Allendale Wrap-Up 2/22/2010
Corn: There was initial support this morning from concerns about South American weather. That support started mainly in the beans but the second bounce higher came from corn. This was no small buying where we just couldn’t find buyers either. Volume in May corn at the end of the day was over 150,000. It is too early to tell if heavy fund buying was involved but based on that size volume, one would certainly expect to see them coming back and adding to their long positions. It is likely that some setback can be expected due to the forecast for Argentina now looking to be rain free until Tuesday of next week. Each passing day, conditions should look to get better in that area allowing for a steady easy pullback. We are now neutral to bullish corn.
U.S. ending stocks will decline again next month and there are concerns wet conditions will impact: remaining corn in the field and potential new crop plantings. While we do look for a pullback, it’s important to note that technically we have opened the door to higher trade. Just today December corn bounced all the way back to $4.1275. A hedge at $4.30 giving $4.00 cash corn is not far out of reach. As a first note of caution we want to point out that a run up to January highs is possible and should be taken full advantage of. There will be no doubt that once we reach those highs, someone will be claiming corn will move to $5.00. Let’s always remember what levels we are profitable at and what levels we recently came from before holding off hedges, shooting for the moon.
Soybeans: First thing this morning beans looked to find good support from the heavy weekend rains in Argentina. There was an expected initial jump higher as the day session group came across the news for the first time. As expected there was a pullback shortly after. In beans the main difference today was that recent resistance levels were not taken out. Also, volume was not very impressive suggesting that beans could give back gains seen today easier than the corn. South American bean production still holds a potential for a very large crop. For that reason, it will be tough for this market to rally until we know something more about the crop. There were threats put out today about the crop seeing damage but we will really have to wait and see what we get at harvest. There is still plenty of time for drying with improving conditions. A solid piece of fundamental news here is that U.S. soybean end stocks will decline again next month. That makes four straight months of declines. May beans still need to take out $9.75 to open the door to higher prices. We will say that the low is in for winter and are neutral to bullish beans. Moves down to 930 in May should be seen as a buy looking for $9.75 to be taken out leading into the bean spring rally. We have been looking for more solid news to be bullish on. Continued reports of poor conditions in South America that actually result in crop damage is exactly the fuel needed for a bullish fire. Today was a good start to keep us slightly bullish, more news will quickly get our sights back onto hedging following a longer term run back up.
Wheat: Officially, fundamental news was mixed for wheat this morning. Private market estimates for India wheat exports are slowly rising. Now they are seen up to 2.5 million metric tonnes. There is still no private market sales allowed, only government made deals. The USDA indicated 17.7 million bushels of wheat were shipped out last week. That was within expectations. Also, we see the Canadian Wheat Board left its 2010 wheat production estimate unchanged at 24 million metric tonnes. That is still down from 26.5 posted last year. The general theme of slowly declining production continues…Rich Nelson
Ryan Ettner is a registered broker and grain analyst at Allendale, Inc.. Rich Nelson is Director of Research at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com