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2008 wheat acres to jump sharply
Wheat Fundamentals: ending the week on a weaker note may prompt Egypt to be
a buyer of US wheat before Monday's opening bell. Last weekend Egypt bought
80 K tonnes of Russian wheat. One week later, hard red winter wheat futures
are off 3.8%. the present tender line up has foreign demand of 1.52 million
tonnes, not all expected to be derived from the US. Iraq suggest it is
studying cash wheat values to see when and how much its new tender will be.
Stats Canada released its Sept crop findings and the bottom line is
production is down vs a year ago but exports are expected to remain firm
and very much needed as the US can not shoulder world demand alone.
Australia remains a disaster. Noticeable rains are forecasted but the crop
has already completed its reproductive phase and harvest is expected to
begin any day. Dry weather developments are just now beginning to appear in
the southwest region of the Commonwealth of Independent states. Most at
risk are Ukraine (3rd consecutive bad weather), southwest Russia, and the
majority of Kazakhstan. The window to plant winter wheat within these
aforementioned countries is expected to close in two weeks.
2007-08 Acres: Allendale's wheat/corn price ratio model is suggesting the
very real potential for 2008 wheat acres to be in a range of 4 to 6 million
more than the 60.6 million planted in 2007. Harvested acres could be in a
range of 54.52 to 56.2 million with a 5 year yield ave of 41.7 bushels per
acre suggesting wheat production of 2.273 billion to 2.345 billion bu vs
2007 production of 2.114 billion. How could this impact your marketing
plans? If you have questions please contact you Allendale Inc
Representative 800 551 4626.
2007 Cash Marketing: see Allendale Hedge Advice page, on Tuesday 09/18/07
we sold 50% of the 2007 crop production based on timing suggest this is the
first of the year after the harvest is complete with the second opportunity
next April-May. Our next target to hedge additional new crop wheat was
filled on Friday 09/28/07. See our Hedge Advice page for instructions.
The Dec/Mar CBOT wheat spread is 10 cents premium the March. Your cost to
store wheat per month is 6.1 cents per bu. The present futures spread
suggest it is not economical to store unhedged wheat as the cost is 8.3
cents more than your on farm storage is returning over the three months Dec
Spread Trade: Since the middle of the month of July 2007, the July 2008
KCBT July wheat vs the CBOT has been trading in a range of 10 cent premium
the KC to 13 cent premium the CBOT July for the majority of the time. It
appears as though the spread has found resistance prem the Kansas City
Wheat. Discuss this spread trade idea with you Allendale Representative.
800 551 4626
Trade Position: the fundamental facts are world supplies are challenged by
aggressive demand. We are willing buyers technically and fundamentally and
have written new entry orders at all three exchanges after reaching our
long objectives at the KCBT and CBOT earlier last week.
Corn Fundamentals: The trade is well aware the general attitude is the corn
crop may be getting bigger and the size is being consumed in the form of
strong feed and export demand. The positive news is with corn futures
lower, at least the basis is not weakening.
Yields: recent research suggest there is a 85% chance for USDA Oct crop
production report to show a yield increase from the Sept yield based on
data from 1965 forward. The most recent ten year average has found yield
increasing 1.8 bu per acre. Over the most recent ten years, USDA has
increased yield 70% of the time from the Sept to Oct report and the ave
increase from the seven years has been 3.1 bu per acre. USDA's Sept yield
estimate is 155.8 bu per acre. If we add the ave of 3.1 bpa the 158.9 yield
on 85.42 million harvested acres suggest production of 13.573 bil bu vs
USDA's Sept estimate of 13.308 billion bu and has the potential to push
2007/08 projected end stocks to 1.94 billion or 49% higher than 2006/07 end
stocks of 1.304 bil bu.
July Ethanol Data: it is the freshest data released as of Tuesday, its just
the Energy Information Administration is that slow in collecting and
disseminating the data. For July ethanol production was a record 13.1
million barrels vs 12.6 the previous month and 9.8 million barrels one year
earlier. USDA is using a projection of 33% higher corn use in 2006/07 vs
2005/06. In the first 11 mths of 2006/07 we have managed to meet 33% once
(the month of July data) and exceeded the need only twice (April and May).
Allendale suggest USDA needs to trim corn use for ethanol by 37 million
bushels off the 2006/07 estimate of 2.125 billion bushels. Under the
present initial 11 month pace, our research suggest use should be 2.088
billion bushels representing a pace of 30% above year earlier levels.
Ethanol stocks of 9.7 million barrels have only been matched once
before dating back to the 1998/99 marketing year and it was Sept of
2006/07. July's 9.7 million barrels of ethanol stock is greater than the
previous months 9.1 million barrels and well above yr earlier levels of 7.7
Marketing: Cost of carry from Dec hedges to March is 3.4 cents per bushel
per month, or the need for a carry of 10.2 cents. The futures market is
offering 16.4 cents and we have rolled our Dec corn hedges to the March.
Why not out to May or July?, read on, dating back to 2000 if you seek a
seasonal tendency when cash corn prices peak it has been the Dec-Jan time
frame. With the potential for a domestic stocks build up, cash markets are
willing to pay sufficient storage out at least to the month of Feb.
Allendale did roll its Dec corn hedges, covered with bull call spreads to
the March futures on 9/27/07. Not only did we cover the cost of storage but
was able to add an additional nickel to our merchandizing profits. If you
are hedged in the Dec, we would highly recommend to have positions rolled.
Allendale did hedge its first 10% of its anticipated 2008 fall corn
production as 4220 was reached on Monday, 9/24/07.
Trade Position: we have written fresh orders to sell a corrective rally
based strictly on emerging technicals. We remain fundamentally friendly to
corn unless USDA surprises the industry with a projected end stocks of
2 billion bushels in its Oct 12th crop report.
Observation: the US is expected to export 1.1 billion bushels of wheat,
with 65% of the marketing year remaining, we have already met 80% of the
1.1 billion bu commitment. The five year ave commitment of export target
for this time of year has been 52%. Based on the average weekly sales of
wheat, if we were to maintain the ave of 54.4 million bushels per week, we
could meet the USDA target of 1.1 billion bushels in another 4.04 weeks and
still have 29 weeks remaining in the marketing year. Equally impressive
is corn at 38% sold of its 2.25 bil bu commitment vs 24% five year ave with
92% of the marketing year remaining. Recent Allendale studies suggest odds
favor wheat export potential growing with corn export potential remaining
steady to easing into the January annual report.
Technicals: Old and New crop corn and soybeans and new crop wheat. For the
short term trader, Allendale uses its own unique custom Moving Averages to
monitor price momentum, define key support and resistance levels as well as
advise where key pivot points are located when bulls may turn bearish and
bears to turn bulls. We also include last weeks closing price for the
weekly chartist as we draw closer to the end of the week to anticipate the
possibility for futures to have a positive weekly close or if weakness is
Observation: corn, soybeans and wheat closed below last Friday's close for
the weekly chartist, not good. Wheat futures at the CBOT, MGEX and KCBT may
have the best opportunity to challenge its #1 MA before corn and soybean
Soybean Fundamentals: Northern Brazil rainfall since Sept 1st is 25% of
normal. Planting of corn and soybeans is slowing or has come to a halt.
This anomaly is indicative of an emerging La Nina according to Allendale's
"Weather Watch" author. The NOAA has yet to declare an official global La
Nina. Brazil's gov't releases first production estimate for 2007/08 soybean
production at 59-61 million tonnes vs CBOT soybean traders thinking 61 to
63 million tonnes. After the close Friday, USDA announced it has discovered
Asian Soybean Rust in southeast Nebraska. More than 90% of the Nebraska
soybean crop is in the process of dropping leaves and this USDA
announcement is not viewed as a threat to the regions soybean yield.
Soybean Marketing: central Midwest basis levels wider than average (60 to
1.10 under) but do not offer sufficient carry from Fall to Dec delivery,
signaling the market is not willing to pay to store soybeans. The economics
suggest to move the soybeans and store the corn. Realize of course crop
developments in South America could have direct impact on the potential
weakness or strength of soybean futures and cash developments with the US
this Fall and early winter. Since 2000 there has been a tendency for the
peak cash price received on a national level to occur in Nov-Dec time
frame. At this juncture there is no economic incentive to roll hedges and
Allendale is more willing to sell the beans to the cash market and if
opportunity arises we may be willing to re own via futures and or options.
We will provide notice when to sell the 2007 harvest.
Yields: research dating back to 1965 suggest there is a 52% chance for USDA
Oct crop production report to show a decline in yield when the Sept yield
is weaker than the August. The most recent ten year ave has soybean yield
increasing an ave of .1 bu per acre. Over the past ten years the odds have
been 50/50 for USDA to increase or lower yield vs the Sept report. When
USDA does increase the soybean yield from the Sept to Oct it has been by an
ave of 1.5 bu per acre and when lowered it has been by an ave of 1.3 bu per
acre. Based on the previous adjustments, USDA could present a crop size
range of 2.538 billion bushels to 2.715 billion bushels vs the Sept
production estimate of 2.619 billion bushels.
Trade Position: we are sellers of soybeans, and soybean oil based strictly
on technicals for a short period of time. Long term we remain bullish
soybeans both fundamentally and technically.
Lean Hogs: What a week. The kill wrapped up to be 2.321 million head which
is a record. The previous was 2.265 million head posted in December of
1998. The same story of course goes with pork production. Slaughter x
carcass weight equaled 462 million lbs which beats the previous record of
453 million lbs posted in December of 2004. Both of those records,
slaughter and pork production, were posted in mid December of those
particular years. That raises the question of whether the kill will come
back in December and post an even higher number. With all of this bad news
this morning we noted the pork cutout from last Friday to yesterday had
fallen only 31 cents. Packers are more than happy to run ridiculously large
kills in the face of a pretty stable pork price. This week we have
highlighted the gap with runs from $60.90 to $62.02 as a possible upside
objective. This period coming up will be one of the key weeks for harvest
so if there is a harvest effect as grain/hog farmers are in the field it
could happen now. We still are advocating not jumping on the upside until
wholesale pork can give us a reason to. For price direction we continue to
note we feel most of the downside left in 2007 has been priced in here and
the contracts which have true downside left are the 2008 contracts (summer
months). For upside anything to the top of the gap on the December contract
could be considered the maximum. We have orders in to lift hedges on the
December contract if given the right price ($57).
Live Cattle: South Korean beef inspectors found a four inch piece of
vertebra has been found in a recent 18.5 ton shipment. Exports to that
country have been temporarily banned. Before this news we would have
expected cash cattle to trade steady to $1 lower from last week's $96.
Through Thursday afternoon choice beef was up 34 cents while select was
down $1.20 compared with closing prices on Friday. However with this news
the trade is expecting something a bit lower. At the time of this writing
Nebraska has been active today with sales from $142 to $144. This was down
sharply from the previous week's $149 and $150 action and would imply live
based trading to be $2 to $3 lower. No live based trade has been seen yet.
In other news Topps Meat Co LLC announced today it was going out of
business. The second largest beef recall due to e-coli has hurt this New
Jersey company. In a statement released the COO indicated "In one week we
have gone from the largest US manufacturer of frozen hamburgers to a
company that cannot overcome the economic reality of a recall this large."
With the new news noted above we would look for another lower day Monday as
well. If the ban had not happened we would start suggesting speculative
buys again. We remain supportive, only for the longer term, and are looking
for the 2008 February CME live cattle futures to be the star here.
Wheat Fundamentals: ending the week on a weaker note may prompt Egypt to be a buyer of US wheat before Monday's opening bell. Last weekend Egypt bought 80 K tonnes of Russian wheat. One week later, hard red winter wheat futures are off 3.8%. the present tender line up has foreign demand of 1.52 million tonnes, not all expected to be derived from the US. Iraq suggest it is studying cash wheat values to see when and how much its new tender will be. Stats Canada released its Sept crop findings and the bottom line is production is down vs a year ago but exports are expected to remain firm and very much needed as the US can not shoulder world demand alone. Australia remains a disaster. Noticeable rains are forecasted but the crop has already completed its reproductive phase and harvest is expected to begin any day. Dry weather developments are just now beginning to appear in the southwest region of the Commonwealth of Independent states. Most at risk are Ukraine (3rd consecutive bad weather), southwest Russia, and the majority of Kazakhstan. The window to plant winter wheat within these aforementioned countries is expected to close in two weeks.