. We have chosen not to re own inventory via futures and or options at present.
Trade Posture: Long term Allendale remains bullish to old and new crop corn. Export demand remains strong but weakness is noted for corn use for ethanol given the high cash price. Seasonally we should be experiencing export competition from Brazil and Argentina but strike negotiations have slowed the #2 export competitor Argentina. Last weeks mass media reports of "food shortages in the world" are now perceived as "world food starvation" because of this world stocks of grain and high prices.
Soybean Fundamentals: A weekend frost/freeze in the double crop soybean region of southeast Argentina and reports of weekend purchases of US soybeans and soybean oil by China catapulted futures higher despite corn planting delays which could ultimately transition into additional soybean acres. Make note, the US Gulf CIF did not respond as it should if in fact China bought US soybeans as it weakened on Monday by seven cents per bushel. For those monitoring the new crop soybean/corn ratio, Nov soybean futures are now 2.09 to 1 vs. a ratio which was positive to switch soybean acres over to corn. The present ratio has cooled a good deal of such discussion. Interesting to note, over the weekend, China has announced it will not permit any new soybean crushing facilities for "a very long time". According to China government sources present capacity is greater than present demand. Could this suggest a capping of soybean imports for 2008 and lean more towards vegetable oil and soybean meal imports to respond to unexpected jump in livestock numbers? What do you think?
Negotiations: as of late Monday afternoon there is no word regarding day two of the Argentine government/farm groups negotiations. The latest discussion on last Friday between the two suggested, the farm groups were optimistic.
Frost/Freeze: Argentine agronomist suggest they will need a minimum of 1 to 3 days to attempt to assess damage to the double crop soybeans in the country's southeast region. At risk is soybean and soybean oil quality.
Cash Peak: Dating back to 2000, odds favor a national cash soybean peak for the months of August, December and April. Allendale resumed cash sales on the 2007 inventory on Friday, 04/04/08. Instructions within our "Hedge Advice" page suggested market on open Thursday morning to move the remaining 2007 inventory to the cash market. Our decision is based on timing as well as developing technicals as well as uncertainty of the Argentina strike. For those continuing to hold old crop soybeans, we advise to move the cash soybeans to the market as futures price zero in on technical and calendar resistance.
Trade Posture: technically old crop soybean oil is bullish, soybeans and soybean meal is neutral bullish. Fundamentals are expected to weigh on soybeans in the form of aggressive acres to be planted and a cure to domestic stocks under average weather conditions.
Wheat Fundamentals: Argentina has announced it will further delay re opening its wheat export registry to May 5th. Winter wheat conditions within the US are less than average but globally doing well. China announced, even with its worst drought in decades for its wheat region, all wheat production is expected to be 2.5% greater than year earlier levels because of expanded acreage. Quit possibly, the US may manage its quality issues via a distinctive two tier cash marketing scheme for milling quality vs. feed wheat quality.
Five Days Out: quantitative weather maps forecast generous amounts of rain for western Kansas.
A much more difficult situation in the southern Midwest as young wheat is suffering from the lack of fertilizer application because of muddy conditions.
Trade Posture: even though present US winter wheat crop conditions are less than average, globally the crop is healing in the right direction, with large volume. Technicals are bearish for July wheat futures. At this juncture Allendale is willing to sell corrective rallies.
By Joe Victor
research@allendale-inc.com
www.allendale-inc.com
(800) 551-4626
Allendale E Snapshot: Allendale's e Snapshot. Those wishing to receive this FREE e newsletter, visit the following site. www.allendale-inc.com/rc_free/esnapshot
Lean Hogs: Wholesale pork prices picked up $2.68 today. Though the $9.10 jump in butts was surprising, and a little suspicious, the point is clear. Wholesale pork prices, and cash hogs, will continue to appreciate into summer. Bullish news was received in the form of news on Canadian hog imports last week and new pork export data for the month of February. We all know cash pork and cash hog prices will continue to appreciate. The only question is whether futures are pricing in too little, just enough, or too much of a price rally in cash hogs. We are still suggesting CME futures may be overpriced on the May and June contracts, near value on the July and August contracts, and likely overpriced again on the October and December contracts.
Canadian Hog Imports: In September COOL (Country of Origin Labeling) regulations will take effect. U.S. hog finishers (who feed out weaner or feeder pigs to market weight) are breaking established contracts for Canadian pigs. From their perspective, there are more questions than answers about how U.S. packers will handle the Canadian born pigs. There have been rumors for two to three weeks that Canadian farrowers were gassing pigs due to the COOL issue as well as the general low prices. On Friday it was estimated up to 25,000 pigs per week were being euthanized. That sounds pretty bullish. Keep in mind though during March we averaged 27,000 head more weaner and feeder pigs each week than the same period in 2007. Essentially it will help us bring the supplies down to 2007 levels. After summer we are looking for numbers to transition to below 2007 levels.
Pork Exports: New data shows February pork exports were up 57% over last year's February. That jump comes on the heels of 13% and 27% increases in the previous two months. China was our third largest buyer last year and for the month of February has now taken the number one spot. Keep in mind this year we will not get any confirmations of big one time pork sales. We are selling pork to China every day and this is evidence of it. We expect these strong exports to last through the Olympics in August. Currently exports are taking around half the increase in pork supplies.
April Expiration Today: On Friday we indicated April may need to knock off around 10 to 15 cents today to get to where cash hogs should be. They fell 17 cents which made it $58.77. We point this out as that is $6 lower than last year. That discount will remain, though getting smaller, into summer. It will not be until mid to late summer when exports to China peak, that 2008 prices could equal 2007 levels.
Live Cattle: Gains of over $2 were seen today in wholesale beef. Buyers are reacting to the warmer weather and ideas of improving outdoor grilling demand. Also of interest, ideas are that show list counts may be smaller than last week. This should leave us with cash cattle guesses of $1 to $2 higher at the end of this week. In the big picture we still cannot say this is anything but a blip higher in a bear market though. Though demand is improving due to the warmer weather it is not as exciting as normal. Demand is being constrained by economic fears. That is being shown by the
Feedlot Placements: We will get a piece of long term news coming on Friday in the form of monthly Cattle on Feed. This will be an important one as it should start a series of lower Placements. In five of the last six months (September through February) Placements were higher. Normally 2 to 4 million head of cattle are kept on small grain pastures (mainly wheat) over winter. With the high value of wheat, and poor winter wheat conditions in November, wheat pasture owners stopped that over-wintering program. Those numbers went straight to the feedlot. During March those numbers dried up. Also, feedlots finally got tired of $150 per head losses and slowed their buying of new feeders. Our sale barn totals suggest March Placements were 3.9% smaller than last year. The average guess will likely be around 7% smaller. We are not worried about being off on this report. The key point to remember is this should be the start of four months or so straight of smaller Placements. Slaughter levels will continue to increase in the next three months as we work through those extra winter Placements. However those four months of lower Placements, starting now, should insure lower slaughter levels in the second half of this year. Cattle placed in March finish out from August through October.
Cattle Price Direction: Cash cattle made a short term bottom two weeks ago at $86. It posted a $1 gain last week and will add another $1 to $2 gain this week. Overall with slaughter levels increasing in the coming weeks we view this is a short term bounce. CME futures are suggesting cash cattle will be $88 at the end of April and $91 at the end of June. We will not argue with the April futures price but feel the June futures are $5 overpriced. Feedlots are encouraged to work on summer hedges but nothing for the post-August time period. That leaves us suggesting bear spreads (selling June and buying December) for speculators.
Rich Nelsonresearch@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. c2008
