Grain complex gets whacked by dollar rally

Allendale Wrap-Up 9/7/2011

Corn: Macro economics won out over the micro factors yesterday. Obviously there was no change in yield yet corn broke into double digit losses through most of the day. A strong rally in the U.S. dollar due to more global concern helped keep pressure here. It is easy to see that at the end of the day, focus is rightfully still on yield. Our Allendale crop survey resulted in a yield of 147.7 which is in-line with other recent estimates. This can still suggest a price over $8 is warranted for December corn. The big question is simply when it will happen.

Lately, the USDA has had a new pattern of taking yield off estimates quickly rather than dragging it out for months. Even knowing that, it is tough to expect the USDA to drop yield down to 147.7 on Monday. A drop that large would match the largest percentage drop the September report has seen over the last 20 years. Always keep in mind that demand will be lowered as well. Simply taking that yield reduction straight off the carryout is just not going to happen. This week we may want to keep an eye on Thursday’s ethanol usage and Friday’s export/sales report to try and give us a tip as to what will happen on the demand side of this report. Bulls still have yield doubts to rely on, which our crop report will agree with, while bears will have macro economic concerns to watch for another pullback. We have not watched the dollar close lately but if you string a couple more strong days like this together, it will certainly be worth watching for short term trade…Ryan Ettner

Soybeans: Beans sold off early yesterday right along with the stock market, crude oil, and just about everything but the dollar. Some of the pressure was also due to the rain that was seen across the nation’s midsection. The biggest news was released at 7:30 on Tuesday. Our findings were revealed from the annual Allendale Inc. Yield Survey. Our official number for beans is 40.7 bushel per acre. That should be friendly from these levels and should see a November bean target near $14.75.

We are showing a chart of the new balance sheet and how we should see some adjustments as we move forward. USDA will be releasing crop production numbers as well as supply and demand figures next Monday. The trade thinks bean stocks should get tighter and could see a recovery from these levels now that we’ve retested the breakout we had last week. Conditions were released today. Another 1% loss brought the rating to 56% in the good to excellent categories. Last year at this time we were at 64% good to excellent. These numbers could have beans opening stronger tonight. We are going to look at buying pullbacks and risking just below 1400 on a closing basis…Steve Georgy

Wheat: Wheat sold-off yesterday as a risk-off mentality pressured most of the markets coming out of the Labor Day holiday. Over the three day weekend, the European stock market sold off on continued debt fears and that spilled over into the U.S. market. Also overnight, the Swiss Central Bank announced that they would use all means at their disposable to stop the ascent of their currency. They will try to peg their currency, the Swiss Franc to the Euro at 1.20. This currency move had a bullish impact on the U.S. dollar which has a negative impact on exports. A higher dollar makes U.S. exports less competitive. A late session recovery in the corn did give the market some support and that allowed the market to come of the days lows and settle 10 of the days lows but still down 15 ½ on the session. The fundamentals of the market concerning the ongoing drought in the Southern Plains and the continued poor harvest results in the spring wheat belt continue to provide support to the market. Funds were net sellers of 3,000 contracts today. Wheat deliveries came in last night at a low 92 contracts…Jim McCormick

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com

About the Author

Ryan Ettner is a registered commodities broker and grains analyst at Allendale, Inc. Steve Georgy is a Sr. Broker/Manager at Allendale, Inc. Jim McCormick is Senior Broker/Manager at Allendale, Inc. Allendale is registered with the CFTC and NFA and is a member of the NIBA. www.allendale-inc.com

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