Allendale Wrap-Up 3/29/2010
Corn: Traders remain focused on the upcoming Acreage and Stocks reports due 7:30AM Wednesday. This is typically the most volatile report of the year as USDA often adds or subtracts 4 million acres to the mix. We believe that if the acreage total is left unchanged, the report could be bearish. But this is so unpredictable they could just as easily lose arbitrary acres. Thus going into the report, we are recommending that "traders" remain on the sideline with futures. We do have a small option position that we are only risking 8.5¢ on. If the report Wednesday is not a surprise, traders will immediately turn the focus to weather and demand. Weather is ideal this week and there will be substantial tillage and field prep work done. However next week should turn cold and wet again and thus the Corn Belt is not likely to see any planting the first week of April. Also, keep in mind the first of the weekly crop progress reports will start up next Monday at the normal 3 p.m. time. The first few will be more winter wheat focused. Certainly not a concern yet but we do not expect any negative price pressure from weather after Wednesday’s report. Demand will be the other influence. While actual demand is struggling with animal numbers falling (hog inventory -3% and all Grain Consuming Animal Units -2 to -3%) and exports falling below the pace needed to meet USDA projections, we should see demand decline and end stocks rise. However, mathematically USDA is stuck. They will leave last years crop at a record yield even though there is a lot of corn that is light test weight and some might not even make grade (but it was harvested so it has to be counted). If they do not raise demand, they will end up with too much ending stocks. Thus no matter how you look at it, demand will have to remain "overstated" in order to get stocks to work out, even if we are not exporting our corn…Bill Biedermann
Soybeans: More support was found in old crop beans today from concerns mainly out of Brazil. Once again over the weekend they received .25 - .75" of rain with 85% coverage. Their forecast doesn’t look to improve until at least mid week. This slowing of the harvest has caused some old crop buying lately, which continued through today as well. With most of the buying interest in old crop with new crop following slowly behind, the May/November spread managed to move out to a 42.25¢ spread. This is the highest this spread has seen since Jan. 4 where a high of 45.5¢ was made. That high will now be the next resistance to watch for. When the weather clears in Brazil, a narrowing of this spread would be expected. Another issue talked about today was the Argentina port strike. Should that strike cause a delay in exports, it is possible that importers may need to come back to US beans for short term needs. Fundamentals for the US bean crop have not changed much lately causing the November contract to simply follow old crop surges in buying. November should stay relatively calm tomorrow until seeing the acreage report. Over the last two years the beans have seen quick bounces higher following the acreage report. At this time we will stand aside waiting to see what we get from the report. All eyes will quickly turn to weather 10 minutes after the opening Wednesday. A forecast for rain after the report would initially cause a bounce in both corn and beans early in the spring. If the rain persists, then some pull will be felt on beans as the mindset changes from a general slow down to a change in acres over to beans. For tomorrow, South American weather will be the factor to cause market movement. Following the acreage report it will be the reaction to those numbers combined with the extended forecast as it looks on Wednesday morning…Ryan Ettner
Wheat: Joe mentioned last week that his work showed there is not a good correlation between the U.S. dollar and corn, soybeans, or wheat each day. However, the general trends in the U.S. dollar may be something to watch. We will point out that those who are addicted to the dollar/wheat idea may be feeling a little better. The U.S. dollar finally peaked last week at the highest level since May of last year. That could alleviate some pressure off futures. We will also point out we are not getting too excited about one newswire report that suggests Russia is having a hard time getting producers to deliver on contracts. Don’t buy into these. If Russia can’t sell, which is unlikely, there are five others besides the U.S. who can do the job. For right now, there is nothing out there suggesting a change in the downtrend. For Wednesday’s report, we should expect the quarterly grain stocks report to show third quarter wheat usage was weak. The only bright spot we can see here is the argument over spring wheat. The average guess suggests a slight 290,000 acre increase for spring wheat plantings. We have had many producers in those areas which disagree with that…Rich Nelson
Bill Biedermann is Sr. Vice President at Allendale. Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Rich Nelson is Director of Research at Allendale. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com
