Allendale Wrap-Up 10/12/2009
Corn: More delayed harvest and frost talk was the fundamental news that helped lead corn higher today. Right now we are looking at a potential loss from frost standing at 100 million bushels. Funds were not quite as active today which was evident once corn opened higher and held on to those gains. This was a day guided more by fundamentals than fund buying. That was until corn broke the resistance of $3.76. Just before doing so we were given a GFS model forecast calling for a drier outlook late this week and early next week. What has been behind this rally more than anything lately has been speculative fund buying. Harvest delays have been one talked about reason for the rally just as planting delays gave us a rally. We are not being told anything about disappointing yields in corn just like we knew the corn crop would be put in the ground. Carryout for corn has barely changed in two months so there is not solid and fundamental news to back up a rally to this extent. During the summer months corn had divorced itself from the outside markets as well as fund influence. Just within the last week the correlation can be seen again. What this means is that even though the fundamental numbers would suggest that corn needs to setback, we must keep an open mind to the thought that funds and other speculative buyers are in control. As long as this is true we will stand aside from being bearish for now. We all saw what happened in the spring when the funds left the market so we want to use that as help for future direction. Right now the spread between current December and December 2010 is narrowing, which is telling us to get the beginnings of our December 2010 hedges done now. Funds are macro economic so we need to watch the dollar for near term direction. If they start to exit the market we need to be aggressive sellers and not be caught watching as could have happened in the spring.
Soybeans: Snow is not what the trade needed to see today. We were concerned about rains slowing harvest and there is not much that slows a bean harvest more than snow. As with corn, the beans were directed more by fundamentals today than spec buying, which is not to say they were not in the market. Beans started this rally on the day massive buying showed up in corn and the beans followed along. This was spec and fund buying. Since then we were given poor forecasts and continue to get poor weather. Today we were finally given a better outlook for the end of the week as well as the start of next week. That forecast could be used as a good reason for a turnaround Tuesday. Until we see a good setback this is another market we are standing aside from for now choosing not to stand in front of spec buying that also has short term fundamental weather backing it up. Yields remain strong from when we last heard numbers from the combine. One producer said today that his beans still look like they will yield well, even if they currently have snow on them. Beans running this much higher in this little time do not give us a feeling that it can be sustained. Right now cash is backing up this futures move with basis not widening much. There is little doubt that basis levels will quickly turn worse once combines start moving but will futures follow? If they don’t right away keep in mind that they may have to before too long.
Wheat: It was the first day where we actually saw bullish fundamental news with France lowering their 2009 production estimate by 1 million tonnes. How much did this smaller piece of news have to do with another bounce higher? Very little but we did mention we would provide bullish news if we saw any. As with the row crops wheat is another slave to speculative buying. When funds see the dollar move lower and look for commodities that are lower priced there is no way they can overlook wheat. To hedge against inflation wheat must appear to be the best buy among the grains. This market is still taking the back seat to the other grains and will continue to do so until we get something better than one fundamental story to back up a move higher.
Ryan Ettner is a Grain Analyst and Registered Broker at Allendale, Inc. in McHenry, IL. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com