Corn commentary: News out of China is the government's plan to buy 5 million tonnes of corn from its farmers to support domestic prices. China follow through with a similar plan for soybeans, which caused domestic prices to be higher than imported soybean prices. With a $14.50 spread between cheaper domestic corn prices than imported corn prices, be aware of the potential for China to import corn if its 5 million tonnes plan works as well as its soybean plan.
After the side by side session close and before the evening E CBOT trade session, USDA announced 55% of the corn crop has been harvested. The trade was anticipating 50-55% complete vs. a five year average of 79%. Serious delays continue for IL, IA, MN, MO and NE.
Weather is expected to turn sour for the Midwest corn harvest as early as Tuesday and last through the week. Earliest forecast suggest harvest weather to be less than ideal for at least the first half of next week.
Corn Technical Commentary: 4330 is immediate resistance; additional resistance is 4480 chart gap to 4530. Key short term support of 3950 is holding.
Vital Technical Indicator: the next projected major turn day is forecasted for November 11.
Trade Idea(s): Stand Aside.
Option Strategy(s): Bought 1 370 call @ 31. Risk to 17. Objective 60.
Special Report: clients want to know, what happens to the markets from the close of business the day before the election to the close of business the day after the presidential election? For December corn, the most recent 12 elections found corn on average a half cent higher. Over the most recent 12 elections corn closed on average 2¢ higher in the 7 elections years when closing higher and 2 and a 1/4 lower in the 4 election years when closing lower.
Of the 12 election years when Democrats won five of the elections, corn closed on average down an average of 1 and ½¢ lower. Of the most recent 12 election years when the Republicans won, corn futures on average closed 1 and ¾¢ higher.
For soybeans, the most recent 12 elections found January soybeans one and 1/2¢ higher. Over the most recent 12 elections soybean closed on average 6 and ½¢ higher in the seven elections years when closing higher and 5 and 3/4 lower in the five election years when closing lower. Of the 12 election years when Democrats won five of the elections, soybeans closed on average down an average of 2 and ½¢ lower. Of the most recent 12 election years when the Republicans won, soybean futures on average closed 4¢ higher.
For Dec wheat, the most recent 12 elections found wheat futures on average 1¢ lower. Over the most recent 12 elections wheat closed on average 2 and 1/2¢ higher in the seven elections years when closing higher and 5, and 3/4 lower in the five election years when closing lower.
Of the 12 election years when Democrats won five of the elections, wheat closed on average down an average of 4, and 1/4¢ lower. Of the most recent 12 election years when the Republicans won seven of the years, wheat futures on average closed 1 and 1/2¢ higher.
Conclusion: Of the recent 12 elections, odds have favored the Republicans winning 58% of the time which has been positive to corn, soybean and wheat futures closing price the day after the election vs. the day before the election.
Soybean Commentary: only south central Brazil is experiencing planting delays of corn and soybeans with the balance making could progress. Soil moisture is developing well in Argentina for its plantings. Refreshing to see is how soybean futures were capable to trade on its own vs. the higher U.S. dollar vs. the weaker crude oil market, which typically is a weak signal for the grains and oilseed markets.
Weekly soybean inspections of 49.4 million bushels were better than pre release estimates of 18 million to 25 million bushels, better than the previous weeks 46.6 million bushels and much better than the 20.7 million bushels needed on a per week basis in order to reach USDA's final export target of 1.02 billion bushels.
Forward pricing of Brazil soybeans remains weak as a result of anemic prices.
After the side by side session close and before the evening E CBOT trade session, USDA announced 86% of the soybean crop has been harvested. The trade was anticipating 90% complete vs. a five year average of 89%. Serious delays continue for MO.
Anticipate the trade to begin to transition its focus away from the production phase and place more emphasis on the demand phase.
Soybean Technical Commentary: Jan soybean futures remain consolidated between 9740 and 8384. Over the most recent three trade sessions, Jan futures are holding short term Moving averages. The most recent MA value is 9080.
Vital Technical Indicator: The next projected major turn day in store for soybeans is November 12 soybean meal Nov 11 and Nov 6 for soybean oil. Trade Idea(s): there are no new futures only trade recommendations. Option Strategy(s): Bought 1 940 call @ 36. Risk to 19. Objective 80.
Wheat commentary: The main reason for the strength in wheat futures was tied more directly to the need for short covering given the fact wheat futures most recent sell off was more over extended than that of corn and soybean futures. Fresh fundamentals were absent for wheat other than disappointing weekly wheat inspections and news Taiwan seeks 53 K tonnes of U.S. wheat.
Argentina may experience small delays in its harvest this week. Australia's harvest is proceeding without any early harvest results.
After the side by side session close and before the evening E CBOT trade session, USDA announced 90% of the winter wheat crop has been planted vs. a five year average of 92%. Only MO is experiencing noted delays as a result of its delays in its corn and soybean harvest.
After the side by side session close and before the evening E CBOT trade session, USDA announced the good to excellent condition rating for winter wheat 2% higher than last weeks 65% good to excellent rating and compares to last years 53% good to excellent rating and five year averageof 59% good to excellent rating. Remember the saying, its difficult to make a great crop greater and a poor crop poorer.
Wheat Technical Commentary: the technical trend is turning to sideways now that Dec CBOT wheat closed above downtrend resistance and a short term moving average level of 5330 and then 5490. A slight up trend is in the making from CBOT's Dec low of 4964 made on Oct 24. Similar infant up trends are found in MGEX and KCBT wheat daily charts.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is November 12.
Trade Idea(s): Dec CBOT Wheat:(10/31) Buy 1 @ 5820 stop. Risk 5660. Objective 6310 Dec KCBT Wheat:(10/31) Buy 1 @ 6160 stop. Risk 6000. Objective 6700 Dec Minn Wheat:(11/03) Buy 1 @ 6780 stop. Risk 6620. Objective 7020 Option Strategy(s): there are no new options only trade recommendations at this time.
~ Joe Victor
The Dow Jones Industrial Average settled at 9319, down 5 points for the session. Today was the quietest session recently with a range just over 130 points while the average range in October was 594 points. Some investors may have been trying to find bargains at lower levels as credit markets show signs of thawing, but most investors will likely hold out until we see the results from some election we heard will be held tomorrow. The Institute for Supply Management released manufacturing data today that all but confirms that we are currently in a recession. The group reported that the manufacturing index fell to 38.9 for the month of October. Any reading below 50 is a signal of contraction. The last time the ISM released similar numbers, in September of 1982, the nation was in a deep recession. It is positive to see the market take these figures with a grain of salt, but as mentioned above, most bets will not be placed until we find out who the next commander in chief will be.
Energies: The ISM data today weighed heavily on energy traders as the current data reinforces ideas of weak demand. To compound this information, Credit Suisse released a research note indicating that projections of Chinese energy demand growth was reduced from 4% to nearly 0 with energy demand growth not recovering until 2010. This information brought buyers back to earth as we went from trading over $1 higher overnight to as much as $4.18 lower on today’s lows. The dollar Index also reversed from trading as much as $0.80 lower to settling over $0.50 higher, which most likely added to pressure in energies. December Crude Oil settled at $63.91, $3.90 lower than Friday’s closing price.
Fundamental commentary: Allendale has kept a close eye on the natural gas market basis the December contract. We have seen the price of natural gas come down from a contract high of 14.280 to a current price of 6.838. Our research also suggests that Anhydrous/Ammonia prices have about a six-month lag where we wouldn't expect input prices to come down until after most of next years needs have already been purchased. From a producer standpoint, we feel it is more beneficial to buy natural gas on the board rather than wait for cash prices to come down. The natural gas chart has much more risk to the upside than downside potential at this point, so odds say that convergence between natural gas and input prices will occur as the price of natural gas increases rather than the cost of Anhydrous Ammonia coming down. To put it simply, natural gas is cheap and Anhydrous is expensive. If we're going to buy, let's buy what has the odds of moving to a higher price rather than buying something now that has odds of coming down in price. One E-Mini natural gas contract will meet Nitrogen needs for 816 acres of corn at 150 units of Nitrogen per acre.
Technical commentary: Allendale will look for a short term rally in the market to sell as we are still in a downtrend. Since we were able to break $70 briefly last week, this week's trade may try to test $75. If we see a move below $63 early in the week, odds of a new low for the move will increase. Support is found at the low for the move of $61.30 and again at $60.70. Further support can be found at $57 and $52. Resistance is just under $70 with further resistance at $72, $74.50, $76, and $80. Just below $84 seems to be the biggest technical ceiling within short-term range.
Technically, the market is still in a downtrend and rallies are to be sold.
Hedge Recommendation(s): Buy 1 December Mini natural gas (per 800-825 acres of corn production) @ current levels. Continue to scale-down buy every .25 from entry to cover your NH3 needs. Lift hedges as you commit to purchasing cash NH3.
Trade Recommendation(s): Sell 1 December Mini Crude @ $74.45. Risk to $77.45 with an objective of $65.95.
Metals: December gold settled at $726.80, up $8.60 on the day. December Silver was $0.020 higher at $9.750. Gold rallied early in the session as the dollar Index was weak, but as the dollar rallied back and Crude Oil fell, Gold pared its gains. Precious metals will most likely continue to trade with a high level of volatility as the market decides between safe haven buying, long term buying as a hedge against inflation, margin call selling, and profit taking to invest in other relatively low-priced commodities.
Technical commentary: Close-in support is $723. $695-700 will be formidable with $684 as baseline support. Resistance is $750, $778 and again at $795. Should December Gold close below $700 for the week, we may see more new contract lows and a cycle down to $600. As we mentioned last week, a few solid closes above $750 may lead to a test of resistance near $800.
Trade Recommendation(s): Sell 1 December Gold @ $787. Risk to $807 with an objective of $737.
Buy 1 February Gold $600 put @ $17. Risk to $0 with an objective of $40.
Softs: Cocoa and coffee were the only soft commodities that weren't able to settle higher today. Origin selling kept cocoa sharply lower as demand concerns still weigh. In coffee, roaster buying was met with origin selling in Vietnam, a top coffee producer. Sugar was able to extend gains from last week as fund-driven selling pressure looks to have slowed for now.
Working Trade(s): Bought 1 March Sugar 13.00 call (10/14) @ .62. Risk to 0.20 with an objective of 2.00. The call settled at .82 on the day.
Sold 1 December cotton 46 put (10/30) for 2.00. Risk to
3.00 with an objective of 0. The put settled at 1.78 on the day.
~ Brian J. Splitt
Lean hog commentary: New lows posted for the December and February contracts. Most deferreds are holding their ground.
The pork cutout fell $1.09 due to losses spread out between hams, bellies, and butts.
Perceptions that export demand has slowed due to the rising U.S. dollar.
The trade does not want to know the U.S. dollar has actually fallen against the Japanese yen. That makes U.S. pork cheaper for our largest customer.
Seasonally slaughter hog levels have not peaked. We are also monitoring when supplies compared with year ago levels slip. Last week's 3% higher kill was a bearish surprise.
For trading we will respect the renewed downtrend by bear spreading futures.
Lean Hog Technical Commentary: The downtrend is back on track.
Vital Technical Indicator: Next projected major turn day for lean hogs is November 5.
Trade Idea(s): Buy 1 Jun /Sell 1 Feb at 1700. Risk to 1550. Objective 2000.
Option Strategy(s): Sold 1 December $72 call at $2.20. Settled at $.05.
Live Cattle: The trade is pretty sure feedlot numbers on today's showlist counts will be lower than last week.
Today's 115,000 head kill was under the 124,000 expectation among private analysts. Packers dropped the kill by 9,000 head in response to tightening margins.
On Friday we estimated last week's packer return before fixed costs applied was $169 per head. With summary reports from USDA released today, we compute that at $129 per head. Fixed costs are estimated at $150 to $175.
While lowered packer production levels are a concern for cattle feeders (lowered kill levels) we view this as a response to tight feedlot numbers.
The Dow has spent five days away from the 8000 level. This may instill some confidence in the trade.
We are not sure how much live cattle can rally from here but can suggest this market has found some near term lows.
Live Cattle Technical Commentary: The trend is now sideways.
Vital Technical Indicator: Next projected major turn day is tomorrow.
Trade Idea(s): Stand aside.
Option Strategy(s): Stand aside.
~ Rich Nelson
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.
