Corn Commentary: The perfect combination of weaker crude oil futures, weaker Dow, and stronger U.S. dollar, worked against corn futures. Fundamental news of beneficial weekend rains for #2 world corn exporter Argentina and China's 2008 record grain production of 525 million tonnes pressured corn.
Bearish to corn is projected 2008/09 world feed use of corn down 2.1%
Year on year with feed wheat up 30.1%. Number three corn importer, South Korea suggest corn imports to fall 23% year on year with feed wheat imports increasing 191% to a level of two million tonnes vs. 686 K tonnes in 2007/08.
Bullish to corn is present combined futures and options for funds nearly match its 2006 positions when end stocks to use for corn was 11.6% vs. 9% presently.
What to watch for on Tuesday will be the digestion of the big three automakers plan to have the federal government provide them with financial support. The plan needs to be clear and realistic. If found favorable look for this development to provide support for consumable goods.
Dec 17, marks the next meeting for OPEC. Early word is a potential daily crude oil production cut of 1 to 1.5 million barrels, which could add fundamental support for crude oil futures and then the grains.
Corn Price Projections: based on $60/barrel crude oil, Allendale's price range projection for corn is $3.40-$4.40. Based on $40/barrel crude oil, Allendale's price range projection for corn is $2.75-$3.75.
Corn Technical Commentary: March corn futures remain in a downtrend and require a close above 3700 to turn away from negative momentum.
Vital Technical Indicator: the next projected major turn day is forecasted for December 10.
Trade Idea(s): Stand Aside.
Option Strategy(s): (11/13) Bought 1 380 call @ 34. Risk to 21 triggered
12/01 for -$650
Soybean Commentary: outside macros such as crude oil futures, DJIA and U.S. dollar continue to override fundamentals of positive demand for U.S. soybeans and an outlook at present, which suggest additional corn acres for 2009. Bearish to soybeans is beneficial South America weather.
Supportive to U.S. soybean futures is news within the # one soybean producing region of China has its soybean crushers contemplating imports of soybeans to restart closed processors which has had its margins turn red as a result of high priced domestic soybeans.
A very cloudy outlook within Argentina as although USDA anticipates soybean production to increase 9.3%, Argentina farm groups are becoming increasingly bothered by the lack of exports and ask its government to weaken its currency.
The nation's largest poultry producer, Pilgrim's Pride has announced it seeks bankruptcy protection and will continue operations and not liquidation. Of all the soybean meal produced in the U.S. for feed use, poultry use the most at 50% and the number 2 user of corn for feed use.
Anticipate soybeans to continue to follow the cumulative action of the U.S. dollar, DJIA and crude oil futures trade.
Soybean Price Projections: based on $60/barrel crude oil, Allendale's price range projection for soybean is $8.00-$11.00. Based on $40/barrel crude oil, Allendale's price range projection for soybean is $6.50-$9.50.
Soybean Technical Commentary: Jan soybean futures need to close above 8996 in order to turn downward momentum to up. A weekly close above 1650 ringgit is needed to suggest a seasonal bottom.
Vital Technical Indicator: the next projected major turn day in store for soybeans is December 11, soybean meal Dec 11 and Dec 17 for soybean oil.
Trade Idea(s): there are no new futures only trade recommendations.
Option Strategy(s): (12/01) Bought 1 870 call @ 24. Risk to 12. Obj 40.
Closed @ 24
Wheat Commentary: weakness from outside macros, which affects corn and soybean futures spills into wheat futures. Fundamental support for milling wheat comes from continued quality related problems during the Australian wheat harvest, which may point demand for quality. Also supportive to wheat is increased feed wheat demand for 2008/09 to increase 30.1% year on year.
Bearish to wheat is continued heavy deliveries posted against the Dec futures and the lack of strong stoppers.
Egypt is expected to tender for 60 K tonnes of wheat and will entertain bids from the US, Canada, France, Australia and Russia/Ukraine.
Wheat Price Projections: based on $60/barrel crude oil, Allendale's price range projection for wheat is $4.75-$6.75. Based on $40/barrel crude oil, Allendale's price range projection for wheat is $3.70-$5.65.
Wheat Technical Commentary: technical support is 5152 vs. March CBOT wheat futures and resistance of 5800.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is December 12.
Trade Idea(s): Mar CBOT Wheat: (12/02) Sold 1 5520. Risk 5670. Obj 5156
Mar KCBT Wheat: (11/25) Sold 1 5790. Obj 5480 achieved 12/01 for +$1,550
Dec Minn Wheat: (11/24) Sold 1 6220. Risk 6000. Obj 5580. Closed @ 5880
~Joe Victor
Energies: January Crude Oil settled at $49.28, down $5.15 on the day. Crude held support at $50 for most of the session, but finally broke through as the equity markets continued to make new lows periodically as the day matured. News that OPEC decided to hold off on cutting production also weighed on energies since the trade was looking for a 500K barrel-per-day reduction. OPEC will meet again on December 17.
Fundamental Commentary: Allendale has kept a close eye on the Natural Gas market basis the January contract. We have seen the price of Natural Gas come down from a contract high of 14.546 to a current price of 6.604. 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: Today's close below $50 is not bullish. The low for the move of $48.25 is the next target for energy bears with further support at $45 and $41.85. Resistance is basically $50, $55 and $60. Technically, the market is still in a downtrend and rallies are to be sold.
Trade Recommendation(s): Sell 1 January Mini Crude @ $56.45. Risk to $60.70 with an objective of $46.75.
Hedge Recommendation(s): Buy 1 April 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.
Working Trade(s): Bought 1 February Gold $600 put (11/4) @ $12.50. Risk to $0 with an objective of $40. The put settled at $4.20 on the day.
Bought 1 March Sugar 13.00 call (10/14) @ .62. Risk to .20 with an objective of 2.00. The call settled at .38 on the day.
~Brian J. Splitt
Lean Hog Commentary: Market ready hog numbers remain lighter than expected. The kill in the past four weeks have averaged 1% lower than last year. This has taken some of the bite out of what is the highest pork production time of the year.
Cash hog prices steady to higher today and will likely remain so through this week.
Wholesale pork prices, via the pork cutout, were up a good 95 cents today.
Pilgrim's Pride in bankruptcy still shows weakness and continued cuts in chicken production. Lower chicken production into first half 2009 may help pork prices.
USDA revised down its estimate of Friday's kill from 437,000 head to 427,000 head.
We still like the idea cash hogs have bottomed and nearby futures have the correct premium needed. We are not bullish December and February. Instead it appears the deferred 2009 contracts of May through July may be a little under priced. We believe the drop in pork production set to happen will more than offset any drop in pork exports. That is different from USDA's thoughts.
Lean Hog Technical Commentary: The short-term trend is steady to higher.
The bullish Head and Shoulders objective on the February at 6700 was filled on Friday.
Vital Technical Indicator: Next projected major turn day for lean hogs is December 5.
Trade Idea(s): Stand aside.
Option Strategy(s): Sell 1 February 63 put at $2.35, risk to $3.20, obj 0.
Sold 1 December $72 call at $2.20. Settlement is cabinet (essentially 0).
Pilgrim's Pride Files for Bankruptcy Protection: We reported on Wednesday Pilgrim's Pride, the nation's largest chicken producer, has been given a temporary waver on its debt covenants for the holiday. That deadline came up today and Pilgrim's ended up filing for bankruptcy via Chapter 11. This will allow the company to continue operating and attain an additional $50 million in temporary financing via a judge's approval. Essentially with this route the company may not have to sell off assets. The bad news is it reflects the current negative margin environment that chicken producers are in. Though producers have seen feed costs decline and have also cut production it will not be until this month that those production cuts begin to stop the price slide in prices.
Live Cattle: The Dow dropped a significant 679.95 points today. This is the biggest one-day drop since the Oct. 15 733 point decline. Concerns about the economy, and therefore beef demand, remain.
The group, which officially calls recessions, announced today we started the current recession in December 2007.
On Friday, the government will release job data. Estimates suggest the U.S. lost 350,000 to 400,000 jobs last month compare with their preliminary October estimate of 240,000 losses. Essentially, we have not found the "bottom" in the recession yet.
Though cash cattle traded up $3 to $90 last week, December futures are implying it will be $84/$85 at the end of this month. Essentially futures are pricing in a $5 or $6 decline in the next four weeks.
Against all the above listed bad news keep in mind the stock market, and beef demand, typically bottom before job losses stop. The market is simply looking for any signs the "worst" is over. When that happens, we can turn back to watching beef supply info.
If this market ever realizes beef demand will likely not fall near as much as futures are implying a sizeable $5 to $10 futures rally could be seen. We do not believe this market will hit that realization for weeks however.
For hedgers we will hold those February puts for now.
Live Cattle Technical Commentary: The long-term trend is down.
Vital Technical Indicator: Next projected major turn day is December 3.
Trade Idea(s): Sell 1 February 8950. Risk 9110. Objective 8500.
Option Strategy(s): Stand aside.
~Rich Nelson
Allendale Research
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
