A bearish approach
Wheat: March Chicago fell 14 3/4 this week. We have been reminded, yet again, that buyers do not feel they need to reach out for US product. They are either having problems with credit or feel US prices are just too higher. Today, Egypt purchases 180,000 tonnes with the US getting 60,000 of that. South Korea had a list of suppliers ready to fill its order and they fell all prices were too high. The one thing that is bullish now is new crop. We have a drop in acres and now we have a potential drop in winter wheat yields. On the Weather Links section of our website, we have a link to the Drought Monitor report. There are problems in the southern plains. Having said that, given the big supply of wheat left in the US, and in the world, from old crop the trade would rather wait and see right now. We all know â€œwheat is a weedâ€. If timely rains come in during the spring this crop has been known to surprise the trade with what it can do.
Direction: For farmers we have sold all old crop and are getting some fills back on new crop hedges. For trading we will choose the bearish approach for now. A close above 611 is necessary to reverse psychology.
Trade Idea(s): Mar CBOT Wheat:(01/27) Buy 545, risk 539, obj 610. Mar KCBT Wheat: (01/28) Sold 1 623, risk 633 3/4, obj 590 . Closed 601.
Mar Minn Wheat: (01/23) Sold 1 675, risk 686, obj 630. Closed 652. Option Strategy(s): (01/28) Stand aside.
Wheat Technical Commentary:
Wheat closed just below the uptrend of the wedge formation to finish out the week. If there is any follow-through on Monday, it might be a sell signal since there is a longer-term downtrend in place.
For more technical information, including charts and trade recommendations, please visit the Advance Charts section of the Allendale Research Center.
Vital Technical Indicator: the next schedule projected major turn day in store for wheat is February 4.
Cattle: The downtrend is still intact as most news is bearish. Wholesale beef fell hard this week on continued bad economic news. (See this morningâ€™s comments about the GDP report though.) Supplies out of feedlots are tight and the market still says they are too much. We are neutral to 2009 futures right now. Though we will argue most of them are undervalued, until we have a bottom in the economy we cannot act on those expectations.
JBS Swift Negotiations: JBS Swift is appealing the Department of Justiceâ€™s decision not to allow it to buy National Beefâ€™s valuable three plants. The DOJ did allow the purchase of Smithfieldâ€™s four small beef packing plants and their big feedlot group. The four kill plants are not located in the key cattle feeding areas (the plains) but the feedlot group certainly is. In the appeal process JBS got a delay earlier this month. On Thursday it was delayed again. Today Reuters news wire carried an interview with the JBS-USA chief executive suggesting they are in negotiations with the DOJ. JBS is offering to sell some currently owned plants in order for the National Beef deal to go through. The current industry talk is JBS will sell let the California National Beef plant, after the acquisition is complete, and the Arizona Smithfield plant it currently owns. That would be in exchange for the purchase of the two remaining National Beef plants in Kansas to go through. We find it hard to believe those two small plants, outside of cattle feeding areas, would be enough for DOJ to let the deal go through.