You are here

Closing Corn Commentary - December 18, 2009

Corn:  It was the dollar acting as the trump card once again. Just as we saw yesterday, the first hour of trading was dictated entirely buy the buying found in the dollar. Overnight, was positioned correctly being higher given the fact that both the crude was on a bounce and the dollar had settled back down slightly. Just before the grain opening buying ramped up in the dollar not only causing a lower opening but also selling the crude back. One US firm put in their two cents with a yield estimate of 164.5 coming in well above USDA (162.9) as usual. Corn has been reluctant to move, however leaving it just a penny higher on the day when all was said and done. This market does not want to try new territory easily either higher or lower. As was mentioned, if fund buying does show up it will take most of that support just to get back to the highest levels of hedging we have done so far. On the bullish end JPMorgan released new numbers for its estimate of index fund rebalancing. They suggest in January we will see 62,434 new longs due to rebalancing. Right now the highest floor we have been able to put on was a 440 floor with a 520 ceiling. That trade giving us protection down to 300 could have been done for 10 cents at the highest point we have recently seen. Today, that trade would have cost 22 cents to put on. This goes to show the amount of buying we need to get back to that level. It is not that the corn has set back drastically. Technically, it is in the middle of the sideways range. We have found support at the same level we found on November 24th. Shortly after that we were back near 420 in the March. Let’s hope that front month buying shows up again so we can get more hedges on. If it does, we need to be very aggressive sellers at that level. One catch to this fund buying idea is that they have not been known to buy with higher dollar moves. There is little doubt we need a break in the dollar before expecting funds to arrive with support.

Direction: Once again corn settled right in the middle of the sideways range. On a move to 380 we will be buyers around support with stops close by. On a move back to resistance of 420 we want to be aggressive hedgers. It may even be possible to lower our ceiling slightly to put on the hedge for a lower cost. We are going to need good fund buying to get the floor on, the buying to reach our ceiling would take a major spring rally…Ryan Ettner

Trade Idea(s):

  • (12/15) Sell Mar 415 OCO buy 382, risk 12 from entry, objective 25 from entry.

Option Strategy(s):

  • (11/19) Sold Jan 450 Call/sold Jan 390 Put 14, risk at 9, objective 0. Closed 2 3/4.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Corn closed just above the 10 day MA to finish out the week today. This keeps the long-term uptrend in place, but there is also a large sideways trading range in place. We will leave both orders in near the bottom/top of this range…Monica Moehring

Vital Technical Indicator: the next projected major turn day is December 28.

Closing Cattle Commentary

Live Cattle: Before getting into the Cattle on Feed discussion, which is newsworthy, we must preface it by saying this market is still a demand driven market. Supply based news, such as COF, takes a back seat in this market’s mindset.

Placements: We always start out with Placements in our Cattle on Feed report discussions. Of the four categories that USDA surveys feedlots for, Placements are the toughest to guess. From July though October, USDA counted four months of placement increases. Summed together, that period saw 4.8% higher placements due to all those feeders coming off grass. You may remember back in spring we had ample moisture for a change. It was cheaper to put gain on those animals through grass rather than corn in the feedlot. This month’s report changed that. USDA indicated Placements fell 8.5% lower than last year’s November. There were fewer calves and feeders to place due to the continually smaller calf crop each year and implied cattle feeding margins tightened. You may remember that during November we saw cash cattle prices fall and at the same time saw a 21 cent increase in corn costs. Calves and feeders placed into feedlots in November are finished from April through August.

Marketings: The one good thing about low cattle prices is after a certain period, cattle feeders give up hope and simply “…get rid of ‘em”. That happened last month. USDA indicated Marketings, which are finished cattle leaving feedlots, jumped by 3.6% over last year’s November. Finished cattle weights, which had been at record levels through early October, are now actually at a 1 lb or so discount to last year levels. We have finally cleaned that problem in the northern plains. That problem with heavy cattle deliveries through the expiring October futures contract, from those northern cattle, will not be repeated on this December contract.

Other Disappearance: We threw this one in as more of a piece of trivia than market moving news. There are actually four categories on the COF report but only three get reported. The reason is there are simply not many cattle that leave feedlots unfinished. For various reasons there are cattle which leave the feedlot population that don’t go to packers as finished cattle. Some die, some go back to grass, and some get sick.

Cattle on Feed: So for a few months we had been building the feedlot population (due to those big placements noted earlier). Today’s report stopped that. In fact, this is the tightest December 1 population of cattle in feedlots in seven years! Now, what’s this mean to cattle slaughter? Slaughter levels will remain over last year levels into March due to higher summer placement levels. However, we expect today’s placement number to mark the start of a long strong of lower placements. We look for slaughter from April on out (actually through December 2010) to remain under 2009 levels. We have listed the table showing the math behind this report below. Call us if you have any questions on it.

The Math of Cattle on Feed

 
           Nov 1           Nov          Nov           Other       Dec 1
             COF    Placements  Marketings   Disappearance         COF
 
2008      10.972   +    2.016    -   1.575   -        .067  =   11.346
2009      11.134   +    1.845    -   1.631   -        .066  =   11.282

% Change   +1.5%         -8.5%        +3.6%                       -0.6%  

Direction: This week marked a victory for bulls. Cash cattle prices tanked into last week on ideas rising unemployment would mean lower beef demand. We have strong indications that employment will soon stop rising (if it has not already). On the supply end we will respect the fact that cattle slaughter will be a little bigger than we need for the short term. For most of 2010 the supply picture, both from beef only and from all three proteins, will be supportive. Also in 2010, we would look for job growth in the second half. There are good indications this is the worst we should see in prices for some time. The only question we have is how quickly will price recovery happen?…Rich Nelson

Trade Ideas(s):

  • (12/14) Stand aside.

Option Strategy(s):

·        (11/25) Sold Feb 82 Put/sell Feb 88 call 1.82, risk to 3.00, objective 0. Closed 1.35.

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Cattle traded sideways again today, but settled a bit higher on the day. The 40 & 50 day moving averages are still keeping a lid on the market, as is the long-term downtrend. We will leave a sell order in at 85.40…Monica Moehring

Vital Technical Indicator: Next projected major turn day for live cattle is January 7 and for feeders is December 22.

Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

Corn:  It was the dollar acting as the trump card once again. Just as we saw yesterday, the first hour of trading was dictated entirely buy the buying found in the dollar. Overnight, was positioned correctly being higher given the fact that both the crude was on a bounce and the dollar had settled back down slightly. Just before the grain opening buying ramped up in the dollar not only causing a lower opening but also selling the crude back. One US firm put in their two cents with a yield estimate of 164.5 coming in well above USDA (162.9) as usual. Corn has been reluctant to move, however leaving it just a penny higher on the day when all was said and done. This market does not want to try new territory easily either higher or lower. As was mentioned, if fund buying does show up it will take most of that support just to get back to the highest levels of hedging we have done so far. On the bullish end JPMorgan released new numbers for its estimate of index fund rebalancing. They suggest in January we will see 62,434 new longs due to rebalancing. Right now the highest floor we have been able to put on was a 440 floor with a 520 ceiling. That trade giving us protection down to 300 could have been done for 10 cents at the highest point we have recently seen. Today, that trade would have cost 22 cents to put on. This goes to show the amount of buying we need to get back to that level. It is not that the corn has set back drastically. Technically, it is in the middle of the sideways range. We have found support at the same level we found on November 24th. Shortly after that we were back near 420 in the March. Let’s hope that front month buying shows up again so we can get more hedges on. If it does, we need to be very aggressive sellers at that level. One catch to this fund buying idea is that they have not been known to buy with higher dollar moves. There is little doubt we need a break in the dollar before expecting funds to arrive with support.

Read more about

Crop Talk

Most Recent Poll

How much of your 2016 soybean crop is planted?