Corn Condition: The National Agriculture Statistics Service released its fourth crop conditions for the 2008 corn crop. Pre release estimates suggested good to excellent corn conditions to come in a range of 59-60%. NASS estimates the June 22 conditions at 59%
vs. last weeks 57% and year earlier levels of 73% good to excellent and a five year average of 70%. Allendale's Research notes from the June 22 report to the July 27th crop quality report, conditions on average lose 7%, suggesting an end of July good to excellent quality rating of 52%. The five year average for July 27th has been 63% good to excellent. Most recently when good to excellent corn conditions were 59% good to excellent was 1992's 59%. In both 1995 and 1996 corn's good to excellent ratings for the fourth week of June were 60%.
Conclusion: Provided NASS's results above compared to pre release estimates, Allendale views Monday release as neutral for futures. However provided the tendency for conditions to erode through late July, Allendale suggest fundamental support may be provided.
Soybean Emergence: The percent of soybeans which has emerged as of June 22 is estimated at 82% vs. week earlier levels of 71% and year earlier levels of 94% and a five year average of 93%. Dating back to 1999, soybean emergence has never been this low. The weakest rate of emergence was 88% in 2003.
Soybean Condition: The National Agriculture Statistics Service released its third crop conditions for the 2008 soybean crop. Pre release estimates suggested good to excellent soybean conditions to come in a range of 58 to 59%. NASS estimates the June 22 good to excellent conditions at 57% vs. last weeks 56%, year earlier levels of 66% good to excellent and a five year average of 66%. Allendale's Research notes from the June 22 report to the July 27th crop quality report, conditions on average lose 6%, suggesting an end of July good to excellent quality rating of 51%. The five year average for July 27th has been 60% good to excellent. Most recently when good to excellent soybean conditions were at 57% good to excellent was 1993's 54% and 2001's 58% good to excellent.
Conclusion: Provided NASS's results above compared to pre release estimates, Allendale views Monday's releases as neutral to ever so slightly bullish to soybean futures. However provided the tendency for conditions to erode through late July, Allendale suggest fundamental support may be provided.
Spring Wheat Conditions: USDA estimates spring wheat good to excellence ratings are 72% vs. week earlier levels of 67% vs. year earlier levels of 79% good to excellent. Allendale views this spring wheat crop condition report as bearish.
Winter Wheat Crop Condition: report was released for the twelfth time in 2008. The 18 states which made up the majority of 2007 production came in at 46% 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 44% good to excellent with year earlier levels of 48% 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.
Winter Wheat Harvest: The 18 states which made up 90% of the 2007 winter wheat acreage is collectively estimated to have 22% of the 2008 winter wheat crop harvested vs. 16% a week earlier, 21% a year earlier and 32% for its five year average. Given the frequent rain events last week, the pace of harvest is within reason. Make note, the following states are in need of dry weather to catch up on the 2008 harvest, Illinois's harvest is only 3% complete vs. a five year average of 46%, Indiana 6% vs. 21%, Kansas 6% vs. 36%, and Missouri 21% vs. 48%. Allendale views this winter wheat crop condition report as neutral to slightly bullish.
Corn Fundamentals: World oilseed specialist Bunge dominated Monday's news as it will purchase corn sweetener and starch company Corn Products International. Uncanny for the noted oilseed specialist to dive into the world of corn however as Bunge places its long standing focus of supplying the growing world population vegetable oils, its vision to supply sweeteners and corn starch is viewed as a growing tendency for continued consolidation within the food sector. Troubling news for ethanol companies as word is spreading of at least sixteen companies filing for various forms of bankruptcy. Allendale suggest the acquisition of these and more facilities/companies similar to the consolidation of the country elevator sector. The strong are likely to become even stronger and begin to remove the competitiveness which was becoming more apparent in ethanol's early development in 1998/99.
Bullish to corn futures is any forecast suggesting a return to widespread heavy rains for the central Midwest, continued unresolved strike in Argentina, known as the #2 world exporter of corn and #3 world exporter of soybeans. Bullish to corn is projected U.S. old crop corn stocks of 1.433 billion bushels (11.1% end stocks to use) shrinking to new crop levels of 673 million (5.4% end stocks to use) which is dangerously close to the record level low of 5% end stocks to use of 1995. Bearish to corn futures is a forecast calling for average weather conditions, any of the potential policy changes such as immediately opening CRP, shrinking corn demand for ethanol, lowering the import tariff on Brazil sugar cane based ethanol or CFTC expediting new speculative rules on various commodity futures such as crude oil, corn, cotton, soybeans and others.
Old Crop Marketing: 6790 cash corn requires 5¢ per bushel per month to store on farm. The present spread between July and Sept futures is offering 7¢ 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.
New Crop Marketing: The total amount hedged as a percent of anticipated 2008 production is 25%. 7270 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. Allendale will likely remain bullish into and through the June 30th 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.
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, July soybeans are at the greatest risk of breeching immediate short term Moving average and then MGEX wheat. Also at risk is both July and Dec corn futures breeching its #2 Moving Average and using the # 1 Moving average as immediate technical resistance.
Soybean Fundamentals: Do not let the major newswires sway you into thinking the Argentina strike is near a resolution. Headlines suggest the Argentina President is willing to sit down ASAP to negotiate all issues, including the most sensitive for farmers, which is the sliding tax scale on soybean exports. Argentine's Congress is at present evaluating the soybean export tax and may have a concrete suggestion for the President mid to late this week. However word has it any resolution may only be for the small grain and oilseed producers and nothing for the large scale producers and that simply may not be enough to end the friction. Psychologically bearish to soybean futures is the trade's perception of increasing soybean acres as fields borderline to the major flooded areas begin to dry out.
Old Crop Marketing: $14.83 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 two¢ 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 14720 (the #2 Moving Average as stated above). 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: Ttechnically Allendale is bullish as July and Nov futures technical trend is up. The Argentine farm strike shows few if any signs of a quick resolution. Allendale remains bullish soybeans given record low levels of stocks to use and a less than stellar start to the 2008 planting and early growth campaign.
Wheat Fundamentals: Russia is three for three. Russia has now exclusively sold Egypt wheat in its last two tenders and has filled a tender by Iran for September loading. What makes wheat bullish is the strength in the cash and futures corn market as feed wheat is used as a feed alternative. However bearish to wheat are early reports of 57 to 63 pound test weights and yields of 30 to 50 bushels per acre in the very early stages of #1 wheat producer Kansas. As long as harvest interruptions are short for the southern Plains, pressure is expected to remain against wheat futures and there is less likelihood of poor quality wheat bringing poor quality cash prices. Spring wheat conditions are increasing week to week which is viewed as bearish to the MGEX Sept wheat futures. There is a push to open CRP as soon as possible, this could be viewed as most bearish to July 2009 wheat futures as its likely the first to be planted fall of 2008.
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 41¢ carry, Allendale recently 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 have turned from outright bullish to mixed. Key resistance is 8780 and major support at 8200 vs. the July CBOT futures. Fundamentals from the neighboring corn pit help to support the wheat. World feed demand is clearly substituting wheat vs. corn. Fundamentals continue to weigh on international prices as the world wheat crop as a whole is doing well with projected world wheat end stocks to rise 14.7% compared to 14.3% from 2003 to 2004
Lean Hogs: Packers want the hogs right now in order to fill orders for July 4. We expect cash hogs to remain firm into Thursday or so. After that we would look for things to move back down to the mid $70's for most of the summer. Essentially we went from the low end of a sideways market and are nearing the high end. Last week we noted the possibility grocers may feature pork this year a little more than in past years. July 4 is normally a hamburger and hot dog holiday. Perhaps the sudden increase in consumer demand to pork will carry over into this holiday. We remain neutral to summer futures with price targets in the mid $70's. We are bearish October and December but slightly bullish 2009 contracts.
Live Cattle: So we got a deal with South Korea worked out and the market didn't react? There are a few snags here. As we have learned with all these on again/off again beef deals since 2004 it is better to be skeptical until you actual see beef leaving for South Korea. Over the weekend it was announced U.S. beef exporters and South Korean importers would each agree to only deal in beef from cattle less than 30 months of age. Though this was negotiated by the respective governments it is more of a private agreement. We are concerned about the South Korean's ambiguity as to when we could see actual trade resume. They noted it could be as soon as next week but could also be delayed. That basically means if South Koreans are still protesting they reserve the right to say no deal.
We can also note we had a bullish Cattle on Feed report on Friday. It is likely these deferred futures already have the South Korean news and the Cattle on Feed news, priced in. Last week's cash cattle trade averaged $95. August futures are pricing in a $104 cash cattle market. October futures are pricing in $112. Realistically how much more bullish can you expect? Futures likely do not need to run any higher. It is now the cash cattle and wholesale beef markets which have to reach futures. Today choice boxed beef was up $2.80 and select was up 1.95. So far, the cash markets are in the initial phases of trying to live up to that big bull rally expectation. Our general position is unchanged.
Based on supply/demand fundamentals a rally in cash cattle is certainly due in the coming months.
Futures are wildly optimistic in how far that rally will go.
Around half of the rally in futures is due to the long only index buyers.
We will not stand in the way of this long only money and wildly hopeful expectations here just yet. Stay bullish for now.
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.
