Between a Rock and Hard Place: The short-term situation for corn is still mixed. The old crop situation is mixed to a bearish right now. We continually get reminded over the troublesome export situation. This morning's update on inspections showed 31 million bushels of corn were shipped out last week. While that was better than the 23 to 28 million bushels the trade expected we are still under the amount needed to ship each week to meet USDA hopes (36 million). This morning we noted China will increase its planned purchase of corn from 10 to 30 million metric tonnes (1.184 billion bushels)! In the short term, this is a little supportive. However, they will also be looking to enter the export market with potentially 7 million metric tons (276 million bushels) at some point next year. We cannot let price flounder though. Indications for new crop are a clear need for more acres and yet it will be hard to get those acres at current prices. If we do not get trend yield of 157 bushels per acre, the second highest on record, we need even more acres. In the long term, this market clearly needs higher prices. We are also looking at potential inflation in commodities by summer of next year. For trading while we like the long-term situation, we must note the trade has only short-term memory. If crude is falling we still think perhaps corn may be just a little overpriced right now. We are looking to short for a quick trading position. If the market does break, we will then start to build a long-term bull position. An example of that is the 3-way option noted below.
~Rich Nelson
Dept. of Energy Ups Ethanol: One of the long-term supportive factors for corn is the continuous increase in ethanol the federal mandate has put into place. That is minimum mandate amount. The Department of Energy puts out their estimate of what they expect ACTUALLY to be produced. Last week they upped their own estimates. For 2008 through 2010, the mandate calls for 9.0, 10.5, and 12.0 billions of ethanol. The DOE has 9.0, 10.7, and 13.0 for the same period. We converted these Jan. - Dec. numbers into monthly numbers then cut it up into Sep - Aug years to match with the corn-marketing year. For 2008/09, we come up with a mandate level of 3.629 billion bushels while DOE is 3.676. That is very close to USDA's 3.700. Our 2009/10 range jumps to 4.165 to 4.423 billion with the lower number being the mandate. That means, for the 2009 crop we have an additional 465 million to 723 million bushels to come up from USDA's old crop 3.700 estimate! Keep in mind that increase is set in stone! For your information, our computed 2010/11 range is from 4.470 to 5.061 billion bushels.
How much will Demand Jump in 2009? Allendale’s Annual Outlook Conference on Jan. 23 and 24. Get the answers, call (800) 262-7538 or go to www.allendale-inc.com
Special Report: has been completed. "Influences in Corn" gives a great primer for the bigger picture issues this market is trying to price in. We have made it available for you at http://allendale-inc.com/rc_free/blog03.aspx
Corn Technical Commentary: Do not be fooled by the smaller trading ranges and lower volume. This is more of a holiday related event than signs of an impending upside breakout. Corn is near up trend support.
Vital Technical Indicator: the next projected major turn day is forecasted for January 7.
Trade Idea(s): (12/16) Sell 1 at 3890, risk 12¢, obj 3816.
Option Strategy(s): (12/16) Buy 1 Dec09 390 call/sell 1 590 call/sell 1 330 put for 24¢, risk 12¢, obj 56¢. This is a bullish three-way option position and does require margin deposit.
Soybean Exports Still Great: Each week we get stats on new soybean sales on Thursday and what was actually sent on Monday. Today's export inspection report indicated 28 million bushels of soybeans were inspected last week. While that was a little less than the 30 million to 35 million bushel expectations it is still far above the 16 million needed each week to meet USDA hopes. No problem there.
Domestic crush still a problem: On Dec. 15, NOPA, the organization representing the crushing industry, reported November crush was down 5% from last November. Tomorrow at 7am CST, the government puts their spin on it. Estimates are to see 146.4 million bushels used which would be down 6% from last November. In the first three months of this marketing year crush was down 15%, 9%, and now 6%. The problem is the USDA thinks we will only be down 5% for the year. That means to meet USDA we have to run a 3% lower crush through August. It is possible but it getting a little harder.
The Net Result: is exports could be upped and crush could be dropped next month. That will leave us looking to South America and the U.S. dollar for market direction. On the SA side, the current weather reports indicate no significant change in the dryness for southern Brazil or Argentina. The U.S. dollar was lower which also provided support today. Our sell order was filled today, which a limited risk stop order in place, and we look for a move back down towards 855-845. If we are right, then we will use the ensuing price decline to build a longer-term ownership position.
~Rich Nelson
Can the U.S. Satisfy China's Raging Demand? Allendale's Annual Outlook Conference on Jan. 23 and 24th. Get the answers, call (800) 262-7538 or go to www.allendale-inc.com
Soybean Technical Commentary: The short term up trend is intact. Next hurdle is the 40-day moving average at 887.
Vital Technical Indicator: the next projected major turn day for soybeans is Jan. 8, soybean meal Jan. 6, and Jan. 5 for soybean oil.
Trade Idea(s): (12/22) Sold 1 March @ 8900, risk 9020, obj 8700. Closed
8904. Long term buy March at 8450.
Option Strategy(s): (12/16) Buy 1 March 840 put/sell 1 920 call for "0" or even cost. This is a bearish option position that does require margin deposit.
Temps vs. Tenders in Wheat? Drew's special report to our office this morning indicated the northern plains will go from the current much below normal to 2 to 8 degrees higher than normal by the end of the week. That will help alleviate some concerns about cold temps damaging winter wheat. Export inspections this morning were counted at 10 million bushels. That was a little less than the 12 to 15 million the trade expected. It is also below the 15 million needed to meet USDA. This was disappointing but we are not saying it is a serious problem yet. Keep in mind we have a lot of export tenders still on the Export Demand page but no confirmed sales yet! We should start hearing of some of those results this week. The neutral to bearish old crop situation is well known. The supportive standpoint can be noted for new crop where fewer bushels across the globe will be seen.
~Rich Nelson
World Production Ready to Fall? Allendale's Annual Outlook Conference on
Jan. 23 and 24. Get the answers, call (800) 262-7538 or go to
www.allendale-inc.com
Wheat Technical Commentary: The trend is up. Chart traders will now buy breaks.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is January ‘09.
Trade Idea(s):
Mar CBOT Wheat: (12/18) Sold 1 5600, risk 5732, at 5460 take profit and get long. Add to long at 5260. Risk 5120. Closed 5690.
Mar KCBT Wheat: (12/19) Buy 1 5600, Risk 5470, obj 6132.
Mar Minn Wheat: (12/19) Buy 1 6120, Risk and reverse to a short at 6000 stop. Obj 6680 on long.
Energies: February Crude Oil was down $2.45 at the close, settling at $39.91. Last week OPEC gave the market the biggest production cut in history, yet we are still finding new lows. Could it be because last time OPEC agreed to cut production, member countries only cut about 66% of the amount they agreed to cut? OPEC's outgoing President, Chakib Khelil, seems to understand the trade's concerns. He recently indicated that OPEC must "honor last week's pledges to cut production whatever the sovereign fiscal pain in order to gain the respect" from traders and market participants. Thank you to R.J. O'Brien Financial for Khelil's quote.
~Brian J. Splitt
Technical Commentary: Technically, the market is still in a downtrend and rallies are to be sold. Close-in support will be today's low of $39.74 with $38, $32, and $25 as further support. Close-in resistance is $40 with $44.30, $45.80, and $49.50 as further resistance. All major M.A.smoving averages are above the market.
Vital Technical Indicator: the next schedule projected major turn day in crude is December 30 and the U.S. dollar for December 29.
Farm 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.
Buy 1 February Heating Oil (per 42,000 gallons of diesel fuel use) @ current levels. Continue to scale-down buy every .15 from entry to cover fuel needs. Lift hedges as you commit to purchasing cash fuel.
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 $0.10 on the day.
Closed Trade: Sold 1 January Mini Crude (12/11) @ $47.45. If you were in the Mini, you were cash settled at yesterday's close for +$5,615. If you decided to trade the standard contract, our objective of $33.55 was hit today (12/19) for +$13,900.
Short Term Runs the Show in Pork: The trade is getting concerned about the premium this February has to cash hogs. Our projected lean index for tomorrow is around $54. With February futures falling the trade is concerned that February premium is too big. This is not that unusual for this ‘dead zone' time of year. Cash hog prices can sometimes flounder into mid January. The pork cutout was reported to be 82¢ lower this afternoon. This keeps the attention on lower cash hog trend in recent days. We are big bulls for 2009. However, it is not time to step out yet. Our stops were hit on the long trading positions and we will stand aside for now.
~Rich Nelson
Pork stocks larger than expected: This month's Cold Storage report indicated pork stocks increased by 6 million lbs last month and were 517 million lbs. Normally they DROP by 9 million lbs during that time. Are we seeing signs November pork exports were lower than expected? We call lean hog futures 20 lower tomorrow based on this report.
Pork belly stocks on target: We expected a smaller than normal increase in pork belly stocks at 34.6 and got exactly that with USDA's 34.5 million lb number. We increased 12.8 million from the previous month where normally we increase 14.4 million. Though restaurant visits are down we view this as signs they are using bacon extras to bring the bill back up.
How Good Will Production Profits Be in 2009? Allendale's Annual Outlook Conference on Jan. 23 and 24. Get the answers, call (800) 262-7538 or go to www.allendale-nc.com
Lean Hog Technical Commentary: The longer-term trend is still down. The gap open from 6297 to 6305 is now a ways away. Immediate support at 61.55 was broken today. A retest of 6050 lows could be due.
Vital Technical Indicator: Next projected major turn day for lean hogs is December 30.
Trade Idea(s): Bought 1 Feb @ 6225, risk 6120 hit 12/22 for -$420.
Option Strategy(s): Sold 1 Feb 63 put 235, risk 320 hit 12/22 for -$340.
Have We Factored in Bad Beef Demand? We started this week with a $2.38 jump in choice boxed beef and a 25 cent gain in select. It is hard to say any new trends will be starting into the holidays but it is good news. Also of interest, the stock market just cannot break those November lows put in a month ago. The stock market is saying it has factored in the worst of the economy. Deferred live cattle futures are not though. We feel this poor demand time will be coming to end soon and are bullish 2009 futures. We have also taken the first step in our bullish 2009 strategy by selling the April 84 put. When the market restarts the rally, we will buy futures. Of note: Friday this page showed a buy order for Apr at 90.10 with a risk at 88.50. It was meant to be a 90.10 buy stop (buy only if a breakout happens). As both the entry and risk were much above Friday's close, we assume you saw the trade a mistake and did not buy at the market. If it were not that obvious, we would have swallowed the mistake and assumed the trade. We apologize for the discrepancy.
~Rich Nelson
What Is Our Call for 2009...Tight Supplies or Falling Demand? Allendale's Annual Outlook Conference on Jan. 23 and 24. Get the answers, call (800) 262-7538 or go to
www.allendale-inc.com
Cattle Technical Commentary: The short-term trend is up. This is the second week in a row of higher futures trade.
Vital Technical Indicator: Next projected major turn day for live cattle is December 30 and for feeders January 8.
Trade Idea(s): (12/19) Buy 1 Apr 90.10 STOP, risk 88.50, obj 93.00.
Option Strategy(s): (12/16) Sold 1 Apr 84 put at 2.45, risk to 3.95, obj 0.
Closed 2.45.
COF Market Reaction: Allendale calls February 20¢ lower while April and June are called 10¢ lower for Monday.
USDA Cattle On Feed Report to be released on 12/19/2008 @ 2:00 PM numbers shown are percent of year ago levels
Allendale Outlook Conference for Jan. 23 and 24: Looking for Corn Profit in 2009 and 2010? Get the answers, call (800) 262-7538 or go to
www.allendale-inc.com
As always, if you have questions or comments, please call (800) 551 4626 or send an email to 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
