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.
Conclusion: July corn rest precariously above key short-term Moving Averages # 1 and #2. A breech of these MA’s suggesting a potential move to 5980.
Corn planting: pre release trade estimates for Mondays planting progress was in a range of 45-50% vs. 27% last Monday, 71% last year and a five-year average of 77%. NASS actual results suggest 51% of the corn crop has been planted as of Sunday, May 11.
The most recent year when planting were near present plantings was 1996's 51%. Today's actual corn planting estimate exceeded the range of pre lease estimates. Be aware there is a perception within the trade which assumes, if the corn crop is at least 50% planted before May 15th, yields may no likely be impacted. Allendale's research suggest each and every year, since 1990, when planting are below average by May 11th, trend yield has never been reached. Usually for this next week of the calendar to next Sunday plantings gain 11% based on a five-year average and 13% vs. the ten-year average. This may suggest plantings by May 18th to reach 62 to 64% vs. a five-year average of 88%. In 1996 the percent gain for the week was 9%. Dating back to 1980 the biggest jump in planting for this week of the year was 25% in 1993 and smallest gain of 7% in 2004. If 2008 could match the performance of 1993, then the percent planting progress by next week could reach 76% vs. the five-year average of 88%.
The six to ten day and two week NWS forecast below normal to normal precipitation west to east and below average temps. Allendale views the forecast and neutral to bearish new crop corn futures.
Soybean Plantings: pre release trade estimates for Mondays planting progress was in a range of 14-18% vs. 5% last Monday, 26% last year and a five-year average of 29%. NASS actual results suggest 11% of the crop has been planted as of Sunday, May 11th.
Spring wheat planting progress is said to be 81% complete vs. 58% the previous week and vs. a five-year average of 78%. Number 1 spring wheat producing state, North Dakota planting progress 81% vs. 71% five-year average and #2 producing state MN 67% planted vs. 84% five-year average.
The winter wheat crop condition report was released for the sixth time in 2008. The 18 states which made up the majority of 2007 production came in at 47% good to excellent vs. 47% the previous week. One year ago, conditions were 58% good to excellent. The trade was anticipating today's report to come in unchanged at 47% good to excellent. The five-year average suggest for the next three weekly reports, conditions decline nearly a total of 2%, suggesting a target in three weeks of 45% good to excellent, 11% below year earlier levels of 52% good to excellent and equal to the five-year average of 45%.
Corn USDA: In its first official projection of ending stocks for 2008/09, USDA's 763 million bushels is the second lowest for its initial outlook dating back to 2000. Its lowest initial projection came from May of 2004 at 741 million bushels. In the following USDA January annual report, USDA estimated the end stocks at 1.96 billion bushels or 1.219 billion bushels more. Since 2000 the January annual report has finished higher than the initial May projection in 2 of 8 years.
Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 1.383 billion bushels vs. April's 1.238 billion bushels vs. 2006's 1.304 billion and 1st projection for 2008/09 of 763 million bu. 2007/08 Stocks to use of 10.6% vs. 9.8% last month vs. last years 11.6% and 2005's 17.5%. USDA's 1st 2008/09 estimate for end stocks to use is 6% with 1995 the lowest at 5%.
World Stocks and Stocks to Use: 2007/08 world stocks of 110 million tonnes vs. last month’s 103 million tonnes vs. last years 108 million tonnes. USDA 1st official projection at 99 million tonnes for 2008/09 is the second lowest dating back to 1980 with 1983 at 89 million tonnes. 2007/08 End stocks to use at 12.5% vs. 11.8% last month vs. USDA's 2008/09 projection of 11.2% a record low dating back to 1980.
Season Average Farm Price: USDA's 2007/08 April estimate of $4.30 per bushel was adjusted to $4.40 for the May WASDE. USDA estimates the 2008/09 SAFP at $5.50/bushel. The SAFP for 2006/07 at $3.04/bu.
New Crop Marketing: The total amount hedged as a percent of anticipated 2008 production is 25%. 6020 vs. the Dec 2008 is key support, 5920 a trader momentum shift point. The immediate technical trend is neutral-bullish. Immediate resistance is the 5/08 life of contract high of 6492. We will monitor and alert when to resume hedges.
Trade Posture: Longer term, Allendale remains bullish to old and new crop corn. Delayed plantings and projections of a 22 day supply of corn for 2008/09 continue to support futures. Allendale prefers to trade corn from the long side using futures and or options. The immediate call for dryer weather is likely to pressure old and new crop futures on a short-term basis.
Soybean USDA: In its first official projection of ending stocks for 2008/09, USDA's 185 million bushels is the lowest for its initial outlook dating back to 2000. Its second lowest initial projection came from May of 2004 at 190 million bushels. In the following USDA January annual report, USDA estimated the end stocks at 435 million bushels or 245 million bushels more. Since 2000 the January annual report has finished higher than the initial May projection in 2 of 8 years.
Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 145 million bushels vs 160 million bushels last month vs. 574 million last year. 2008/09 end stocks are estimated at 185 million bushels. The 145 million bushels are the least amount since 112 million in 2003. 2007/08 Stocks to use of 4.8% the tightest dating back to 2003's 4.4% (still the record low dating back to 1980). 2008/09 end stocks to use are projected at 6%, still very tight.
World Stocks and Stocks to Use: 2007/08 world stocks of 49 million tonnes vs. last months 49 million tonnes vs. last years 63 million tonnes (down 23%). 49 million tonnes compare to a five-year average of 48.2 million tonnes. End stocks to use at 15.9% vs. 15.9% last month. The five-year average has been 17.96%. Last-year, end stocks to use for world soybeans was 21.3%, representing a downward correction of 5.4%. Dating back to 1980 the 5.4% downward correction year on year is a record.
Season Average Farm Price: USDA's April estimate of $10.25 per bushel to USDA's May estimate of $10.00 SAFP. USDA's projected 2008/09 SAFP is projected at $11.25 per bushel.
New Crop Marketing: We will hold hedges of new crop at 40% of anticipated 2008 production and alert when to resume. A move to 13150 may warrant additional hedging. Technical chart based support is 11770. The intermediate trend is mixed.
Trade Posture: The trade remains focused on the Argentina strike and Midwest weather forecast and added to the list, tighter than expected new crop soybean stocks, even with prospective 2008 planted acres up 11.2 million. Old crop Stocks of USA soybeans remain tight and are expected to tighten further as long as the Argentina strike runs. New trade recommendations are found within our Grain Trading Strategy page.
Wheat Fundamentals: USDA's production and end stocks data is bearish to futures. Algeria and India both announce they will not need to import wheat in 2008. Iraq has launched an optional origin tender for 50 K tonnes of hard wheat. Australia's east region is in need of rain to continue its recent positive planting pace. Pakistan estimates it needs to import 2.5 million tonnes of wheat vs. an earlier estimate of 1.5 million tonnes vs. last year’s 1.7 million tonnes and USDA's estimate of 2 MMT. Argentina is planting its early wheat and between dry weather in the north and effects of the present strike suggests all wheat plantings in 2008 to be 5-10 percent less than year earlier levels.
Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 239 million bushels vs. 242 million bushels last month vs. 456 million last year. At 239 million bushels, 2007/08 ending stocks are the lowest since 1946/47. 2008/09 end stocks are projected at 483 mil bushels for a 102% increase. 2007/08 Stocks to use of 10.1% vs. 10.2% vs. the April WASDE vs. year earlier levels of 22.3%. 2008/09 end stocks to use projections are 21.5%, up 11.5% year on year. You would have to venture back to 1995 to 1996 to find a bigger year on year increase of 12.1%
World Stocks and Stocks to Use: 2007/08 world stocks of 110 million tonnes vs. last month’s 112.5 million tonnes vs last years 125 million tonnes. 110 million tonnes are the tightest on record dating back to 1980 and compare to a five-year average of 144.4 million tonnes. 2008/09 world end stocks are projected at 124 million tonnes, up 14 MMT yr on yr. This compares to the 1995/96 year on year increase of 8 MMT. 2007/08 end stocks to use at 15.1% vs. 15.5% last month are record low dating back to 1980. The five-year average has been 20.04%. 2008/09 world end stocks to use projection is 16.3% for a 1.2% increase vs a .1% increase for 1995 into 1996.
Season Average Farm Price: USDA's 2007/08 May SAFP estimated at $6.55 per bushel vs. its April estimate of $6.65 per bushel. The SAFP for 2008/09 at $7.35 per bushel.
New Crop Marketing: Resistance is 8460, major support at 7860 vs. July CBOT soft red winter wheat. We see no reason to hedge new crop above the 65% level we have on for now. Allendale will alert you as to when to hedge or sell new crop to the cash markets.
Trade Posture: even though present US winter wheat crop conditions are less than average, globally the crop is doing well and headed towards larger production than year ago levels. World wheat stocks are expected to increase 14 million tonnes however even though world end stocks to use are expected to increase year on year, it remains well below the five-year average. Within the past eight trade days, the 200 day Moving Average has been able to hold. At this juncture Allendale is willing to buy wheat but on a stop to crack overhead resistance. New orders are found within our Grain Trading Strategies page. Allendale was able to enter long July MGEX wheat on Monday and raised its risk to protect gains already earned. Given the potential build in world and US wheat stocks, Allendale suggest a more traditional milling vs. feed wheat cash market when the 2008 harvest begins.
Lean Hogs: Wholesale pork closed up 69 cents today which implies demand is still here.
Pork Exports: remain strong. For March, newly released data shows pork exports 37% over last year's March. This should not be much of a surprise as it fits into the previous two months which were up 27% and up 57% respectively. We will say the countries that got us to that 37% mark were surprising. China was our number one buyer in February at 102 million lbs which was a 519% increase over last year. In March however they fell to 55 million lbs which was only 197% higher than March of last year. This was surprising. We would assume pork exports to China would remain astronomical through August then fall off. A jump in purchases from Japan, our traditional number one buyer, made up the shortfall from China.
Pork Imports: Where the export news was not much of a surprise the numbers on the import side are improving. Between January and March the change from last year was 0%, -7% and -19%. It is not hard to suggest a reason for this. We have big supplies and a low US dollar which hinder imports.
Short-term Pricing: We just covered the good export picture. We also have to note US consumers are switching to pork due to the economy. This makes domestic demand very strong right now. Exports + US Consumers is why we have hog prices equal to last year even though we are putting out 8% more pork. This situation is very rare. Overall our real concern here is not with the summer futures but with the October and December. What happens when China finishes up its domestic shortfall in the summer and the Olympics in August? The situation does not look as rosy for the fourth quarter. We have a $65 price objective for December futures. For now, bulls have retaken control. We are being conservative with speculative trading and recommended short $80 July calls for over $1.50.
Live Cattle: This market has big hopes on two things. 1) Memorial Day beef buying; and 2) exports to South Korea. On the Memorial Day deal orders have been booked and packers are in the last phase of filling them. After this week we will be in the wait and see time frame. This time last year we were trading cash cattle mostly sideways through this week. Then it fell hard into late June starting next week.
Beef Exports: are consistent with recent months. In January beef exports were up 35%, in February they were 30% higher, and in March they were up 36%. We do expect a small bump with South Korea starting soon.
Beef Imports: were down 20% in January, down 14% in February, and down 16% in March. We would say there is little change to note here from the recent trend. Overall we will are still net beef importers based on volume. We will continue to make small gains on that picture.
Short-term Pricing: On the South Korean deal exports will start at the end of this week. Keep in mind we had the exact same thing happen last year. We got the first deal with South Korea to start in the summer of 2007. It only lasted a few months before the shipment containing vertebral column put an end to that. Keep in mind last year we restarted South Korean exports. The market stayed up until they started then prices fell on the "buy the rumor sell the fact" mentality. We remain bearish here. However, for the short term we cannot call a top in this market yet. We do not have the chart signal or volume signal suggesting the big down move to $88 June is ready to start. It should happen but we do not have evidence of it just yet. How has our favored December/June spread we recommended two weeks ago worked? It posted a near-term bottom on April 25 at $10.55. We recommended it the next few days at around $11 or so. It is currently at $12.97. We still feel our $15 objective is very reasonable
Joe Victor and Rich Nelson
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. Allendale Inc. c2008
