Allendale fundamental grain report
Corn: Traders are focused on Argentina weather. This is improving later this week and Brazil’s crop is actually improving. The market is also in tune with the economy. I can only say that the economy is still struggling and that there is another wave of banking issues followed by a wave of transitions that we expect to see in the Ag sector (related to the fertilizer price decline). So the market is bearish. The lower it goes the better a chance we will have this summer of a rally. But right now, we are clearly bearish. In the coming weeks the trade will turn its attention towards acreage. Allendale’s annual Acreage Survey, starting on the 23rd and lasting for two weeks, will be key for helping the trade make some decisions. There are 5.5 million acres (4 from wheat, .5 from CRP, .5 from small grains, and .5 from cotton) which will be divided among corn and soybeans.
Direction: We have sold futures, we have recommended farmers sell 100% of old crop. We also recommended farmers put on three-way put protection.
Corn Technical Commentary:
Corn closed below the early Feb low today, but now the market is very oversold. Tomorrow's trade could be critical in determining whether or not this market heads lower.
Soybeans: Last Monday’s high was $10.60. Today’s low is $8.99. That is $1.61 in six trading days. That is insane. We have been writing about how the acreage situation has changed and is now very bearish. Rich mentioned the 5.5 million acre that will be allocated to corn and beans. Last week he said “Whether they only get 2 to 3 million extra acres, which will be the low end, or as much as 5 to 6 million acres, it is still bearish. Our downside objective, which is likely too conservative, is for November beans to hit 755 by harvest. If we get that, 5 to 6 million extra acres then $6 to $6.50 is a target.” I cannot emphasis how good of a trade selling beans is. Obviously there is movement and there could be a rally back towards 920-950. That would be a selling opportunity.
Direction: We believe the market is headed lower. The animal numbers have been hurt and in some cases, financing will not happen and the comeback of those lots will be slow. Acreage is increasing every day. With the declining market, odds will favor even more acres of beans. Selling beans – even at breakeven or a small loss is better than doing nothing and selling at a huge loss. Our objective was hit today and we took profit on shorts. We will resell any bounce and will continue to remain short via options.
Soybean Technical Commentary:
Beans sold off sharply today and settled below 50% retracement. Further weakness could be seen again tomorrow. We will place a buy stop above 50% in case the market rebounds.
Wheat: After trying to hold near unchanged last night, wheat gave way to the selling pressure in all other grains and outside markets. From the crude to the Dow, everything pressured the market. Futures fell to support at 515. This is key. If it holds, then the market would have symmetry and could be a head and shoulder bottom. You can argue fundamentals on both sides as crop losses in have been reported in some countries, acreage losses in other countries. The reality however, is that the stocks of wheat are still large and are growing to 150 mmt due to large carry-in meeting demand destruction. We have been playing the short side but we were willing to buy against this support. We just are not willing to risk much.
Direction: Be willing to try the long side, don’t risk much. This is a bear market but is very oversold.
Wheat Technical Commentary:
Spring wheat dropped below the Jan lows today and is nearing 50% retracement now. A test of 62% might be a buying opportunity, especially since it's near the key 600 level.
For more technical information, including charts and trade recommendations, please visit the Advance Charts section of the Allendale Research Center.
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As always, if you have questions or comments, please call 800 551 4626 to discuss or send an e mail to research@allendale-inc.com
