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Funds boost corn prices

Agriculture.com Staff 02/06/2006 @ 8:31am

It really came as no surprise to see wheat and corn futures launch higher when a major internet news network announced the specific of the Deutsche Bank Commodity Index Tracking Fund at 10 am central time. Funds are said to have bought 33,000 contracts of corn today. Heading into the session it was est funds were net long futures and options of 98,000 contracts. Early 2004 funds hit a peak of nearly 200,000 contracts and because we were tight on end stocks futures were very responsive to the move. Buying 33,000 corn contracts today resulted in a corn futures rise of not even a nickel increase. Domestically were are wading in old crop stocks and price is not nearly as sensitive to this massive fund buying as it was in 2004. See July Corn comments below. Thus far in the marketing year, we have sold 1.077 billion bu of corn to foreign buyers. This represents a 5% increase over yr ago levels. With 29 weeks remaining in the marketing year, we need to ave a minimum of 25.77 mil bu per week in order to reach USDA's final export target of 1.85 bil bu. Allendale's research suggest a final export sales target of 1.89 bil bu, based on sales activity thus far this marketing year and if a similar pace can be maintained into the end of the 2005/06 marketing year. Broiler Egg Set and Chicks Placed: egg set for the week ending Jan 28, egg set is 100% of one year ago levels, with chicks placed at 102%. Of all soybean meal use, poultry consume 50%. Turkey: eggs in incubators as of Jan 1, 2006 are 6% higher than one year ago levels. Poults placed are also up a strong 6%. July Corn Futures: most recent five year historical research suggest it is the late Jan-early Feb time frame when old crop corn futures rally. The ave rally is 10 cents from 2350 to 2450. Futures on ave peak by late Feb-early March and then work lower into expiration at the 2250 level. Tonights closing price is 2440. Hedgers/Marketing: Allendale sold its remaining balance of 2005 corn prod to the cash markets when futures hit 2180 vs March futures 01/25/06. New crop hedges are 70% complete. We are relying heavily on Allendale long range price projections as the risk management tool. For the futures and options section of our Hedge Advice page we added the 250 Dec calls as planned and have outlined the obj and risk. Corn Blend of 13 Technical Indicators: CBOT Mar corn futures close of 2252 is above last Friday's weekly chart close of 2186, up 3% for the week. March futures did close above all three of our custom Moving Average values. Those values are 219.217 and 214. Trade below 214 is likely to shift trader attitude from neutral to bearish. Resistance may be realized at 2270. The blend of 13 short, medium and long term tech indicators suggest a futures buy signal of 80% vs the previous nights 72% buy level. Feed Needs: end users please make certain you are checking our Hedge Advice page for recommendations on meal and corn needs. When you purchase our complete DVD or Video tape set of Allendale's 16th annual outlook conference. Included in the set of four videos is our $90 Allendale Reference manual complete with price projections, supply and consumption data based on a average, poor and excellent growing season. The short and long term weather forecast, multiple trade ideas, hedging crops or livestock, bird flu facts, outside markets trade ideas, marketing grain programs and much more. Order on line and benefit from FREE shipping and handling, normally $14.95. http://www.allendale-inc.com/products/events.aspx Soybean Fundamentals: Argentina continues to receive "timely" rains. Mid Day forecast fed to us suggest these timely rains are expected to be more the rule than the exception. Tonights 6-10 day forecast for S America suggest below ave rainfall for Argentina's key growing belt Feb 9-13th. Both topsoils and subsoils are marginal for the key prime region of Santa Fe. It would come as no surprise to see the Funds jump in on the long side of soybeans especially when its net position coming into today's tarde was 13,500 contracts sort. See July futures comments below. Historical Price Trends: see the soybean meal section on our HPT page, some very positive odds suggested for the long side of meal for next week and the four week cumulative. Exports: another week of anemic export sales reported. The calendar is growing shorter and the bottom line is we are flat running out of time to make up early in the marketing year export weakness. Export sales after the first 30 week of the present 52 week marketing year are running 23% behind year ago levels. USDA estimates exports for 2005/06 at 950 mil bu. Our present pace suggest something closer to 875 mil bu. July Soybean Futures: Allendale's five year ave does imply the seasonal rally typically begins late Jan-early Feb at a 5 yr ave level of 5600 and then works higher into mid March and has found its ave peak price of near 6300. We closed July futures tonight at 6174. The price rally as it relates to funds position has the ability to react similar to that of corn. 6500 is viewed as resistance. Domestic End Stocks to Use: are presently 17.8% vs year ago levels of 8.6%. Global end stocks to use are presently 18.9% vs year ago levels of 16.6%. One year ago July soybean futures were very close to 5200. So here we sit with bigger everything, domestic and global stocks to use and a price which is near 80 cents higher than yr ago levels, which that same 80 cents is about the ave gain we have experienced over the past five yr ave seasonal rally. At present the big picture says the trade range is a 5900 low to 6500 high. Allendale price projections suggest a early spring high of 6500. Blend of 13 Technical Indicators: CBOT Mar futures close of 5956 finished above last Friday's weekly chart close of 5892. March futures did close above all three of our custom Moving Averages. Those values are 579.578 and 581. 578 is viewed as key support. Traders are expected to turn bearish on a close below 577. The blend of 13 short, medium and long term tech indicators suggest a futures buy signal of 96% vs the previous nights 40% sell level. 20 day Bollinger Bands appear to be working well for those spec trading the soybean futures. Soybean Hedgers and Marketers: We are 60% hedged of anticipated 2006 production at a average level of 6310. If you are not hedged our just released Nov futures price projections suggest rally opportunity may arise near the 6500 level. The five year ave futures price for Nov new crop futures are 5220 for this time of year. During the calendar year, the five year ave futures price ranges between 5500 to 5700. Tonight's close 6304. The 2005 Soybean Crop: our entire inventory has been sold to the cash markets well in front of the S American harvest. The cash average is 6102. If you are still holding soybeans a futures price projection near 6500 vs the July has been released by Allendale. We urge you to move cash before foreign buyers switch from obtaining 2005 crop from the USA to buying 2006 supplies from S America, end of March, beginning of April and basis sags. Wheat Fundamentals: Iraq is not expected to open bids for the 37 mil bu of wheat it seeks until this Sunday. Temps and precip 6 to 10 forecast call for below average conditions for the key HRWW region. Index Funds are very much interested in especially the HRWW KCBT wheat based on poor crops in TX and OK and ideas from the National weather services call for the likelihood of drought this spring if La Nina strengthens. End Stocks to Use: the domestic and global end stocks to use are very close to 2003 when the season ave farm price was 3400. Present values are projected at 3380. Export Sales: Thus far this marketing year, wheat export sales are on a pace to generate sales of 1.060 bil bu. USDA's present est is 1 bil bu Our ave export sales pace is 15 to 20 Mil bu per week until we hit the month of April and then drop markedly. Weekly sales need to ave above 12.11 mil bu per week for the balance of the marketing year in order to reach USDA's 1 bil bu export target. Wheat: Blend of 13 Technical Indicators: CBOT March SRWW futures close of 3564 did finish above last Fri's weekly close of 3434, up 3.7%. Futures closed above all three of our custom MA's. Those values are 347.344 and 335. The blend of 13 short, medium and long term tech indicators suggest a futures buy signal of 80% vs the previous nights 56% buy signal. March HRWW futures close of 4114 did close above last Friday's weekly close of 3936, up 4.5%. Futures closed above all three of our custom MA's. Those values are 402.397 and 386. The blend of 13 short, medium and long term tech indicators suggest a futures buy signal of 80% vs the previous nights 80% buy level. MGEX March futures close of 4044 did close above last Friday's weekly close of 3996, up 1.2%. Futures closed above all three of our custom MA's. Those values are 395.394 and 392. The blend of 13 short, medium and long term tech indicators suggest a futures buy signal of 64% vs the previous nights 48%. Wheat Hedges: Keep up to date on the Hedge Recommendations. Our 3600 objective for July wheat futures for CBOT SRWW has been met. A corrective move to 3100 is projected before late winter-early spring.......Joe Victor Farm Service Agency: the loan rates for the 2006 crops. For corn, beans and wheat, they are unchanged from the 2005 levels of $1.95 corn, $2.75 wheat and $5 per bushel for soybeans. Lean Hogs: There is talk cash hogs could attempt to post another bottom next week. We would certainly like to bite into this one but are certainly wary after this week's CME price break. Today's February lean hog contract closed at $55.02. Our projection for Monday's CME lean hog index is $54.45. There is little premium in the futures suggesting a sideways cash hog trade through the 14th of this month. The index last year on the same early February day last year was $74.33. Compared to last year the market is telling us bigger supplies and lower demand is equal to a $19.88 price drop. On the supply end this week's kill was still above the magic 2 million head level. Once numbers start seasonally declining below that mark we should see prices stabilize and start to rebound. In the big picture we certainly feel prices will most a moderate rebound into summer. All remaining hog hedges were lifted this week. For speculative trading we have not bought futures but instead are long via a limited risk option spread. Live Cattle: Over the last four weeks slaughter rates have been building in comparison with last year. This week's kill is estimated 3.8% higher than last year. With the very moderate winter finishing weights have not shown any significant decline yet. With the bigger slaughters and bigger weights this week's beef production was up 6% over last year. This weeks average cattle trade at around $92.25 is around $2 higher than last year at this time. Main point here is we should be happy prices are still above $90 right now. In the short term we have emphasized a trading range from $90 to $95 into spring is expected. The February and April contracts are priced about right with that theme. In the big picture we feel summer futures are still overvalued. June futures, with a normal basis, are implying $86 cash cattle at the end of June. August futures are implying $82 futures at the end of August. That implied cash value from the June contract is $4 above where cash cattle traded at that time last year. August futures are pricing in the same cash prices as that time last year. Summer beef production levels are expected to be from 3% to 7% higher than 2005 levels. We still look for $80 to be posted for those summer futures. One other sector of the beef industry we have reported on is the packing side. While most producers would not feel sorry at all to hear of losses in the packing side, the current situation is one they need to keep on top of. Packers took a very dramatic step today and dropped slaughter down to 98,000 head from last week's 111,000 head. They are running incredibly poor margins and are doing what little they can to change that. As noted earlier this week beef packers have been losing serious money since last summer. This is a normal result of the cattle cycle. The smaller supplies of feedlot cattle (steers and heifers) from this low end of the cattle cycle are doing a bang up job on plant efficiency. Last year Tyson, the nations largest beef packer, reported plants were running only 73% of capacity. Keep in mind factories in most industries generally consider running at 90% to 95% to be ideal capacity. The few cattle out there, compared with historic levels, are being offered at very high prices. We find it very surprising that packers have not announced any plant slowdowns or temporary shutdowns. They have done it many times before. That situation would be bearish for live cattle prices. Now being realistic their situation will slowly improve as the year progresses. 2006 will see more cattle coming through the plants. This is the first full year of Canadian live cattle imports since 2003. In the bigger picture from 2007 into 2011 cattle slaughter numbers will increase due to our domestic herd buildup. The point is between now and summer, don't be surprised when Tyson, Excel, or Swift announce two month long slowdowns at certain plants...Rich Nelson

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