Money pouring into grains from energy sector
Corn Fundamentals: Allendale has released its production and stocks estimates and can be found within our Midsession Comments page. We estimate only a slightly higher production estimate but more importantly a lower end stocks level than what USDA posted last month. Domestic and export use remain strong. The CBOT floor trade has ideas of projected end stocks approaching the 800 million bushels series and leaving 1 billion bushel in the rearview mirror. Solid weekly export sales Thursday, very active world demand overnight. Gulf market basis remains firm as futures rally and yet the Dec to March futures spread suggest carry is still offered. Signs of economic rationing are growing more apparent in the form of Jan feeder cattle futures falling as fast as corn futures are rallying. Another bad week for the poultry sector. The tone on the CBOT floor is one of money pouring into the grains from the energy sector and ever increasing momentum.
Weekly Corn Export Sales: At 779 mil bushels, eight weeks into the marketing year, cumulative corn sales are 47% higher than year-ago levels and compare to a three-year average of 586 million bushels. The more positive news is China's government suggesting they will pull back on the corn sales export reins and not sell corn for after the month of Feb to help control domestic prices.
Broiler Report: After last weeks notable three-percent reduction in broiler egg set, this week's report indicated another slowdown with its two-percent reduction. Egg set is down 5.6% from the beginning of the month of October of 2006 to its end of month. Chicks placed are down one percent from the comparable week one year ago. When analyzing the feed use section of the monthly WASDE report, it is important to be aware that poultry are the second largest consumers of corn at 27.3% vs beef cattle at 33.7%. Poultry are the largest consumers of soybean meal at 50%, with hogs second in line at 25%. Be prepared for feed use to decline in the monthly WASDE report as early as the Nov report and more likely in the Dec report as cash prices race higher.
Corn Technicals: Dec futures close is 3422 versus last Friday's 3324, up three percent for the week. Our key custom Moving Averages are 3330, 3300 and uses a 2660 bull to bear pivot point. March futures close is 3570 vs last Friday's 3444, up 3.6% for the week. Our key custom Moving Averages are 3460, 3430 and a 2770 bull to bear pivot point.
Soybean Fundamentals: With a futures industry willing to send soybean futures higher in light of anticipated record USA production and record projected world end stocks, we advise to take advantage of the spec driven higher than average prices. Private estimates suggest projected USA end stocks could be closer to 600 million bushels versus 500 million (they are not likely realizing the better than ave exports and crush) and given the aggressive S. American plantings because of the rally in CBOT prices, its crops will be ready for harvest by the end of the first quarter-beginning of the second quarter of 2007. Gulf basis remains firm as futures rally and represents the right mechanics to sell cash soybeans which will not fit into storage under the nine-month loan.