Corn: The US dollar broke to new lows for this downtrend. It is now at its lowest level since September 29. Crude oil prices appear ready to retest their June 30 highs for this uptrend which is at $73.38 using a nearby chart. This support from outside markets combined with hot weather lined up next week gave corn reason to rally. Good to excellent crop ratings, out this afternoon, showed corn fell 2% from last week. Given the exciting trade today we would expect traders to put a bullish spin on this as well. In the big picture you cannot argue much has changed from a numbers standpoint. We should expect these weekly crop ratings to fall for four more weeks as they seasonally do. Also, keep in mind a corn crop rated 68% good to excellent is clearly above the 61% rating found on the five year average. USDA will easily increase its yield guess on next Wednesday’s supply/demand report. USDA estimated new crop ending stocks were 1.550 billion bushels last month and we see them posting an increase around 1.700 billion bushels. Also our contracted meteorologist Drew Lerner, has noted 1) a little heat will likely help the crop and 2) this heat may not set in long enough to provide significant damage.
Direction: In the big picture we will still have more than enough bushels. We will want to sell this rally. In the short term, bulls will likely run the show this week. We attempted two sales and have had our hand slapped. We will not sell this market for speculative positions until we see a technical sign that this market is ready for it. It will happen, but not right now…Rich Nelson
Trade Idea(s):
(07/30) Sold Dec 356, risk filled 08/03 on the 369 close for -$650.
Option Strategy(s):
(07/21) Buy Dec 320 call and sell 380 call at 10 cents. Risk to 0. This will be leg one of two leg position we intend to put on.
(07/28) Bought Dec 400 call for 8 cents, risk to 0. (first of 4 calls for a frost scare position)
(07/30) Bought Dec 340 put/sold Dec 380 call at 15 cents, risk at 5 was filled 08/03 at -4 cents for -$950.
***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.
Corn Technical Commentary:
Vital Technical Indicator: the next projected major turn day is August 18.
Soybeans: Last week’s big China purchases of US soybeans got the market going. The overnight support from outside markets and the forecast change continued that support. From a traders short term perspective this bullish news comes in front of USDA’s August report next Wednesday. It is likely old crop ending stocks will fall from 110 million bushels to 100 or sub-100 million bushels. We must respect the fact old crop demand is a little better than USDA has been expecting. Also keep in mind the 100 million bushel point is the “magical” level that bulls want to hear. From a new crop perspective we do not look for USDA to change yield much at all next Wednesday. They will likely adjust new crop exports a little and bring new crop ending stocks down from 250 down to 220 or 230 million bushels. In the short term, this is a bull market and prices will likely remain here or higher into Wednesday’s report. In the big picture, we are still not excited about “massive” Chinese buying in new crop soybeans before harvest. They have been known to hit the cancel button before. Additionally, there is little correlation between pre-harvest bookings and actual year end exports. There is a large concern we have that once they see South American plantings start then they will simply stop purchases of US product. One good example of something to look for on that front…Celeres, a SA analysis firm, has estimated Brazil’s soybean crop will be 11.3% higher in the 2009/10 year! That comes off a 6.4% jump in expected plantings. What would you do if you were Chinese soybean buyers? In the short term this will be a bull market into next week and we will not stand in front of it will speculative sales. In the big picture anything near $10 for November soybeans is significantly overpriced…Rich Nelson
Trade Idea(s):
(07/30) Sold Nov 1002, risk filled on 1030 1/2 close for -$1,425.
Option Strategy(s):
(06/09) Sold Nov 1240 call/sold Nov 800 put 62 1/4, risk to 55, objective 20. Closed 37 3/8.
(06/16) Sold Nov 1220 call 45, risk 40, objective 0. Closed 31 3/4.
(07/24) Bought Nov 940 put/ sold 1000 call 34 cents, risk of 14 cents filled 07/30 on open at 7 for -$1,350.
***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.
Soybean Technical Commentary: Beans left a large gap behind as they shot higher today. We noticed that the market closed right on a downtrend that started with last summer's highs and hits the most recent high near 11.00. This could be a key resistance area now.
Vital Technical Indicator: the next projected major turn day for soybeans is August 14th, soybean meal is August 17, and soybean oil is Aug 6.
Wheat: Last week’s wheat tour results indicated a better than expected spring wheat crop out there. This morning’s news that the Argentine government will lift export limits on corn and wheat is also bearish. It had no market impact as they don’t have much wheat to sell but the gesture is something to note. The key thing we’re noting is short term wheat news is bearish. However, prices continue to be driven by corn and soybean prices right now. Based on wheat-only fundamentals we would be sellers of wheat. However, the market has slapped our hand and we must listen to the current bullish driven run for a few days…Rich Nelson
Trade Idea(s):
Chicago Wheat: (07/28) Sold Dec 561, risk 568 filled 08/03 for -$350.
KCBT Wheat: (08/03) Stand aside.
Minn Wheat: (08/03) Stand aside.
Option Strategy(s):
(07/06) Sold Dec Chi 630 call 20 1/4, risk 30 1/4, objective 0. Closed 29 1/2.
***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.
Wheat Technical Commentary: KC wheat rallied through resistance at the top of the range near 5.75 today without blinking. The 40 day MA finally stopped the market though. Can it close above 5.75 for a second session tomorrow? If so, it may be time to get long.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is Aug 10.
Softs: As discussed on Friday we were looking for coffee to follow outside markets and that is exactly what we saw. With the dollar index falling hard well below contract lows, coffee was quick to follow along. That outside support took us to our objective of 130.00. This market may be seen as overbought at this point and could be set for some correction. Right now, it is trading at an old consolidation level from the most recent move lower; some indecision may develop on the way higher at these levels as well.
Cotton also felt the influence from a much lower dollar, trading limit higher at one point in the December contract. Demand remains strong right now and the production side is of concern. With the switch in weather from La Nina to El Nino there is enough irregular weather to make it tough to argue for record yield. There are some estimates looking for cotton to trade as high as 72 cents on good demand in China. Right now we want to take a shot at selling Cotton and risking to right above recent highs.
Sugar was back on its run higher again today after seeing a short setback on Friday. We were looking for a pullback and right now it looks like it was only to last one day. We did not get bought on that pullback and may take an approach at it once again on a future setback. Sugar traders were surveyed and out of 9, 6 of them were bullish raw sugar in New York. There is no reason to dispute that as outside markets continue to support a market already making new highs…Ryan Ettner
Trade Recommendation(s):
Buy October sugar 18.09, risk 17.20, objective 19.10
Sell Dec Cotton 63.20, Risk 65.10, Objective 59.50
Working Trade(s):
(7/30) Sell September Cocoa 2880, risk 2940, objective 2700
Executed Trade(s)
Bought Dec Cotton 123.80, sold @ 130.00 +$3,100
Technical Commentary: Coffee closed above resistance today and could have another 2-3 dollars in its path. The next upside resistance comes in at 134.00 with support at 126.30 and 123.50 Please call with any questions 800-262-7538.
Energies: September Crude was $2.13 higher for the session; settlement was $71.58. The continued erosion on the Dollar Index chart is keeping the commodity markets friendly in general. Equities have rallied sharply in the past two weeks and this has provided underlying support to the energy complex since higher equities leads to ideas of better demand. Economic data this morning showed that the manufacturing sector shrank at a slower that expected pace in July which added support. The trade continues to battle with ideas of bearish fundamentals against bullish charts. We have to remember that this market bottomed early in the year while fundamentals were as bearish as they have ever been. When a market should go down but doesn’t, it should probably be bought. It’s hard to argue with the market, ever; that’s like saying I’m right and everyone else is wrong. We are overbought right now and could easily argue that the market has advanced too far too fast, but we will still look to be a buyer at lower levels…Brian J. Splitt
Trade Recommendation(s):
(7/27) - (Conservative Rec) Buy 1 September Crude Oil at $63.25. Risk to $59.25 with an objective of $74.65.
(8/3) - (Aggressive Rec) Buy 1 September Crude Oil at $65.65. Risk to $61.45 with an objective of $74.65.
Technical Commentary: Crude continues to maintain its uptrend from the lows made in February. We closed above the short term down trend from the June highs today which will suggest a retest of the June high at $74.66 in the September futures. Close-in support in September crude will be $70 with $68.99, $66.60, $65, $63.75, $62.70, $61.60 and $60 providing further support. Close-in resistance is $72.75 while $74.25 and $74.66 provide further resistance. The recent high has been $74.66; a move above this high will project to about $88-$90. The market is overbought but stochastics are still pointing higher. All major moving averages are below the market and we will buy on a test of those moving averages, specifically the 20 and 100 Day M.A.s.
Gold broke out of the top of the wedge formation today, but is now trading back below the most recent high at 962.70. If the market can close above this level, that might open the door to the June high more easily.
Hogs: The lowest close of this downtrend was hit today for both October and December contracts. Traders came into this week on a bearish stance and that continued with packers running a limited 316,000 head run today. Packers limited the day’s kill to give cash hog prices a chance to catch up to wholesale pork prices. This afternoon’s wholesale pork price was down $1.01 so we cannot say this problem is over. Indeed for many weeks, if not months we have been concerned about the fall/winter mis-pricing in futures and it appears the trade is ready to take notice. As we noted in this afternoon’s weekly meeting with the brokers, we are looking at a 16% increase in pork supplies from mid August to December. However, futures (August vs. December) are only implying a 5% drop is due. We still must point out our best case scenario for December is $50 at expiration. It is likely we will easily go lower. In other news Paul made a very good price comparison of previous lows during the past two liquidation cycles (1998 and 2002). We will point out during those two liquidations prices were unnaturally bent lower than the supply/demand should have implied. The reason for the unnatural price decline was the fact we hit packer kill capacity issues. Once a packer has more hogs than they can process in a normal workweek they must extend kill hours or open a second shift here or there. That higher than normal cost to get the job done is applied against hog prices. Packers simply cannot discount those numbers enough to discourage them from showing up at the front door as livestock must be marketed. This year is different. We have low prices due to demand. We will remain under the current packer kill capacity limits and therefore will not hit near price levels in those two previous liquidations. Also on the demand front, as you may have read on the Kick Start page, China is putting up more roadblocks against US chicken. More chicken left in the US means more competition for domestic pork and beef. For trading we had the right idea last week with the sell December/buy April trade but did not get it enacted…Rich Nelson
Trade Idea(s):
(08/03) Sell Dec 53.00, risk 54.80, objective 48.60.
Option Strategy(s):
(07/28) Bought August 60 Hog Call for $.40, risk 0. Closed $.10.
***Disclaimer*** the commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.
Lean Hog Technical Commentary: Although hogs didn't post another new low for the move, the market still finished a bit weaker on the day. It may only be a matter of time before a new low is set, so we would recommend selling any bounces here.
Vital Technical Indicator: Next projected major turn day for lean hogs is Aug 13.
Cattle:
Trade Ideas(s):
(08/03) Buy December 88.60, risk 87.40, objective 91.60.
Option Strategy(s):
(07/16) Bought 1 Dec 90 call/sell 1 Aug 85 call 1.80, risk to .80, objective 4.25. Closed 2.17.
***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.
Cattle Technical Commentary: Cattle continued to trade rather choppy again today, but held above 38%. The market traded both sides of the 20 day MA though. There is an uptrend on chart, but we are not very confident it can hold.
Vital Technical Indicator: Next projected major turn day for live cattle is August 6 and for feeders is August 7.
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
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
