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: Of the corn, soybeans and wheat, CBOT wheat is at the greatest risk of breaching the short-term moving average. The distance between the most recent close for corn and soybeans is extremely wide and able to serve some notice before confidence may shift from immediately bullish to neutral.
Corn emergence: The percent of corn which has emerged as of June 15 is estimated at 95% vs. a week earlier of 89%, vs. year earlier levels of 100% and a five-year average of 96%. Dating back to 1999, the last time corn was near the same emergence for June 15 was 96% in 2002 and 2003.
Corn condition: the National Agriculture Statistics Service released its third crop condition report for the 2008 corn crop. Pre-release estimates suggested good-to-excellent corn conditions to come in at 50%. NASS estimates the June 15 conditions at 57% vs. last week’s 60% and year earlier levels of 70% good-to-excellent and a five-year average of 69%.
Most recently when good-to-excellent corn conditions were this low was 1996's 57%.
Conclusion: provided NASS's results above compared to pre release estimates, Allendale views these reports as neutral to bearish to futures.
Soybean emergence: the percent of soybeans which has emerged as of June 15 is estimated at 71% vs. week earlier levels of 56% and year earlier levels of 90% and a five-year average of 86%. Dating back to 1999, soybean emergence has never been this week, with the lowest of 79% in 2003.
Soybean condition: the National Agriculture Statistics Service released its second crop conditions for the 2008 soybean crop. Traders’ pre release estimates were looking for good-to-excellent conditions to come in at 50-52%. NASS estimates the June 15 good-to-excellent conditions at 56% vs. week earlier levels of 57%, year earlier levels of 69% good-to-excellent and a five-year average of 66%.
Most recently when good-to-excellent soybean conditions were this low was 2001's 55% good-to-excellent.
Conclusion: Provided NASS's results above compared to pre release estimates, Allendale views these reports as neutral to soybean futures (bullish emergence, bearish conditions vs. pre release estimates).
Spring wheat conditions: USDA released for the fourth time in 2008 its spring wheat crop condition report. It estimates spring wheat good-to-excellence ratings are 57% vs. week earlier levels of 63% vs. year earlier levels of 88% good-to-excellent. Allendale views this spring wheat crop condition report as bullish.
Winter Wheat Crop Condition: report was released for the eleventh 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 45% good-to-excellent with year earlier levels of 50% 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, which has been the case for the most recent three consecutive weeks. Allendale views this winter wheat crop condition report as neutral.
Winter wheat harvest: NASS estimates the winter wheat harvest at 16% complete vs. 9% a week earlier and 19% for the five-year average. #1 winter wheat producer Kansas has 2% of its harvest complete vs. 2% a year ago and compares to 13% for a five-year average. Allendale views this winter wheat crop condition report as neutral.
Corn fundamentals: Bullish to corn is the Midwest flooding and reduced acres and declining crop conditions. One Midwest survey suggests 3 million acres of corn has been lost as a result of Midwest flooding. Also bullish to corn is an Argentine farm strike which is developing poorly, as the two sides are growing further apart. Bearish to corn futures is the strengthening of the US dollar and ethanol developments which according to one financial investment bank suggesting the high cost of corn could have small and medium size operations cut ethanol production by 2 billion to 5 billion gallons. If realized 740 million to 1.82 billion bushels less corn could be used from USDA's projection of 4 billion bushels. Bearish to corn is world demand’s interest in feeding less expensive wheat as a starch substitute for higher priced corn.
Old crop marketing: 6840 cash corn requires 4.9¢ per bushel per month to store on farm. The present spread between July and Sept futures is offering 7.2¢ per bushel per month and will cover your cost to carry if hedged in the September futures. Make certain unhedged corn meets the criteria to offset cost of carry.
Cash peak: Dating back to 2000, odds favor a national cash corn peak for the months of April and May. Allendale has sold all previously hedged 2007 corn. Allendale continues to hold 30% of 2007 production in inventory and will alert when to move to the cash market. At present we have old crop cash markets offering 22¢ carry from June to October which is slightly more than the cost of carry.
New crop marketing: The total amount hedged as a percent of anticipated 2008 production is 25%. 7050 vs. the Dec 2008 is key support, psychological resistance is 8000. We will monitor and alert when to resume hedges.
Trade posture: Fundamentally Allendale remains bullish to corn futures. Midwest flooding and declining crop conditions suggest supply to be restricted in 2008.
Allendale will likely remain bullish into and through the June 30 planted acreage report and into the initial stages of 2008 pollination. Allendale remains guarded against declining feed use, export potential and ethanol production potential, all because of rising cash prices. 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: Just when you think the Argentine strike could not get any worse, reports now suggest farm group leaders are being detained by officials. The more than three month on again of again is back on as of Saturday night. No grain or oilseeds are to be sold for export purposes. The strike is to last at least through a minimum of this Wednesday. The Argentine President continues to lose popularity. At what point and time does the President flex the final muscle and call in military intervention? Midwest flooding is bullish to soybeans. There is reason to believe China continues to import soybeans for soybean oil as a feedstock for biodiesel. Flooding in south China is most impacting sugar cane crops, and to a much lesser degree of rice and rapeseed.
NOPA: The National Oilseed Processors Association release its month of May estimate for soybean crush at a level of 144 million bushels.
The average preestimate was looking for 145.3 million bushels to have been crushed for meal and soybean oil. Estimates for the report ranged from as low of 143 million bushels to a high of 147 million bushels. Previous month April had a crush level of 140 million bushels. Since the
1999-2000 marketing year NOPA has increased the amount of crush each year from April to May, the smallest increase of 1 mil bushel and the largest of 8 million bushels in 2005/06. The average increase has been 3.25 million bushels. With Monday's announcement of 144 million bushels, its keeps the string of higher May crush volume vs. April intact.
Old crop marketing: $15.17 cash soybeans require 9¢ of carry per month. If not hedged, make certain your local cash markets are offering you sufficient carry. Contact an Allendale representative for alternative marketing strategies for your specific operation. The present July/August futures spread offers only 3¢ carry.
Cash peak: Dating back to 2000, odds favor a national cash soybean peak for the months of August, December and April.
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 14520. A new life of contract high was made today, Monday June 16th. The technical trend is up, we will respect the trend before resuming hedges, and plan to cover 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 technical trend is clearly up. The Argentine farm strike is growing more serious day by day. Allendale remains bullish soybeans given record low levels of stocks to use and a less than stellar start to the 2008 planting campaign. Continue to monitor weather, Argentina, the US Dollar performance and crude oils close correlation to soybean oil futures.
Wheat fundamentals: New South Wales accounts for 24% of Australia's annual wheat production. It has been announced 60% of New South Wales is in drought status. Bullish to wheat is the strength in corn and likelihood of increased feed use of wheat and dry weather concerns in Argentina and Australia. Just recently, Algeria canceled a previously 100 K tonne USA purchase. Within the past two weeks, it is estimated Algeria has bought 400 K tonnes of German, French and Polish wheat. Transportation cost from the US to the Middle East and North Africa remain bearish to US supplies.
Wheat crop marketing: $6.65 cash wheat requires 4.8¢ of carry per month. If not hedged, make certain your local cash markets are offering you sufficient carry. The present July-Dec wheat futures spread is offering 40¢ carry; just a few weeks ago, Allendale rolled its July hedges directly to the Dec to cover the cost of carry and added the remaining balance to its merchandizing ledger. We see no reason to hedge new crop above the 65% level we have on for now. Corn's futures rally is the key to supporting wheat futures. Allendale will alert you as to when to hedge or sell new crop to the cash markets.
Trade posture: Technicals are bullish. Fundamentals from the neighboring corn pit help to support the wheat. South Korea is clearly substituting wheat vs. corn for feed. Other world corn buyers are expected to follow suit and help set a floor under wheat as long as corn prices continue to rise internationally. Support comes from plantings problems in the southern hemisphere and support can be found from sky rocketing corn and soybean prices. Fundamentals continue to weigh on international prices as the world wheat crop as a whole is doing well.
Lean hogs: In the next few days we should shift focus from delays at slaughter plants to hearing about actual stories of drowned pigs. While there certainly will be stories about hog barns in low lying areas getting flooded out we wonder how much of an impact it will actually be. The other thing to note is any death loss would show up over a few months rather than immediate drops in slaughter numbers. The main concern for this market remains getting roads clear and plants back up and running. One thing of interest to note was the $2.35 jump in the pork cutout. It was due to a
$6.68 jump in hams. While we do not like these one day type of big jumps we can agree the recent decline in summer hog futures and cash pork prices is probably a little overdone. 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 those far away December calls in the $80 strikes on up.
Live cattle: New highs in corn mean low placements in the future. This afternoon we released our estimates for Friday's Cattle on Feed report. We estimate Placements at 96.3% of May 2007 levels. This is now the third month in a row of lower Placements. The new jump in corn started on June 1 which means we are assured of another couple months of lower placements to continue. The main point is feedlot style slaughter will remain over 2007 levels through July. From August through January it appears lower slaughters from lower placements are almost guaranteed. Keep in mind CME futures currently have large premiums to current cash cattle prices. If it were not for the commodity buying going on here we would say this market might actually be getting overvalued. We are now watching the trend in current trading rather than preset price targets due to the commodity buying.
South Korea: This morning we noted the talks over the weekend were a bust. Apparently the South Korean trade minister turned right back around to the United States for further negotiations. We have no idea if anything will come of this. Until we definitely here a revised agreement is made and SEE shipments actually leave the United States we will not get hopeful here. As to the CME we are skeptical if any progress or lack of progress would impact prices in any way. They are so set on watching corn and crude oil (general commodities) that actual beef fundamentals have become a strange concept.
Pricing: Being realistic we see no reason for this market to top out at this time. Though 2009 contracts are tremendously overpriced with their implied 20% premium over 2008 levels we see no reason to step in front of this freight train. You tell us when/if crude oil and corn break and we will tell you when to sell far deferred live cattle
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. Allendale Inc. c2008.
