Allendale Wrap-Up 1/11/2010
Corn: Disappointing would be the best way to describe the end of trade for those looking for new highs to hedge at. It is not as if the funds let us down. Volume near the close was large and much of that was the funds rebalancing. We have had nearly three weeks of spec buying that has held this market, all looking for a chance to sell once the funds came in with their buying. Many people have asked why the funds would want to let everyone know they are about to buy. One thing that they want to avoid is having their own buy orders run the market up. Each purchase they make forces their next purchase to be higher. As we have seen the last two afternoons, when sellers are ready for upcoming buying little total market movement is the result. These index funds are long term investors and sellers are helping to keep their costs down. Coming into this week the list of those waiting to sell was long. Recent speculative buyers are ready to sell back their March contracts. Hedgers are also willing and active sellers in the December contract. Everyone looks to have seen this fund buying the same way, as an open and obvious time to be a seller. Moves to new levels higher will take more than just funds now. A bullish USDA report tomorrow would help, especially if it were to cause a break above resistance without fund help. Average trade estimates for tomorrow have corn yield 162.5 which is 0.4 bu. decrease from December. We are one group that is looking for an increase in yield tomorrow to 163.9. This fund talk has caused us to look at the $4.50 floor but without significant help from the USDA report we will once again look at the $4.40 instead. There is no doubt that any hedges to be done early in the year need to be done this week. Call in to fine tune the option strikes to be used with three way hedges including using a market break to raise the price of a sold $3 put. This will mean that a market break can actually reduce the total cost of our hedge. However, you want to put on the hedge the most important part is that it needs to be done this week.
Soybeans: It is coming up on mid January and that is the time we start to find China moving elsewhere with purchases. Last year their buying stayed here in the United States due to production issues in South America. This year, that is not an issue with weather continuing to look supportive to ideas the South American crop will be large. Selling was active once again today, becoming even more active right into the fund rebalancing. That makes two days in a row that the bean market sold off going into the end of the session. Right now, the picture continues to look bleak for a bounce before a larger sell off breaks support at the 100-day moving average of $9.935. If there is any bounce found in the beans it would be seen as a selling opportunity. Originally, we were looking for a bounce back to recent highs near $10.70 but the trade is showing us that it would prefer to take beans lower. It is hard to argue with that idea as many factors we have looked at the last two weeks have been bearish fundamentally. Tomorrow’s report lacks expectations for a rally as well. Yield expectations have beans coming in at 43.4 which is 0.1 bu. increase from December. There is an expectation of a slight carryout reduction, which may be slightly supportive. Watch the report tomorrow for a bounce and if it brings one let’s be ready with our sell orders. There are very few who are looking for a sizeable bounce for this market.
Wheat: Today had generally calmed buying ahead of the funds and ahead of tomorrow’s report. There is an expectation for 3 million acres to be taken out of winter wheat seedings tomorrow which may help give wheat another push higher tomorrow. This market, like the beans, is short on supportive fundamentals except for that planting number just mentioned. World carryover numbers still look large and should be watched more than the US winter seedings. March Chicago wheat is starting to approach $6.00 again which would suggest a sell but for now we want to be small buyers of this market looking for a little support from the report tomorrow.
Ryan Ettner is a registered broker and grain analyst 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