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: Every commodity listed above has now breeched its #1 and #2 Moving average. Anticipate short term technical traders to sell rallies up against the lower Moving average as listed.
Corn Condition: The National Agriculture Statistics Service released its seventh crop conditions report for the 2008 corn crop. Pre release estimates suggested good to excellent corn conditions to come in a range of 64-65%. NASS estimates the July 13 conditions at 64% vs. last weeks 62% and year earlier levels of 64% good to excellent and a five year average of 66%. Allendale suggest crop conditions to improve throughout most of this week based on private and public weather forecast calling for beneficial weather and an absence of any extreme heat during pollination. Cumulative pollination as of July 13th is estimated at 13% vs. 50% a year earlier and a five year average of 36%. The lag in the reproductive phase suggest the majority of this year crop to pollinate in the second half of July and places the 2008 crop to pollinate during the hottest portion of the year. Look for the trade to focus on extended weather forecast for any signs of building heat. Near-term price direction likely would place heavier than normal weight on the extended forecast.
Conclusion: Provided NASS's results above compared to pre release estimates, Allendale views Monday release as neutral for Dec corn futures.
Soybean Condition: The National Agriculture Statistics Service released its sixth crop conditions report for the 2008 soybean crop. Pre release estimates suggested good to excellent soybean conditions to come in a range of 61 to 62%. NASS estimates the July 13 good to excellent conditions at 59% vs. last weeks 59%, year earlier levels of 62% good to excellent and a five year average of 62%.
Conclusion: provided NASS's results above compared to pre release estimates, Allendale views Monday's releases as neutral/bullish to November soybean futures.
Spring Wheat Conditions: USDA estimates spring wheat good to excellence ratings are 61% vs. week earlier levels of 69% vs. year earlier levels of 76% good to excellent. Allendale views this spring wheat crop condition report as bullish to Sept MGEX futures.
Winter Wheat Harvest: The 18 states which made up 90% of the 2007 winter wheat acreage is collectively estimated to have 62% of the 2008 winter wheat crop harvested vs. 52% a week earlier, 67% a year earlier and 70% for its five year average. The wheat trade was well aware of the Southern Plains frequent rains much of last week creating harvest delays. This weeks southern Plains weather forecast broad based coverage and strong enough amounts beginning Thursday into the weekend to create delays in the north region and is viewed as supportive to KCBT wheat futures.
Corn: Fundamentally bearish to corn is beneficial weather for the major Midwest for at least this next week. Already, the trade is anticipating continued improving crop conditions headed into next Monday's eighth NASS report. Weather is likely to keep corn futures on the defensive. Also bearish to corn is the increasing substitution of feed wheat vs. corn. International buyers not only consider the feed values economics but are also reducing import expenses by securing supplies closer to home base. Bullish to corn is 2008/09 projected end stocks to use to be the second tightest dating back to 1980 for the United States and the tightest world corn stocks to use at 11.9% dating back to 1980. Also bullish to corn is the lag in growth progress, potentially placing this year’s crop at risk by pollinating during the hottest week of the year.
Technically: The trade is very aware of the fact December corn futures close was below the 50 day Moving Average on Monday.
What the trade may not realize or willing to discuss it's happened before with interesting results. On March 20th Dec futures closed below the 50 day Moving average, after holding a solid uptrend. One day later Dec corn futures closed above the 50 day MA and held until May 29th. Once again, one day later, Dec corn futures closed back above the 50 day MA and held until today 07/14/08. What do you think is the trade prepared to make the odds three for three to close back above the 50 day MA on Tuesday?
Old Crop Marketing: 6140 cash corn requires 4¢ per bushel per month to store on farm. The present futures and cash market continues to offer adequate carry month to month. The present spread between September and Dec futures is offering 6¢ per bushel per month and will cover your cost to carry if hedged in the December futures. Make certain unhedged corn meets the criteria to offset cost of carry. Allendale has 30% of its 2007 production not priced to the cash market and will alert when to begin to move to the cash markets.
Trade Posture: Fundamentally Allendale remains bullish to corn on tight stocks to use. Allendale respects improving crop conditions, however crops conditions at the present stage of growth is not likely a true indicator of impending yield. Technically Allendale is bearish. Allendale is a willing buyer of Dec corn futures just above the recent double top of 7150. See our Grain Trading Strategies page for entry, risk and objective.
Soybeans: Bullish to soybean futures is the ongoing Argentina farm strike. A key vote by the Argentina Senate is scheduled for Wednesday. The strike has been beneficial for greater than typical weekly export sales of U.S. soybeans as noted within our Special reports section of our internet site.
Also bullish to soybeans is the lag in crop maturity and may place soybean pod fill later in the month of August, precipitation amounts more towards the mid and mid to late August are likely to be key. Bearish to spot month soybeans is a weaker than anticipated NOPA soybean crush report released Monday morning and perceived weekly soybean export inspections.
Soybean Spread: Declining old crop stocks as a result of the ongoing Argentina farm strike has soybean futures inverted. The August/Nov spread is presently at 23.4¢ premium the August, has technical based support at 10¢ and immediate resistance at 30¢. It was nearly one year ago the spread was trading a very similar pattern to present day. A breakout above 30¢ premium the August in July of 2007 allowed the spread to immediately race to 49 to 55¢. Contact your Allendale representative with point of entry alternatives, risk and objective.
Old Crop Marketing: $15.52 cash soybeans requires 9.3¢ 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 August/Sept futures spread is at 13.6 cent inverse suggesting it cost more to store the beans than to carry them.
Trade Posture: Allendale remains bullish to soybeans as ending stocks are estimated at 140 million bushels and has a projected end stocks to use of 4.7% vs. old crop stocks to use of a record low 4.1%. Allendale is aware of the potential bearish ramifications of an end to the Argentina farm strike and potential CFTC action on speculation.
Wheat: Bearish to wheat futures is a large world wheat crop expected to increase world stocks by as much as 17 million tonnes over year ago levels. However projected world wheat stocks to use are estimated to be 17.3%, second lowest only to 2007/08 levels. Bullish to wheat is renewed export demand for milling purposes as news Iraq and the United States are very close to signing a deal for 300,000 tonnes of U.S. wheat to be sold and news after Monday's close Egypt is once again in the world market for wheat. A bit of a discrepancy is brewing between the USDA Ag attaché in Australia and the home office in Washington DC. Both offices are in agreement record acreage has been planted in 2008. However just last Friday the USDA announced an increase in 2008 Australia production of 1 million tonnes to a level of 25 MMT vs. 24 million tonnes the previous month. On Monday the attaché in Australia estimates the crop size at 22.4 million tonnes vs. its April estimate of 25 million tonnes. A very similar situation developed between the USDA and its ag attaché in Australia, not too many years ago. After months of disagreement, the attaché was more close to what was actually occurring in Australia than the USDA office in Washington DC.
Wheat Crop Marketing: $6.15 cash wheat requires 4.5¢ of carry per month. If not hedged, make certain your local cash markets are offering you sufficient carry. The present Sept-Dec wheat futures spread is offering 24¢ carry (actual cost is 13.5¢) 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.
Cash Peak: Dating back to 2000, odds favor a national cash wheat peak for the month of December. Of the most recent eight years, dating back to the year 2000, the national cash peaked has hit the month of December 50% of the time with various other months such as Oct and Nov, April and May only once. We will monitor cash and futures spreads and the history stated above to make our decision to make initial 2008 cash sales.
Trade Posture: Technicals have turned from neutral to bearish. Fundamentals are mainly neutral to slightly bearish.
World Grain Stocks to Use: world grains are composed of wheat, coarse grains (Corn, sorghum, barley, oats, rye, millet and mixed grains and milled rice. It may provide a more complete picture of the all grains in general the world demand has access to use and various combinations of feed and food alternatives rather than an individual line item. Allendale's research finds present end stocks to use of total world grains at 16% which is at a record level low dating back to 1990. The previous low was 17% in 2006, with the record level high in 1998 and 1999 at 32%. Alarming is despite high global prices as an incentive to increase total 2008/09 grain production to 2,509 million tonnes vs. 2,455 million tonnes, 2008/09 end stocks to use are expected to remain unchanged at 16%.
Even though there is expected to be an end stock increase of 3.39 million tonnes from 2007/08 to 2008/09, stocks to use remain historically tight. Please view our "Of Interest" page to view the total world stocks of grain. Dramatic is the slide from 1999 levels of 585 million end stocks has been occurring.
From 1999 to projected 2008 the end stock reduction has been 41%. Can the world continue to maintain such a steep slide?
Corn Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 1.598 billion bushel vs. June's 1.433 billion bushels vs. 2006's 1.304 billion. For 2008/09 end stocks are projected at 833 million bushels vs. June's USDA estimate of 673 million bushel. 2007/08 Stocks to use for July's estimate is 12.5% vs. 11.1% last month vs. 2006's 11.6% and 2005's 17.5%. USDA's 2008/09 estimate for end stocks to use is 6.7% vs. June's estimated 5.4% with 1995 the lowest at 5% dating back to 1980.
World Stocks and Stocks to Use: 2007/08 world stocks of 125 million tonnes vs. last months 121 million tonnes vs. the previous year’s 110 million tonnes. USDA 2008/09 July end stocks are estimated at 105 million tonnes vs. its June estimate of 103 million tonnes. 105 million tonnes is the third tightest on record dating back to 1980. Record high world stocks was 1986's 205 million tonnes. 2007/08 End stocks to use at 14.3% vs. 13.8% last month and compares to USDA's 2008/09 July estimate of 11.9% vs. June's estimate of 11.7%. At 11.9% end stocks to use, it represents the lowest on record dating back to 1980 with the second tightest in 2006 of 13.4%.
Season Average Farm Price: USDA's 2007/08 July estimate of $4.25 per bushel was unchanged vs. its June estimate. USDA estimates the July WASDE 2008/09 SAFP at $6.00/bushel vs. its June estimate of $5.80 bushel. The SAFP for 2006/07 was $3.04/bu.
Soybean Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 125 million bushels vs. 125 million bushels last month vs. 574 million the previous year. 2008/09 end stocks are estimated at 140 million bushels vs. the June estimate of 175 million bushels. The 125 million bushels are the least amount since 112 million in 2003. 2007/08 Stocks to use as of the July WASDE are 4.1% vs. June's estimate of 4.1%. The June 4.1% estimate is the lowest dating back to 1980 and less than the previous low of 2003's 4.4%. 2008/09 end stocks to use are projected at 4.7% vs. June's estimate of 5.7%, still very tight. Dating back to 1980 the 4.7% end stocks to use would represent the third tightest on record.
World Stocks and Stocks to Use: 2007/08 world stocks of 49 million tonnes vs. last months 49 million tonnes vs. last years 62 million tonnes (down 23%). 49 million tonnes compare to a five year average of 48.2 million tonnes. End stocks to use at 15.8% vs. 16% last month. The five year average has been 17.96%. 2006 end stocks to use for world soybeans was 21.1%. USDA's world 2008/09 end stocks for soybeans for the month of July is estimated at 49 million tonnes vs. 50 million tonnes the previous month. 2008/09 end stocks to use are estimated at 15.6% vs. June's 16%.
Season Average Farm Price: USDA's June estimate of $10 per bushel for 2007/08 remains was increased to $10.15 per bushel for July. USDA's projected 2008/09 SAFP for July is projected at $12.75 per bushel vs. its June estimate of $11.75 per bushel.
Wheat Domestic Stocks and Stocks to Use: 2007/08 presently estimated at 306 million bushels vs. 254 million bushels last month vs. 456 million last year. At 306 million bushels, 2007/08 ending stocks are the lowest dating back to 1980. 2008/09 end stocks are projected at 537 mil bushel via the July WASDE vs. 483 million bushels estimates in the June WASDE, an increase of 11%. 2008/09 end stocks to use projections are 23.1% for the July WASDE report vs. 21.2% in June up 9.9% year on year. You would have to venture back to 1989 to 1990 to find a bigger year on year increase of 11.6%
World Stocks and Stocks to Use: 2008/09 world end stocks are projected at 133 million tonnes vs. the June WASDE estimate of 132 million tonnes, up 17 MMT yr on yr. This compares to the 1995/96 year on year increase of 8 MMT. 2008/09 world end stocks to use for July is estimated at 17.3% vs. 17.3% estimated in the month of June vs. 15.8% for the 2007/08 marketing year. At 17.3% end stocks to use, it represents the second tightest level dating back to 1980.
Season Average Farm Price: The SAFP for 2008/09 at $7.50 per bushel July estimate and is unchanged vs. June's estimate of $7.50 per bushel.
Lean Hogs: Two pieces of interesting fundamental information were released in the past few days.
Due to COOL (Country of Origin Labeling) U.S. packers and U.S. hog finishers do not want to use Canadian hogs. Last week imports of Canadian hogs were down 46% of last year's level. In the two weeks before that they were down 16% and down 23% respectively. Bottom line is fewer Canadian hogs mean packers are bidding just a little more for U.S. hogs. This keeps us neutral to bullish on cash hogs and August lean hog futures. It also keeps us liking the August/October spread.
U.S. pork exports in May were up 98% over May 2007. In the two previous months they were up 37% and 96% respectively. This is no surprise. Pork exports will be great all summer. The question is what happens to Chinese buys after the Olympics in August. Our downside target for December is $65. We remain 100% hedged through the end of the year and are happy with that position. We are not being aggressive on hedging 2009 contracts as liquidation going on now is a big variable. Now that corn has dropped $1 in the past few days is sow slaughter still big?
Live Cattle: We noted on Friday crude oil was our main focus for cattle pricing from March through June. Corn prices peaked, and concerns about the economy increased, in late June. We are now going back to traditional supply and demand fundamentals in our live cattle pricing. Will placements fall as much as expected with December corn at $6.80 as it would have at almost $8? That is a bearish factor. We are also noting concerns about the economy are still here, if not getting worse. From January through June nonfarm payrolls fell from 62,000 to 88,000 head. This is not the 100,000 head losses economists start to get concerned about. However, will U.S. consumers be eager to buy beef at x% higher than last year when they are concerned about the economy? Let's be realistic here. CME futures were implying something like a 20% increase over last year. Higher prices are due, as we have noted before, but futures have been fundamentally overvalued. We started hedges on the October and December today at 25% of expected marketings.
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
