You are here
Forecasts, not crop conditions will be the focus of the traders
The trade emphasis is providing signals it may be
transitioning away from the first phase of spring, away from "planting pace"
and into phase-two of early growth.
Anticipate more trade awareness of crop
condition adjustments and focusing much more on 3-5 and 6-10 day more
immediate weather forecast and less emphasis on two week forecast. Be aware
that the existing 78% good to excellent breaks the most recent record of
1994 as 2007 was able to maintain its 78% rating for two consecutive weeks
vs 1994 had a notable decline the second week to a level of 73%. 1994 was
unique by bottoming at 73% good to excellent and reached a peak of 86%
between the silk and dough stage of development. The most recent five year
ave for good to excellent crop rating as detailed within our special
reports section within our internet site, suggest an upward bias over the
next month before gradually declining into the beginning stages of harvest.
2007 has already proven it is very unique and could have the resilience to
outperform average history. When adding the fact there really has been no
development of a set weather pattern of too wet or too dry, for the major
Midwest, 2007 corn production has the potential to be at a minimum of an
ave weather year and provide end stocks for 2007-08 to be nearly mirror to
2006-07's sub 1 bil bu, even with an additional 12.4 million acres planted
above 2006 levels. Demand remains strong.
Acres: Question emailed to us, "What are the chances USDA could increase
the amount of corn acres from the May WASDE to the June 11th WASDE"? Dating
back to 1997, USDA has adjusted corn acres to be planted once and by 1
million acres because of planting delays. According to NASS data, dating
back to 1997, only in 2002 was the corn planting progress below 94%
complete as of May 31st by indicating progress at only 89%. USDA made a
reduction in production of 285 million bushels. Provided the fact that as
of May 27th, 2007 corn planting progress is estimated at 97%, Allendale
does not anticipate an increase in corn acres within the June 11th WASDE
report. Allendale does anticipate a change in acres when USDA releases its
June 29th Planted acres report and will cover in detail, the closer we
approach the actual release date.
Historical Price Trend: Be sure to check out the HPT page and you will see
for the four week cumulative price ave adjustment odds are 90% over the
most recent ten years, July corn futures have averaged a weaker bias. The
one exception was 2002, up 29 cents. Coincidently it was 2002 when USDA
dropped corn acres from the May to June WASDE by one million because of a
slow planting pace. Interesting is how even in the bull rally year of 2004,
July futures could not make it into positive ground according to the data
for our HPT page.
July Corn Futures-Cash: Our plan was put into action on Thursday during our
12:30 pm update of our Allendale Advisory report by selling the 2006 corn
inventory into the cash market. Factors used to make the final decision are
Allendale's July corn futures price projection of $4 by the end of
May-beginning of June, historical data which suggest in tight end stock
years, timing suggest June has typically been a peak month for making cash
sales of corn, strengthening Gulf basis levels of more than doubling over
the past 18 days, and the discrepancy in next weeks weather forecast. At
the beginning of this week, corn futures broke up through 3730 short term
Moving Averages at the same time fundamentals traders began to discuss the
chance for the first "Blocking Ridge" for the greater Midwest, due the
middle of next week. Noon maps Thursday began to suggest temps not expected
to be intense and also suggest the ridge may be pushed back to late next
week or weekend. By Friday morning a few more from the private weather
sector began to shift towards a bias of greater potential for rains mid to
late next week. We need to point out at this juncture, our Weather Watch
page author, World Weather Inc, never bought into the "Blocking Ridge"
talk. One other deciding factor was the jump in old crop corn futures just
two days before the end of the month of May. We are suspect as to the
affirmation of funds to follow through with its emotional futures price
strength into the first few days of the new month of June and just days in
front of the USDA June WASDE reports release.
Dec Futures Price Projection: From this point forward, Allendale estimates
Dec futures low at 3400-3600 and high of 4000-4200 under average weather
conditions. Use this price range for end use and marketing your 2007 corn
production. Allendale suggest the low end of the range objective may have
been met. Allendale's Dec corn price projection is found within our "Price
Outlook" on the home page of our internet site.
Trade Posture: Short-term, we are willing to trade the technical trade range
for corn as its transitions away from planting progress talk to weather
related early growth talk and 3-5 day forecast. Demand remains good for
corn with the exception of corn used for ethanol. New crop corn sales to
date are 122.2 million bushels vs yr earlier levels of 27.1 million bushels
despite prices increase of nearly $1 higher spring of 2007 vs spring of
2006. Technically we neutral to futures until they breaks out of its
present range of trade of 3650 to 3964. We are neutral to new crop futures
until Dec futures can break out of its trade range of 3630-3920.
Observation: Make note, even though actual corn sales did not fall within
the pre release range of estimates, sales of old crop corn are nearly 10
mil bu more than what is needed on a per week level in order to reach
USDA's target of 2 billion bu of exports for 2006-07. More impressive is
the soybean sales pace and could push USDA to increase its export target
with 15 weeks remaining in the marketing year
For The Month of May: July corn closes up 23 cents or 6.2% higher, July
wheat closes up 22 cents or 4.3% higher, and July soybeans close up 63
cents or 8.5% higher.
Weekly Support and Resistance: Based on the immediate weekly charts, corn
has support at 3300 and resistance of 4000, soybeans support at 7924 and
resistance of 8480, CBOT wheat support at 5010 and resistance of 5240, KCBT
support at 4880 and resistance of 5120, and MGEX support at 5180 and
resistance of 5404.
Soybeans Fundamentals: The weaker US dollar against the Brazilian Real is
bullish to old crop soybeans and reduced planted acreage of 8.4 million
acres in 2007 vs 2006 remains long term supportive to new crop soybeans at
least leading up to the key pod fill state in late July-early August.
Soybean oil and Malaysian Palm oil remain the team of horses pulling
soybean futures higher. The investment community is very much enthralled
with the idea of using soybean oil to manufacture into biodiesel. These
same investors may not be to enthusiastic about the export data for US
soybean oil. US exports of soybean oil are 20% behind year earlier levels
of commitment against USDA projections and 26% behind the five year ave.
There are 18 weeks remaining in the 2006-07 marketing year for soybean oil
and unless S America shuts its meal and oil exports off to bolster US
demand, USDA could be prepared to scale back soybean oil exports in the
June WASDE and temper some of the exuberance.
Old Crop Soybeans: The average cash value of Midwest soybeans is $7.32 per
bushel which suggest a cost of carry of 6.4 cents per bu per month. Check
your local cash markets to see if the end user or middleman is willing to
pay you to store, if not then move old crop supplies to the cash markets.
On Friday 05-18-07 Allendale advised to lift the July hedges against the
2006 inventory and sold the complete inventory to the cash markets.
Historically late April-early May has been one of the cash price peaks
during the calendar year. Our July soybean price projection suggest the
7400 low objective has been met and those same price projections now
suggest a move to 8500. Tonights close is 8174 (8194 high) with the life of
contract high of 8220. Be aware given the world stock levels of soybeans, a
July futures move to 8500 is likely to take its toll on old crop basis
levels. Be sure to keep your eye on the price spread between the S America
vs USA cash prices as updated each morning at the bottom of our Grain
Fundamentals II page. Be aware, as CBOT futures prepare to approach the
8500 level, the CBOT floor trade may not be shy discussing the possibility
for a US soybean crusher to import S America beans at a discounted price.
Futures Price Projections: According to Allendale's futures price
projection for November futures, the 7500 downside target has been met and
looks towards futures a $8.75 high by July-August, just in front of the
soybean pod fill growth stage, correcting to near $7 in front of harvest
and then correcting to $7.75 before expiration. Use these ranges to hedge
new crop, cover hedges with calls on the correction for the producers and
end users buy puts near the top side of the anticipated highs. Whether
hedging as a producer or end user (crusher) ask your Allendale
Representative to run a minimum of two scenarios using options strategies
against futures hedges. We have the available software to present potential
to you before the position is triggered.
Trade Posture: Fundamentally, we are more incline to be bullish soybean
futures than bearish. Those utilizing our Allendale Advanced Charts, pay
particular attention to Friday night's comments, regarding testing the old
life of contract high and is in overbought status. Based on our price
projections, we have written new orders to buy soybeans on a technical
correction. We were fortunate to buy July soybean oil on a futures
correction Wednesday. We have resting orders to buy July soybean meal as
outlined found within our Grain Trading Strategies page. Entry, risk and
objective are provided.
Wheat Fundamentals: Big surprise Thursday morning when USDA announced the
sale of 120 K tonnes of USA soft winter wheat to Spain. Bullish to wheat
futures is the declining crop size in Ukraine and Russia. Russia suggest
rains need to arrive within the next 10 days or much more winter wheat
production potential will need to be shaved from it est 45 MMT vs USDA's 48
MMT crop estimate. Ukraine and Kazakhstan and now the north China Plain
also have weather problems in the form of deteriorating dry weather.
Ukraine is still working on the idea of suspending all 2007-08 grain export
shipments until they get a better handle on grain production prospects
after the wheat harvest and at corn pollination. Similar to corn, the world
did respond with bigger planted acres for the 2007 harvest. Possibly the
easiest way to paint a very precise picture for 2007 grains is to
understand how total world grain production for 2007-08 is estimated at
2,094,230,000 tonnes vs the previous years production of 1,985,320 tonnes
(up 5.4%), however ending stocks are projected at 305.08 million metric
tonnes vs the previous years 319.79 MMT (down 4.5%). More importantly, USDA
has not responded to weather related problems in S Africa, Australia,
Russia, Kazakhstan, Ukraine to the degree that it needs to. Yes, plenty of
volatility for 2007.
Dec CBOT Wheat Futures: Revised May 22, 2007, Allendale's Dec wheat futures
price projections suggest a harvest low of 4750 and then rally to slightly
more than $6 only to correct to $5 before Dec futures expiration. This
information may help us with our marketing advice just below.
Wheat New Crop Hedges/Marketing: Presently, Allendale has its new crop
hedges mainly in the July futures with a small amount in the Dec 2007
futures. Our resting orders to add another 10% new crop wheat hedges in the
Dec futures at a level of 5520 was triggered on Friday bringing the 20% Dec
hedge ave to 5380. Within our Hedge Advice page we have written new orders
to add 10% more at the price described within the page. The level
designated is a result of our Dec 2007 futures price projections found
within our internet site. The July-Dec wheat spread is 25 cents carry. At
the Minneapolis Grain Exchange the National soft wheat Index has a 7 cent
inverse for cash between July and Dec suggesting wheat be sold off the
combine. So we have futures suggesting there is 4.3 cents per bu per mth
carry while the cash market suggest a need for four cents. This development
suggest it may be wise to sell the harvest to the elevator (handle once)
but you may also want to consider purchasing a Dec bull call spread to
reown the 2007 production based on tight projected world end stocks and the
potential for corn and wheat futures to rally this summer.
Allendale Lean Hogs: Last week was a disappointment for our slightly
bullish position on cash hogs and June futures. For the week wholesale pork
prices declined $2.11. Meat buyers saw packers run a big kill (+2.8%) and
also noted some competition from the poultry side. Though cash pork and
cash hog prices are not posting rallies we are encouraged by the action in
deferreds. You may not have noticed this but October and December futures
are at their highest level in over month. July and August futures are
retesting prices from two weeks ago. This is what we would like to see as
we intend to add further hedge coverage for producers in the next two weeks
or so. On the June/October spread for speculative trades, we will note
typically holding it out past the first few days of June holds no benefit.
We missed the profit taking $9.50 objective by 5 cents earlier and will
have to readjust that to $9.00 which should cover costs.
Allendale Live Cattle: On Friday, central and southern Plain's feedlots held out until
the afternoon before accepting lower prices for cattle. Active cash sales
were seen at $93 and $93.50 compared with last week's $94 and $95 trades.
It was just two weeks ago we saw sales of $98. Though yesterday the trade
made a little hoopla about the volume of beef wholesale meat buyers
purchases. It didn't change the fact prices ended the week lower. Overall,
this drop in cash cattle prices since the $100 high in March is a normal
part of the spring high to summer low pricing in cattle. We still feel it
will be a few more weeks before a solid summer low is established. CME
futures are pricing in $92 by the end of June which could suggest a
sideways trade may develop soon. August futures are pricing in a $90 low by
mid July. For trading those following our recommendations for the
February/October spread likely took profits today at the recommended price
The trade emphasis is providing signals it may be transitioning away from the first phase of spring, away from "planting pace" and into phase-two of early growth.