Corn: The consensus among analysts is USDA will raise old crop stocks tomorrow morning. There is a disagreement about where exactly they will adjust demand. Most of the group will point to corn exports. Though recent weeks have been close to a normal pace, it will be hard to make up for months of far below normal exports.
Another Ethanol Drop? Another issue which USDA could address is ethanol demand. While ethanol production levels for December, January, or current are not known we know from Allendale’s profitability model that ethanol production margins have simply gotten worse since fall. USDA could drop ethanol production even more. Internet subscribers, see the chart for yourself in the Special Reports section on the left side of the screen.
South American Declines: For corn, the only bright spot we can see tomorrow is that USDA may drop both Argentina as well as Brazil corn production. Argentina could go from 16.5 million metric tonnes down to 13 to 16 mmt. Brazil could go from 53.5 to 50.3 or 50.75.
Message: Tomorrow’s report is expected to be net negative for corn. However, Allendale’s price forecast is for a sideways range from 377 to 432 on the July contract into planting. The Price Outlooks section of the website shows after planting the July may move down to 331. In other words spring plantings are the only big picture bullish thing here.
Trade Idea(s):
(01/28) Sold 1 3850, risk 3956, obj 3450. Closed 377 1/2.
Option Strategy(s):
(01/23) Bought 1 Dec09 410 put @ 51 to lock in a floor. This as a starting point for a position to be built as the market moves.
(01/13) Bought July 390 put/sold July 460 call at 12, move risk from -2 up to 8, obj 50. Closed 15 1/8.
Corn Technical Commentary:
Although corn pushed above the long-term downtrend today, it could not close there. This keeps the market in the wedge formation for now. The 50-day MA is near today’s close and the 40-day MA is just above the formation. There are further resistance levels above the wedge too.
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 February 11.
Production, Supply & Demand, to be released 7:30AM on 2/10/09
U.S. Ending Stocks in million bushels
Trade Range
Ave Est
ALDL 08/09
USDA Jan 08/09
Actual 2/10/09
U.S. Corn
1740-1940
1838
1815
1790
Soybeans
123-230
203
218
225
Us Wheat
591-685
649
685
655
World Ending Stocks in million metric tonnes
ALDL 08/09
USDA Jan 08/09
Actual 2/10/09
World Corn
134.1
136.03
World Soybeans
49.23
53.94
World Wheat
148.92
148.36
Soybeans: The trade is preparing for bullish news on tomorrow’s report. Old crop stocks could drop around 20 million bushels or so. See the Corn Commentary page to see all the guesses. While the domestic crush rate is weak, it could be overshadowed by a jump in exports out of USDA. The phenomenal purchases from China have raised the bar of expected exports. However being realistic, we all know China will drop off at some point. Today they purchased another 120,000 tonnes of U.S. soybeans (4.4 million bushels). We may have a few more days before they completely abandon us.
South American Production: How much will USDA actually drop SA production in one month? Last month USDA had Argentina at 49.5 million metric tonnes. The current range among other groups is 40 to 45.8 mmt. USDA had Brazil at 59 mmt last month. The current guesses range from 57.1 to 59.
Direction: Tomorrow’s report will tighten the old crop situation, which could support prices. However, we all know world soybean buyers will soon switch over to South American supplies. That leaves us with a steady to higher outlook from now into planting. On the July contract that gives a wide range from 925 to 1074 between now and planting. Once those acres get planted, we have a 935 target for expiration of the July contract then 750 at harvest for the November contract…Rich Nelson
Trade Idea(s):
(01/27) Sold 1 Mar 986, risk 1079, obj 920. Closed 1002.
Option Strategy(s):
(01/28) Bought 1 Nov 840 put, sell 1 Nov 720 put at 43, risk 20, obj 70. Closed 40 3/4.
Soybean Technical Commentary:
Beans rallied above 62% retracement today, but failed to close there. There is a solid uptrend in place though, so even with a weak close today, it doesn't mean the bulls are done here. We 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: the next projected major turn day for soybeans is February 13, soybean meal February 23, and soybean oil is February 18.
Wheat: The trade is expecting USDA to make few changes on its wheat balance sheet. There are valid bullish arguments here to make regarding the drought in the U.S. southern plains. However, the trade will not get too excited until spring dormancy starts. Additionally forecasters are throwing a few rains (today included) into the plains in the next week or so. On Thursday, China called a drought emergency in northern areas. They clarified this may not impact their wheat ground much if farmers irrigate as they have been told. Additionally, the government made it clear its 60 mmt in government reserves would offset any shortfall.
Direction: There is a premium in this market on crop concerns. After that crop has been decided we pretty much have to be neutral to slightly bearish in the longer term…Rich Nelson
Trade Idea(s):
Mar CBOT Wheat :(02/06) Bought 1 Mar 556, risk 542, obj 577 (02/09 move to 570). Closed 565.
Mar KCBT Wheat: (02/06) Buy 1 Mar 574, risk 560, obj 605.
(02/09) Sell 1 Mar 609, risk 620, obj 578.
Mar Minn Wheat: (02/09) Sell 1 Mar 665, risk 678 1/2, obj 640.
Note: March Chicago wheat posted a high of 577 today, right where our sell order was located. In all fairness, we do no consider ourselves filled until it trades through or price when it is placed as a normal price order (called a limit order).
Option Strategy(s):
(02/04) Sold 1 May KC 500 put/sold 1 May KC 640 call 37, risk to 50, obj 0. Closed 40 1/8.
Wheat Technical Commentary:
KC wheat has a similar wedge formation in place as the corn market right now. The top side was tested today, but the close was in the middle of the day's range. The 100-day MA is following the long-term downtrend, making this a solid resistance area.
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 February 18.
Softs: (Coffee) Coffee could be close to a breakout if 123.50 is taken out in the May contract. If January’s highs are taken out, we could see a retest of September’s lows of 133.00 to 135.00. We re looking to stay in the May contract because the March goes off the board on February 19 and if there is profit taking you could see contracts rolling out of the march and into the May. On the fundamental side of Coffee is that the International Coffee Organization today trimmed the world estimated coffee production to 133.4 Million 60-K bags from a January estimate of 134.2 Million bags. The new forecast is still up 14.8% on the year. Global output should decline in 2009-10 due to problems with Brazil’s crop and lower estimates for the coming crop year. . . .Steve Georgy
Trade Recommendation(s):
(Coffee) Buy 1 May Coffee at 119.80, risk a close below 117.00, objective 125.80
(Cocoa) Buy 1 March Cocoa at 2635, Risk 2560, Objective 2835
(Cotton) Buy Dec Cotton / Sell May Cotton at 4.80 cents, Risk 4.30, Objective 6.60
Working Trade(s):
Bought 1 March Cotton at 49.80, Risk 47.80, Objective 55.80
Technical Commentary: (Coffee) Coffee could be ready for another sharp move higher but we have resistance at 123.40 and 125.85 with support at 118.36 and 117.00. If we see a few closes above 123.40 (May) our next upside objective will be September 08’s lows of 134.00 – 135.00.
Energies: March Crude Oil settled $0.61 lower today at $39.56. Crude Oil managed to trade below $40 and settle above $40 every day last week, which shows that this price point is an obvious battleground between bulls and bears. Last week we seemed to find just enough strength in the market to close above $40 even in the face of three consecutive weeks of bearish inventory data. Today we found early support from the economic stimulus plan and utterances from OPEC of more possible production cuts and the possibility of tabling some long term projects meant to increase production. We seemed to pull from the highs as equities backed off their highs and the Dollar Index rallied from its lows…Brian J. Splitt
Farm Hedge Recommendation(s):
Buy April Mini Natural Gas (per 800-825 acres of corn production) @ current levels. Lift hedges as you commit to purchasing cash NH3.
Buy April Heating Oil (per 42,000 gallons of diesel fuel use) @ current levels. Lift hedges as you commit to purchasing cash fuel.
*WE HAVE SEEN AN 11% INCREASE IN HEATING OIL PRICE FROM THE CLOSE ON CHRISTMAS EVE TO TODAY’S CLOSE*
Working Trade(s):
Bought 1 March Mini Crude (1/22) at $42.55. Took $1 profit on day trade dropping our base position to $41.55. We will move forward with a risk of $37.55 and an objective of $47.45. March Crude settled at $39.56. It might not be a bad idea to get out just under $42 if we get a quick rally.
Bought 1 March RBOB and Sold 1 April RBOB (2/3) at 10.35 cents premium April. Risk to 14.55 cents premium April with an objective of 2.05 cents premium April. Every penny in RBOB is $420. The spread settled at 9.10 cents premium April.
Technical Commentary: March Crude has closed below $40 only twice; once was the day the contract low of $38 was made and the other day was today. The high in the past two sessions has been right at the 20 Day M.A. There is a head-and-shoulder top on the five-minute chart that projects to roughly $38. Close-in support in March will be last week’s low of $38.60; the contract low of $38 is further support. A close below $38 will likely lead to a test of $32.50. Close-in resistance is psychological at $40 with $41.40, $42.30, $44.45, and $47 as further resistance. A 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. The market is slightly oversold and stochastics are pointing down.
Metals: There is a possible head and shoulder top in April Gold, which projects to a solid buy point of $850. We have support at $890 and $875 along the way with resistance at $922 and $932.
Trade Recommendation(s): Buy 1 April Gold at $855.60. Risk to $844.40 with an objective of $888.40.
Hogs: The slide in cash hog values continued today. The lean hog index, covering cash hogs traded through Friday, will be $57.59. That is what the CME will release tomorrow. Today’s cash hog trading will likely put that around $56.50 or so. February futures, which expire Friday at noon, are implying the index will be $56.05. Given the current slide in cash hogs, that February contract may have a little more downside to go. Also bearish, the average speculator will look at the April as the front month contract and think there is no reason for a $4 premium. That premium is certainly valid and needed but we could see the April remain steady to lower in the next couple of weeks as non-pork interests try to bring it closer to $56.
Facts Winning Out? Our big beef with the news wires right now is their reporting of rumors as though they were facts. There are valid concerns about exports. They are running lower than last year. There has been some suggesting domestic pork demand has vaporized in the economic downturn. Our models suggest it is down a small 2% to 3%. Now, if demand has been vaporized we should be seeing $1 drops in wholesale pork almost daily. Last week it was down a mild 11 cents. Today’s report turned that around with a 92¢ gain. Facts are slowly seeping in here.
2009 Big Picture: Even with lower pork exports and the very slight drop in domestic demand, our studies suggest the contraction in hog supplies this year will be the main factor for 2009 pricing. However, we have made it very clear that contraction will not be felt until the month of April or so. That is when the numbers tighten up severely. Summer 2008 contract expirations were $82 for May, $73 for June, $75 for July, and $89 for August. All 2009 contracts for that timeframe are $73 or $74. Our price projections suggest we will have a chance to hit $84 for the May and June futures.
Short Term: The January through March timeframe is a sloppy pricing time. We are bullish longer term but do not look for futures to get correctly priced until cash hogs start their seasonal bull run in April. For now, we will play that June/April spread for trading and slowly build a long option position...Rich Nelson
Trade Idea(s):
(02/05) Stand aside.
(01/28) Bought Jun/sell Apr at 12.25, risking 1.50 from entry, obj 15.00. Closed 12.97.
Option Strategy(s):
(02/04) Bought 1 Jun 78.00 call/sold 1 May 68.00 put .30, risk to -1.20, obj 5.50. Closed -.05.
Lean Hog Technical Commentary:
Hogs continued to be pressured by the current downtrend. The market remains very oversold though with an RSI below 30. We will stand aside again, but are looking for signs of a possible recovery.
Vital Technical Indicator: Next projected major turn day for lean hogs is February 11.
.
Cattle: At this afternoon’s weekly meeting with the brokers and branch offices, we covered the wholesale beef market. Wholesale beef buyers are giving signs they think wholesale beef prices are at, or maybe even under, value. Boxed beef volume in the previous three weeks was 1,415, 1,323, and 1,389 boxes. Last week’s volume was a large 1,799 loads. Essentially, wholesale beef buyers voted with their checkbook that last week’s lower prices were a value. Until this point they were saying that any amount of beef we offered them was simply too much. It is likely that reason that packers paid $83 for cash cattle late on Friday. That was better than the $81 average seen the previous week.
Should We Believe It? It is still hard accept the idea we can actually get supportive to cattle prices. Every piece of big picture economic news remains flat out bearish. However, we could be seeing the wholesale beef trade say hope over the economic stimulus package and other factors, is reason enough to bottom this market. On the charts, the gap from 87.20 to 87.40 was filled on the April contract. The market filled the gap and closed above it, which is a positive sign. Today’s close also may be breaking out of some technical formations. For trading direction perhaps it is time to become cautious supportive here. For cattle feeders, we still have not replaced hedges...Rich Nelson
Trade Idea(s):
(02/09) Buy 1 Apr 84.75 or 88.25 stop, risk 1.50 from entry.
Option Strategy(s):
(12/16) Sold 1 Apr 84.00 put @ 2.45, move risk to 3.60, obj 0. Closed 1.35.
Cattle Technical Commentary:
Cattle closed up near 50% retracement today, which gives more credibility to the current uptrend and head & shoulders bottom. The H&S formation has to reach 92.10 to get confirmed though.
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 February 20 and for feeders is February 9.
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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
