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: Both CBOT and KCBT wheat close below its respective key pivot point after clearing only last Friday. In spite of Monday's higher high and higher low for the two, the failure to clear the pivot point for two consecutive days leaves Allendale suspicious of an early harvest technical bottom. Be aware it is the CBOT July wheat that is just a few cents of breeching its #1 Moving Average.
Corn Emergence: The percent of corn that has emerged as of June 8 is estimated at 89% vs. a week earlier of 74%, vs. year earlier levels of 98% and a five-year average of 95%. Allendale prerelease estimate was 90% based on the performance of similar acting 2002's pace of emergence. The last time corn was near the same emergence for June 8 was 88% in 2002 and 91% in 2003.
Corn Condition: The National Agriculture Statistics Service released its second crop conditions for the 2008 corn crop. Prerelease estimates suggested good to excellent corn conditions to come in a range of 56% to 57%. NASS estimates the June 8 conditions at 60% vs. last week’s 63% and year earlier levels of 77% good to excellent and a five-year average of 70%. Most recently when good to excellent corn conditions were this low was 2002's 59%.
Conclusion: Provided NASS's results above compared to prerelease estimates, Allendale views these reports as neutral to bearish to futures.
Soybean Plantings: Prerelease trade estimates for soybeans planting progress was in a range of 86-89% vs. 69% last Monday, 92% last year and a five-year average of 89%. NASS actual results suggest 77% of the crop has been planted as of Sunday, June 8. The last time soybeans were near 77% planted was 2002's 83% complete as of June 8.
Soybean Emergence: The percent of soybeans that has emerged as of June 8 is estimated at 56% vs. week earlier levels of 32% and year earlier levels of 64% and a five-year average of 80%. The trade was anticipating emergence of 59%. The last time soybean emergence was near the same emergence for June 8 was in 2002 and 2003 at a level of 62%.
Soybean Condition: The National Agriculture Statistics Service released its first crop conditions for the 2008 soybean crop. NASS estimates the June 8 good to excellent conditions at 57% vs. year earlier levels of 70% good to excellent and a five-year average of 66%. Most recently when good to excellent soybean conditions were this low was 2002's 60% and 2001's 55% good to excellent.
Conclusion: Provided NASS's results above compared to prerelease estimates, Allendale views these reports as neutral to bullish to soybean futures. Both corn and soybean emergence and conditions continue to be eerily similar to 2002.
Make Note: From the May to June 2002 monthly WASDE, USDA did reduce harvested corn acres by 1 million and reduced corn yield by 2.1 bushels per acre. USDA did not reduce the soybean yield from the May to June report but did increase harvested acres by 500,000. Allendale anticipates USDA to at least reduce corn yield by a minimum of 2.1 bushels per acre (bpa), which may reduce 2008 production by 300 million to 400 million bushels. There is talk in the country 2008 may compare to 1993 because of the flooding. USDA did not adjust yield or acres from the May to June WASDE/Crop Production report.
Spring Wheat Conditions: USDA released for the third time in 2008 its spring wheat crop condition report. It estimates spring wheat good to excellence ratings are 63% vs. week earlier levels of 57% vs. year earlier levels of 81% good to excellent. Allendale views this spring wheat crop condition report as bearish.
Winter Wheat Crop Condition: Report was released for the tenth time in 2008.
The 18 states that made up the majority of 2007 production came in at 47% good to excellent vs. 47% the previous week, the trade was anticipating unchanged. The five-year average for winter wheat conditions for this period of time has been 46% good to excellent with year earlier levels of 52% good to excellent. According to our Special Reports section, within our internet site, the five-year average winter wheat conditions suggest once harvest is underway, conditions remain relatively unchanged. Allendale views this winter wheat crop condition report as neutral.
New Crop Odds: Tuesday, June 10 USDA will release its second 2008/09 market year outlook. Dating back to 2000, the June WASDE, odds are heavy against adjusting planted or harvested acres for corn, soybeans and wheat. Only once in 2002 did USDA adjust acres for corn and soybeans. From the month of May to June WASDE, USDA reduced planted and harvest corn acres by 1 million and increased soybean planted and harvested acres by 500,000.
With regards to yield, odds are heavy for USDA to reduce its wheat yield estimate. Since 2000, USDA has reduced its June wheat yield estimate vs. its May yield estimate. Of the most recent eight years, three have experienced a reduction of 1 bushel or more, the largest reduction of 1.4 bushel per acre in 2002 and smallest reduction of 0.2 bushel per acre in 2007. Allendale estimates the very least of any adjustment to the June 10 WASDE is for USDA to trim its yield estimate for corn. Please view our Midsession Comments page for Allendale's estimates leading into the forthcoming USDA WASDE report.
Corn Fundamentals: Private weather services suggest approximately 20% of the Midwest is under water. USDA's Secretary of Agriculture suggests the department is intently evaluating present weather conditions. The trade anticipates a yield reduction in Tuesday morning's USDA monthly crop production but not certain if USDA will lower planted acres until the June 30 Planted Acres report is released. Regardless, look for the USDA WASDE report to be traded the initial 3-5 minutes, Tuesday morning and then immediately switch to short-term weather forecast and crude oil futures trade.
New Crop Marketing: The total amount hedged as a percent of anticipated 2008 production is 25%. 6360 vs. the Dec 2008 is key support, psychological resistance is 7000. We will monitor and alert when to resume hedges.
Trade Posture: Fundamentally Allendale remains bullish to July and December corn futures based on less than desirable emergence and crop conditions. Allendale remains guarded to Conservation and Energy policy change potential. Allendale is a buyer of corn futures as outlined within our Grain Trading strategies page on pull backs as the technical trend remains up.
Soybean Fundamentals: The Argentine farm strike is at a pause as farmers remain on alert to resume the strike with road blockades if the government does not scheduled talks soon. Farm groups have removed blockades and are selling cereal grains and oilseeds for export at least for Monday, beyond Monday is in the hands of the government. Bullish to soybeans is the slow pace of planting, emergence and less than desired crop quality. Also bullish to soybeans is the anticipated drop in old crop soybean stocks because of demand shifting from Argentina to Brazil and the United States as well as increased domestic crush because of positive crush margins. Potentially bearish to soybeans could be a fall in crude oil futures which is likely to hit soybean oil first and then soybeans.
New Crop Marketing: We will hold hedges of new crop at 40% of anticipated 2008 production and alert when to resume. Technical chart based support is 14250. A new life of contract high was made on Monday of 14750 vs. the previous life of contract high of 14732 made 3/4/2008. The intermediate trend is up, we will respect the trend before resuming hedges, covered with bull call spreads or use puts vs. outright selling of futures. We will alert you when to resume hedges.
Trade Posture: Technically Allendale is bullish as July and Nov futures. Allendale remains neutral bullish on new crop soybeans as projected 2008/09 stocks are expected to remain below 200 million bushels for the second consecutive year. Continue to monitor weather, Argentina and crude oils close correlation to soybean oil futures.
Wheat Fundamentals: The trade is anticipating USDA estimating a 2% larger winter wheat crop in Tuesday mornings WASDE/Crop production report than it did in the month of May's 1.778 billion bushels. Argentina wheat seeding continues to face dry conditions, east Australia planting conditions improving. Libya announced it has struck a deal with Ukraine; it will plant 300,000 acres of wheat for Libya to eliminate the need to import from any other sources. Brazil is planting wheat aggressively and likely will not need to be as dependent on Argentina or North America for imports. Supportive to wheat is too much rain jeopardizing quality and quantity in the Midwest. The lack of big ticket purchases for U.S. wheat for exporting weighs on the July futures.
New Crop Marketing: After the close on Friday we recommended to roll hedges out of July directly to the Dec futures at 38 cents or better, the order was filled at 40 cents premium the Dec on Monday. Why not the Sept? At this juncture after covering the cost of carry, the roll to Dec added 18 cents/bushel to your merchandizing and only 9 cents if we rolled to Sept. 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: The technical close above key pivot points for CBOT and KCBT on Friday was a positive sign for futures but Monday's close below the pivot points is viewed as bearish. Mixed signals as the wheat harvest is estimated at 9% complete as of June 8 vs. 6% a year earlier and 10% for the five year average. Fundamentals continue to weigh on international prices as the world wheat crop is doing well, not great but not as bad as a year ago. Higher freight cost and multiple northern hemisphere supplies are expected to find demand shopping closer to home vs. 2007's limited supplier choices. Projected end stocks both domestically and globally are expected to increase in 2008/09 vs. 2007/08.
Lean Hogs: We will cover pork bellies tonight because that is a big driver right now. Last Wednesday it was announced nine states had produced tomatoes with Salmonella. On Thursday cash pork bellies fell $7.07. Friday they fell $4.39. That two day drop totaled $11.46! Why do we connect this with tomatoes? Summer is the key time for BLT sandwiches. Many restaurants are taking tomato based sandwiches off the menu now. As of today that list of states found with Salmonella in their tomatoes totals 16. Both McDonald's and Wal-Mart have stopped selling some tomatoes and/or tomato slices. While we underestimated the effect on pork bellies (bacon) and therefore overall pork prices, we wonder just how much downside is left here. The better price bet can be made with the far deferred 2009 contracts right now. Massive increases in corn costs may keep sow slaughter (liquidation) at a good clip. That would affect 2009 supplies. We must reiterate: If you want to be bullish based on liquidation, do not buy ANY 2008 contracts. We will not see supplies fall to below previous year levels until January or February 2009. For pricing our main focus is the overpriced October and December futures. Our downside target is $65 for the December. Speculative traders may simply hold the short $80 July calls through their expiration. Another speculative trade we are watching is selling December calls. Do you realize $84 calls have a huge $2.30 premium? They are over $8 away from December futures!
Live Cattle: Kansas traded cash cattle today at $93. This surprising turn was down from last week's $94 and $94.50 trading.
Feedlots started out this week with more cattle simply because they failed to market all numbers last week. On top of that increasing corn prices makes it more expensive to feed all those extra numbers. The main point we will make here is this will be the second week now of lower cash cattle prices. We are setting a trend. On the South Korea front you may have read in our morning comments this week's protests in Seoul turned violent. We must understand there is tremendous pressure on their government not to "bow to pressure" from the United States. Whether consumer fears are based on fact or internet rumors this is simply how the young people demonstrating feel. Our downside target of June futures into the $92 to $93 range should be met soon. One other thing we noted was the idea in the past few weeks, cattle rallied more on "commodity buying" trends rather than actual cattle fundamentals. A look at Friday's CFTC Commitment of Traders report shows since March 25 to June 3 the long-only index funds added 17,726 contracts.
Continue to monitor crude oil just as much as you monitor cash cattle prices and other beef fundamentals.
Rich Nelson and Joe Victor
www.allendale-inc.com
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. c2008
