Corn Fundamentals Bearish: We have known since last month's USDA report that corn now has all the bushels it would ever need. USDA may need to drop export numbers in the coming months and balloon old crop stocks even more.
South America: has provided a short-term breather from the bears. It is true that falling Argentine and Brazilian corn production estimates is supportive. However, there is no way those declines could offset the buildup in old crop stocks we have had since November.
The Only Question: is how long the South American debate would support prices before reality hits again. Argentina picked up a little rain this week but is now looking at dry weather. Will we be able to rebound in the coming days or was today's rejection of the highs a "nail in the coffin"? You get to hear our long term take this Saturday in Crystal Lake Illinois.
*** Sell Old Crop Corn: Allendale is now recommending to lift all futures hedges on old crop corn and sell 100% of cash. See the Hedge Advice page of this report for more info. ***
Trade Idea(s): (01/16) Sold 1 380, risk 395 hit 01/20 for -$750.
Option Strategy(s): (01/13) Bought July 390 put/sold July 460 call @ 12, risk to -2,
objective 50. Closed 9 3/8.
Allendale's Annual Outlook Conference on Jan. 23 and 24: How Much will Demand Jump in 2009? Get the answers, call (800) 262-7538 or go to www.allendale-inc.com
Corn Technical Commentary: Corn opened strong today, but once it hit the long-term downtrend, it retreated and closed just above 38% and the 50-day MA. Since this trendline is holding well, we will place a sell stop just under today's low to stay with the trend. For more technical information including charts and trade recommendations please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: The next projected major turn day is forecast for Jan. 22.
A Little Rain: this weekend in South America was enough to give the trade a good break today. As we still have dry forecasts for South America the remainder of the week we have to wonder if, for the short term, this market is not done with the steady to higher game. Also, we did not get a break below support as the Advanced Charts explain.
Balance Sheet Clearly Bearish: One thing that is clear is soybeans, like corn, know prices will be going lower into the long run. The only question is the short-term picture from now until planting. After planting we see little reason to hold out bullish hopes here.
Action Plan: Farmers are encouraged to use rebounds over 1000, via March futures, as targets to sell cash soybeans. For futures direction it appears a more sideways pattern (950 to 1050) is the short term trade. For trading we will note support has not been broken yet...Rich Nelson
Trade Idea(s): (01/20) Bought 1 Jul/sold 1 Nov at 60 premium July, risk 20 from entry
to 40, obj 100. Closed 57 1/2.
Option Strategy(s): Stand aside.
Allendale's Annual Outlook Conference on Jan. 23 and 24: Can the U.S. Satisfy China's Raging Demand? Get the answers, call 800-262-7538 or go to www.allendale-inc.com
Soybean Technical Commentary: Beans posted a large outside bar on the chart today, but the close was weak due to the market settling below last Friday's low. The close was also below the 100 day MA. This market also hit a long-term downtrend and retreated. For more technical information including charts and trade recommendations please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: the next projected major turn day for all soybeans is Feb. 3, soybean meal Feb. 5, and soybean oil Feb. 6.
Wheat Leading the Way: Down here. Chicago and KC contracts posted their lowest close of the downtrend today. Key reason is the warmer temps in the first half of this week. While the trade can point out Oklahoma and Texas are dry it is in no way a yield damaging issue. When wheat comes out of dormancy all it needs is a few rains and we are back in business. Another issue is the U.S. dollar. Since mid December it has been in an up trend. That is perceived as keeping the U.S. out of contention for these tenders countries are posting. The other issue that is lacking today that was in Friday's lineup is an Argentine farmer strike. That was an issue Friday afternoon but apparently is not in the cards now.
Summary: Without cold temps in the U.S. plains or bullish Argentina news this market is back to looking at a bearish balance sheet. Large carryover stocks will be pushed into 2009. That will offset some of the bullish enthusiasm from low winter wheat plantings. For trading we have a synthetic short using options. We are not convinced futures are safe enough yet. For producers all 2008 grown cash wheat was been sold.
Special Report: "20 Days and Counting for Wheat" has been released and is located at
www.allendale-inc.com/rc_free/freearticles.aspx
Trade Idea(s):
Mar CBOT Wheat: (01/15)Stand aside.
KCBT Wheat: (01/15) Stand aside.
Mar Minn Wheat: (01/15) Stand aside.
Option Strategy(s): (01/13) Bought May 550 put/sold Mar 620 call 24, risk to 10
cents, objective 45. Closed 35 3/4.
Wheat Technical Commentary: Once spring wheat tested the recent highs today and couldn't push through, the market retreated with the rest of the grains. The 50-day MA and 50% are just below though, and could provide good support again. For more technical information, including charts and trade recommendations please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is Jan. 23.
Softs: Cotton fell today on bearish outside markets. Very little today as far as fundamental market moving news but march cotton was down 219 points at 46.81 cents a pound. We did take out Friday's lows and probably hit some stops that pushed us lower. If we see a negative attitude tomorrow that could push us to test last weeks lows at 45.58. We need to pay attention to the technicals this week because we are getting close to breaking the short-term uptrend we have been in since Nov. 20. If we see a few closes below 45.58, this would change the trend and could retest the lows of 39.23. We are still looking at the long side of market until this trend is broken.
Working Trade(s): (01/20) Bought 1 March Cotton at 47.55, risk 45.50, obj 50.70.
Closed 50.70.
(01/19) Sold 1 March OJ @ 72.75, risk 76.75, obj 62.50.
Closed 72.25.
Cotton Technical Commentary: Taking out Fridays lows could project us to test last weeks lows at 45.58. The 50 day moving average comes in at 45.43 today and could be a target under last weeks support.
Energies: March Crude Oil closed $1.73 lower on the session at $40.84. Demand concerns continue to weigh heavily as stocks of crude are at all time highs in Cushing, OK. Hundreds of U.S. companies will report fourth quarter numbers this week which could add to fears that the global recession is getting worse by the week. What is frustrating to consumers is the fact that gasoline is up at the pump an average of 17 cents from a month ago while crude is over $3 a barrel cheaper.
Farm Hedge Recommendation(s): Bought 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.
Bought 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.
*** WE HAVE SEEN A 13% INCREASE IN HEATING OIL PRICE FROM THE CLOSE ON CHRISTMAS EVE TO TODAY'S CLOSE ***
Trade Recommendation(s): (01/14) Buy 1 March RBOB/sell 1 April RBOB at 13.95 cents premium April, risk to 18.55 cents premium April, obj 5.05 cents premium April. Every penny in RBOB is $420.
Working Trade(s): (01/20) Bought 1 June Crude/sold 1 March $7.90 premium June, risk to $5.80 premium June, obj $13 premium June. Closed $7.44.
(11/4) Bought 1 February Gold $600 put @ $12.50, risk to $0, obj
$40. Closed $0.10.
Closed Trade: (12/31) Bought 1 April/sold 1 March Crude $1.90 premium to April. Protective risk at $3.85 filled 01/20 for +$1,950.
Technical Commentary: Technically, the market is still in a long-term downtrend and rallies are to be sold. With that in mind, if the March contract is above $40 by month's end, the downtrend will be broken. Close-in support in March will be psychological support at $40 with today's low of $39.11 and the contract low of $38 as further support. Close-in resistance is $42.45 with $44.50, $47.20 and $50 as further levels of resistance. An inverse head and shoulder bottom is still possible on the March chart, but we need a move through $55 to confirm. It projects to $72. A move below $38 will nullify the possibility.
Vital Technical Indicator: the next schedule projected major turn day in crude is Jan. 27 and in the U.S. dollar tomorrow.
On Friday: we noted February hog futures were now properly priced to cash hogs. We estimate Wednesday's lean hog index, the measure of cash hog prices, to be $58.57. That puts the February premium at only $1.15 to cash. That is not too large at all. In the short-term this market is concerned about last week's break in wholesale pork prices. Cash hogs traded steady to weaker today and will likely attempt another day of the same tomorrow. Having laid out the short-term bearish argument we have to note wholesale pork has been making moderate gains recently. In the last three days it has gained back 34 cents, 49 cents, and 33 cents respectively. That may not be enough to rebound futures by $1 tomorrow but give this market more of a steady tone. We forecast higher prices for summer months but do not expect this market to hit our bullish expectations until the summer cash hog rally starts. One thing here, the biggest 2009 contract mis-pricing is the December at $67.65. In 2007 that contract expired at $55 while the 2008 contract just expired at $56. Our fourth quarter 2009 pork production forecast is almost equal 2008. If that is right the December 2009 contract is almost $10.00 overvalued. Keep in mind the trade will not begin to take that premium out until cash hogs peak in the summer.
Trade Idea(s): (01/15) Stand aside.
(12/31) Bought 1 Jun/Sell 1 Dec 11.45, risk to 10.00 obj 15.50.
Closed 10.17.
Option Strategy(s): (12/31) Bought 1 Apr 70.00 call/sold 1 February62.00 put at -.50,
risking to -2.00, obj 4.00. Closed -1.12.
Lean Hog Technical Commentary: Hogs still have an Island Top formation on their chart, but the past few sessions have seen sideways trade in very small ranges. We have a buy stop order sitting up in the gap in case there is another rebound. For more technical information, including charts and trade recommendations please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: Next projected major turn day for lean hogs is Jan. 23.
Obama Is Now President: and the economy did not miraculously rebound. The market realized that the economic situation is exactly the same as yesterday. The stock market, and therefore beef demand, was the prime factor in today's live cattle break. Just a few pages down, on this Advisory Report, we placed a chart comparing the stock market and live cattle prices. Today, the Dow closed at its second lowest close for this move.
Cattle On Feed: on Friday will confirm supplies are tight and will remain so for months. We estimate Placements during December were 98.0% of last year (-2%). They have been lower than last year in every month but one since March. That means lower feedlot slaughter rates are set in stone into April if not May. We estimate Marketings out of feedlots at 97% of last year (-3%). The Marketing number simply confirms we have low supplies and that will not change.
Outlook: Demand remains weak and we cannot call a bottom in the economy. We noted this morning that CME volume fell hard on last week's live cattle futures rally, a disappointing sign. On the positive side we can note cash beef prices rallied last week and were higher Monday and today again. We are not pushing to new lows in cash beef here, contrary to what the economy would imply. Live cattle futures are implying cash cattle will trade this $83 to $85 range pretty much straight into August. Until the economy bottoms we agree with this price range. If/when a bottom can be called in the economy these deferreds could post a good rebound. We are trading this as a sideways market and buying dips, or selling puts, for trading.
Trade Idea(s): (01/08) Bought 1 Jun 85.75, risk hit 01/20 84.00 for -$700.
Option Strategy(s): (12/16) Sold 1 Apr 84.00 put @ 2.45, risk to 3.95, obj
0. Closed 2.85.
Allendale's Annual Outlook Conference on Jan. 23 and 24th: What Is Our Call for 2009...Tight Supplies or Falling Demand? Get the answers, call 800 262 7538 or go to
www.allendale-inc.com
Cattle Technical Commentary: Cattle also gapped lower today and closed near last week's low at 82.25. Volume was low though, so we may not see this weakness continue. We were stopped out of our long on this drop and will stand aside tomorrow. For more technical information, including charts and trade recommendations please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: Next projected major turn day for live cattle is Jan. 28 and for feeders is tomorrow.
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
Rich Nelson and the Allendale Research staff
(800) 551 4626
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. c2009
