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Corn fundamentals remain bullish
In a nutshell, it's obvious fundamentals are more bullish
than bearish as world stocks of corn are at their second lowest level dating
back to 1980. The trade is well aware of impending March harvest of
Argentina and S Africa corn crops. However, the trade has been very
concerned about what re-balancing of commodities the Index funds may have
in store when they are expected to enter the futures and options trade this week.
Corn Technicals: March futures close is 3682 vs last Friday's 3902. Our key
custom Moving Averages are 3790, 3810 (key resistance) and uses a 3000 bull
to bear pivot point. July futures close is 3836, vs last Friday's 4024. Our
key custom Moving Averages are 3930, 3940 and a 3130 bull to bear pivot
Weekly Export Sales: 2006-07 export demand is projected to be nearly the
same as demand for ethanol production. Pre release estimate for Friday's
mornings export sales data release was 750,000 to 950,000 tonnes (29.5 to
37.4 million bushels). Actual results released Friday morning were 22.6
million bu. Understand the holiday time frame is no friend to export sales
and importers tend to historically shy away from typical thin trade and
volatile wide swings. History has proven it is typically the middle of Jan
before weekly corn sales get their legs back underneath them. Corn export
sales thus far in the marketing year are 41% better than year ago levels
while shipments of 743 million bushels are running 27% above yr ago levels
and a three yr ave of 603 mil bu.
Cash Corn: The Mar-May corn spread is at 9.2 cents carry. At $3.45 spot
cash prices, the cost of carry is 3.5 cts per bu per mth or 7 cents. The
futures spread suggest the market is paying you to store corn. Check your
local cash markets to see if they are paying you to store on farm at a rate
of 3.5 cents per bu per month. Please call us to plan your cash sales in
2007. We anticipate a period of price consolidation beginning in March and
then based on planting progress a potential slide to July and then let
pollination decide if prices need to correct higher or lower. We need to
note out of the past 100 years, 1 year was an epic flood, 3 to 4 years had
a major Midwest drought similar to the magnitude which South Dakota
suffered in 2006. One last weather note is two weeks ago a private weather
provider suggest El Nino has peaked and the potential for dry spring
weather is less likely to be intense.
Dec 2007 Corn Production: Be aware by looking into our Hedge Advice page
you will see our level to hedge 2007 corn production is 3760, today's high
is 3652 with a double top of 3750. 62% retracement is 3570, today's low
3586, today's close 3652.
Broiler Egg Set: This next section remains a problem for corn and soybean
meal use. Broiler egg set was down 1% vs year ago levels for the same week
of the year. This trend remains weakening. Why is that important? Because
poultry is the largest consumer of soybean meal and 2nd largest user of
corn when analyzing the feed use sector of the monthly WASDE reports. Eggs
in incubators for broilers are now 211,100,000 vs 214,172,000 one year ago
for this week of the calendar year. Broiler chicks placed are now
168,299,000 vs yr earlier levels of 173,580,000.
Corn Trade Position: Last Wednesday, we were stopped out of our long March and
July corn futures position. We had written new orders for Friday morning
open and re entered longs on the open. The position trades are found within
our Grain Trading Strategies page. Fundamentally we remain bullish corn
because of tight world stocks and good demand. Technically we are short
term neutral but remain long term bullish until 3540 support is taken out
with two consecutive closes below that level.
Soybean Fundamentals: Bullish to old crop futures is strong export demand
and bullish to new crop futures is the strength in corn futures. The trade
is aware a futures price relationship is required between corn and soybeans
for spring planting intentions, and as the corn moves, so moves the
soybeans, at least before S America's soybean crop moves through its pod
fill stage. Bearish to soybeans are abundant world supplies of soybeans and
the impeding potential record S America soybean crop.
Weekly Export Sales: Pre release estimate for Friday's mornings export
sales data release were 450,000 to 650,000 tonnes (16.6 to 23.9 million
bushels) and Friday mornings actual data of 12.5 million bushels were just
as disappointing at the corn and wheat sales. Thus far in the marketing
year soybean sales have reached 732 million bushels, 37% better than yr
earlier levels. The most recent three yr average soybean sales have been
681 million bushels. Soybean shipments are 27% higher than yr earlier
Cash Soybeans: The Mar-May futures spread is 13.6 cents carry. With the
spot cash market at $6.40 per bu, cost of carry per mth is 6.3 cts/bu/mt or
12.6 cents. If the spread is less than the cost of carry, its time to move
cash soybeans. At present the market is paying you to store soybeans.
Soybean Technicals: March futures close is 6814 vs last Friday's 6972. Our
key custom Moving Averages are 6770, 6770 (key support), and has bull to
bear pivot point of 6290. May futures close is 6946 vs last Friday's 7094.
Our key custom MA's are 6910, 6900 and bull to bear pivot of 6360.
Soybean Trade Position: We remain bullish to soybeans as long as corn can
sustain its rally. Domestic and export demand remains good. As we draw
closer to the S American harvest we anticipate to lose some of our bullish
enthusiasm. We did enter a short soybean meal position based purely on a
technical basis. We do not anticipate a collapse but feel there is room to
look for some further downside potential.
Wheat Fundamentals: Old crop wheat remains under pressure from poor export
sales performance while new crop has come under pressure from moisture
entering the key western Kansas producing region and the break in corn
futures. Bullish to wheat is poor weather for the India wheat crop which
begins its reproductive phase of growth in the second half of Jan and
forecast which are not good for positive growth. India's Ag Minister did
announce thus far the wheat crop is in good shape even though vegetative
health maps suggest otherwise. Think about it, why would India suggest
anything other than a good crop so as to not scare prices higher. IF rains
do appear by mid to late Jan, then India may see the light at the end of
the tunnel after such a poor crop in 2006. Last years production is est at
69 MMT with present production estimates of 74 MMT and India's wheat trade
estimating a crop size closer to 78-80 MMT. Most recent forecast are not
offering much in the way of precip. It should also be mentioned, rains have
began to reappear in Australia possibly breaking the long term drought
trend. Planting of its new crop does not begin until May.
Weekly Export Sales: Pre release estimate for Friday's mornings export
sales data release were 250,000 to 350,000 tonnes (9.2 to 12.9 million
bushels) with actual results released Friday of 5 mil bushels. Based on the
sales pace thus far in the 2006-07 marketing year, we needed to see a
minimum of 12.74 million bushels in order to stay the course. Thus far this
marketing year, the sales pace is running 17% lower than yr ago levels.
Actual shipments of 456 mil bu compare to a three yr ave of 595 mil bu and
at the present pace suggest a final target of 836 million bu and not the
900 million bushels the USDA is presently using.
Cash Wheat: The Mar-May CBOT spread is at 9.6 cents carry. At $4.25 spot
cash prices, the cost of carry is 3.9 cts per bu per mth or 7.8 cents.
Anything less than 10 is a warning flag to move cash soft wheat. Similar to
what we have spelled out in the corn section, as long as you are hedged out
in the March, you have already paid yourself to store the wheat. If you are
not hedged then its costing you more to store than what the market is
willing to pay and you need to check your local cash markets to see if
there is adequate cash carry or not. Mar-May KCBT spread is at 10.2 cents
carry. At $4.30 spot cash prices, the cost of carry is 3.9 cts per bu per
mth or 7.8 cents. The Mar-May MGEX spread is at 8 cents carry. At $5.25
spot cash prices, the cost of carry is 4.5 cts per bu per mth or 9 cents
for the time period. Anything less than 8 is a warning flag to move cash
Wheat Technicals: March CBOT SRWW futures close is 4702 vs last Friday's
5010. Our key custom Moving Averages are 4790, 4950 and 4520 bull to bear
pivot point. March KCBT HRWW futures close is 4812 vs last Friday's 5096.
Our key custom Moving Averages are 4890, 5030 and 5000 bear to bull pivot
point. March MGEX spring wheat futures close is 4870 vs last Friday's 5184.
Our key custom Moving Averages are 4970, 5070 and uses a 4870 bear to bull
Trade Position: We remain long term bullish new crop July wheat futures
based on dry weather for India's crop and the uncertainty winter weather
may present for the crop in the USA and northern Hemisphere. We remain
bearish to old crop wheat futures on poor performing export
Allendale Lean Hogs: Everyone believes cash hogs have bottomed and we may
start the seasonal move higher into summer now. It is interesting to see
however there is little premium built into the February contract. The
latest lean hog index we have estimated for Monday will be $59.57. February
futures closed today at $60.40. Will the rally only be less than $1? With
that in mind we still contend now is the time to buy futures. Having said
that bullish statement it is clear the road higher may not be easy. Today's
pork cutout declined by $1.41. Pork demand is still weak. In the big
picture we do feel CME prices are undervalued and the seasonals suggesting
to buy June hogs or do the June/December hog spread this week or buying
February futures next week will be the right course.
Allendale Live Cattle: Forecasts for another storm mid next week helped to
support CME live cattle futures. Though we have not been able to pin down
any solid cash cattle trading at this time we would look for $89 to $90
action which would be up $1 to $2 from the bulk of last week's action.
Current death toll estimates from last weekends snow storm are in the
40,000 to 50,000 head range. As we noted previously this week the death
toll is not the issue here. The real issue is weight loss and/or slowing
weight gains among the roughly 2 million head in feedlots in the affected
areas. On the other hand we also reported USDA is taking the steps to allow
in live cattle and meat from cattle that are up to eight years old instead
of the under 30 months of age rule currently in place. This would allow in
Canadian bulls and cows. In 2002, the last year of unfettered imports from
Canada, they brought us 300,000 live cows and bulls for slaughter. In the
big picture we do agree with the floor talk that prices are near the high
end. $93 would be a good place to start hedges on the February
Allendale is registered with the CFTC and NFA and is a member of the NIBA.
The bottom line is we are a regulated firm which can be extremely important
in this day and age.
In a nutshell, it's obvious fundamentals are more bullish than bearish as world stocks of corn are at their second lowest level dating back to 1980. The trade is well aware of impending March harvest of Argentina and S Africa corn crops. However, the trade has been very concerned about what re-balancing of commodities the Index funds may have in store when they are expected to enter the futures and options trade this week.