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Fewer than expected soy acres a surprise
Friday Reports: If we had to select the one surprise from Friday's
Quarterly grain stocks and Planted acres report, we lean towards the
greater than expected acre reduction for soybeans and then with its
quarterly stocks of less than 1 billion bushels. Soybean acres were reduced
1.965 mil acres vs the trade ave est of a 1.763 mil acres and Allendale's
estimate of a 1.4 mil acre reduction. Is it enough to shake up production
and reduce stocks to create a major shortfall in stocks, not necessarily
when projected end stocks for 2005/06 could wind up 207% higher than the 3
and 5 yr ave.
Short Term Grain Weather Focus: Now that the acreage report is history, the
trade is very much focused on western Iowa and eastern NE and the potential
for ridge building which could harm especially the dry land corn
production. Thursday midnight maps suggested a ridge which was
strengthening, by 6 am this morning, maps began to reduce the strength.
This ridging or lack thereof is where THEE main focus is presently placed
for corn as we enter key pollination phase of corn growth. In the much
broader picture several meteorologist agree they do not see a major weather
problem which could cause a epic problem for corn production. Much further
out, there is some stirring about a potential earlier than normal cold snap
for WI and MI. It will be important for both of theses states maturity to
stay even if not exceed its 5 yr ave maturity level after pollination is
Quarterly Stocks: For corn June 1 stocks of 4.363 bil bu suggest usage of
2.624 bil bu, the greatest on record dating back to 1976/77 and compares to
last yrs 3rd quarter use of 2.436 bil bu, then a record in itself. However
the percent of use at 38% is 2% lighter than the recent 3 yr ave of 40%.
Today's stocks estimate does imply 4th quarter, ending stocks of 2.335 bil
bu vs the three yr ave of 1.386 bil bu and the five yr ave of 1.531 bil bu.
This 2.335 bil bu Allendale estimate compares to USDA's projection of 2.176
Corn acres of 79.366 million and using USDA's present yield of 149 bu per
acre suggest production of 10.735 bil bu, plus its carry in stocks of 2.176
bil bu less total demand suggest end stocks of 1.266 bil bu vs its present
est of 1.091 bil bu. Using Allendale present crop condition yield of 158.5
bpa suggest a crop size of 11.419 bil bu, add in adjusted projected end
stocks of 2.335 bil bu, less total demand, suggest end stocks of 1.901 bil
bushels. The key to success or failure for projected end stocks for the
2006 crop continues to focus on those dry land corn acres within western
Iowa and eastern Nebraska. Allendale continues to use a Dec futures summer
rally potential of 2800 with a harvest low which may lean closer to 2300
than 2200. As futures move closer to the high end of the range we
anticipate basis to weaken and visa versa when futures are honing in on the
harvest lows. Old crop corn needs to be moved to make just enough room for
on farm storage and anticipate much better basis levels by mid to late
winter 2007 for marketing opportunities.
Quarterly Stocks: For soybeans June 1 stocks of 990 mil bu suggest usage of
669 mil bu, vs last yrs 682 mil bu which stands as a record. The percent of
use at 41% is 4% lighter than the recent 3 yr ave of 45%. Today's stocks
estimate does imply 4th quarter, ending stocks of 569 mil bu vs the three
182 yr ave of 182 mil bu and the five yr ave of 185 mil bu. Projected end
stocks are likely to be 210% greater than the combined 3 and 5 yr ave
level, keeping pressure on basis and futures rally potential. This 569 mil
bu Allendale estimate compares to USDA's projection of 570 mil bu.
Soybean acres of 74.93 million and using USDA's present yield of 40.78 bu
per acre suggest production of 2.994 bil bu, plus its carry in stocks of
569 mil bu less total demand suggest end stocks of 564 mil bu vs its
present est of 655 mil bu. Using Allendale present crop condition model
yield of 50.8 bpa suggest a crop size of 3.73 bil bu, add in adjusted
projected end stocks of 569 mil bu, less total demand, suggest end stocks
of 619 mil bushels. The key to success or failure for projected end stocks
for the 2006 crop continues to focus on weather in the first three weeks of
Allendale continues to use a Nov futures summer rally potential of
6500 with a harvest low which may lean closer to 5500. As futures move
closer to the high end of the range we anticipate basis to weaken and visa
versa when futures are honing in on the harvest lows. Old crop soybeans
need to be moved to make just enough room for on farm storage and
anticipate much better basis levels by mid to late winter 2007 for
marketing opportunities. Allendale advises not to wait into the S American
growing season as we anticipate a solid production level for both Brazil
and then Argentina.
Quarterly stocks, (2005/06 end stocks), for wheat 568 mil bu suggest last
quarter usage of 404 mil bu, vs last yrs 444 mil bu vs record levels of 913
mil bu in 1982/83. The percent of use at 58% is 14% higher than the recent
3 yr ave of 45%.
Wheat acres of 57.873 million and using USDA's present yield of 39.3 bu
per acre suggest production of 1.830 bil bu, plus its carry in stocks of
568 mil bu less total demand suggest end stocks of 358 mil bu vs USDA's
present est of 416 mil bu. 358 mil bu end stock projection for 2006/07
compares to 1995's tightest level of 377 mil bu dating back to 1980. The
key to success or failure for projected end stocks for the 2006 crop is
likely to be placed on the marketing year export program and increased
global production leading into 2007 as a result of the present USA's
futures rally. Only three weeks into the new marketing yr, export sales
have fallen below the level needed in order to meet USDA's target of 900
mil bu. Exports play a key role in wheat's future as it represents 49% of
the total demand.
Allendale is using a Dec futures rally potential of 4340
and if broken may have the potential to re test the life of contract high
of 4630 established on 5/23/06. As futures move closer to the 4340 level we
anticipate basis to weaken but historical basis suggest a rally beginning
by the middle of October. An abnormally high in basis levels may be checked
this year as wheat may likely be forced out of the bin at the expense of
needed storage for both corn and beans even though spreads suggest storing
wheat may actually provide better storage income than soybeans.
Our price trends suggest overwhelming
odds of 80% for corn to ave 10 cents lower by next Friday vs today's Sept
futures close of 2460 with 20% odds of ave 13 cents higher. More meaningful
is the four week cumulative for odds to be 70% lower by an ave of 27 cents.
This of course is based on historical performance only and does not
necessarily suggest with adverse weather how futures could defeat those
odds quickly. For the rest of the grains and livestock odds please view
July 4th Study: The guidelines are entering a position at the close of
futures trade on Monday and exiting at the close of business Wednesday.
Very simply there are no clear winners or losers for the grains as odds are
nearly 50/50 for corn, beans and wheat by entering a long or short at the
close of business this coming Monday and then exiting the close of business
on Wednesday. We would have to turn to August cattle futures which suggest
out of the most recent ten years, 70% odds by entering a long for an ave
gain of 90 cents. The max gain has been $2.30 and the minimum gain of 20
On Friday, the USDA released a bullish Hogs & Pigs report. The hog industry is
currently in a period of mild expansion and this report confirmed that.
That average guess for the total hog herd was 100.9% of last year. As it
came in at 100.3% today's report is bullish. The Kept for Marketing
category is then broken down into numbers in four weight categories.
Generally if you know the weight gain each age group of hogs have you can
predict an estimated marketing range of each weight group. This is one way
analysts can estimate potential slaughter numbers down the road
The net result is this
report gives the trade a good tool to help estimate slaughters (and
therefore prices) for next year out. What does this report tell us? The net
result is numbers already born and to be marketed in the next five months
are a little lighter than expected. We will still slaughter a little over
last year's levels but not as much as expected. We will call Monday to open
20 to 30 cents higher. These longer term numbers are important but will
likely be passed over by the trade in favor of watching slaughter rates,
cash hog, and cash pork prices. If slaughter rates show we are slowly
coming out of the marketing hole the CME could be overpriced. The trade may
make a run higher Monday but we remain bearish on lean hog futures. Selling
August futures directly and risking $1.50 or selling August 74 calls for
over $1 and risk 50 cents from entry may be the way to go. If the 74's
cannot get done then move to the 72's.
Allendale Live Cattle: Trading was seen at $84 and $84.50 today in the live
based action. That was about steady with last week. We are watching for any
sign of weakness on the wholesale beef end to confirm what our long term
price projections have indicated. Those indications were August futures are
overpriced. After an expected decline for the rest of summer our long term
outlook into fall and winter is supportive. We would like to be long term
buyers of these far deferred contracts, only at lower prices though. For
hedging, Allendale's Hedge Advice page shows we are adequately covered
right now. Producers with no hedges on may look to make short term sales on
the August and October contracts.
gives a little more detail on the breeding herd (sows and boars).
Specifically producers are asked how many farrowings (total sows giving
birth) their breeding herd did in the previous three months (March-May
Farrowings). For the previous three months USDA counts how many pigs were
successfully weaned out of each litter (Pigs per Litter) then how many
total pigs were born (Pig Crop). For this period all we do is take the
March-May Pig Crop, apply a death rate, add in Canadian live hog imports,
and we can predict slaughter rates for September through November. For
future farrowings USDA asks producers their intentions over the next six
months (June-August and September-November). The numbers match up well if
you assume it takes 6 months to raise a hog from birth to slaughter (though
current industry rates are around 5.5 months).
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.
Friday Reports: If we had to select the one surprise from Friday's Quarterly grain stocks and Planted acres report, we lean towards the greater than expected acre reduction for soybeans and then with its quarterly stocks of less than 1 billion bushels. Soybean acres were reduced 1.965 mil acres vs the trade ave est of a 1.763 mil acres and Allendale's estimate of a 1.4 mil acre reduction. Is it enough to shake up production and reduce stocks to create a major shortfall in stocks, not necessarily when projected end stocks for 2005/06 could wind up 207% higher than the 3 and 5 yr ave.