Fundamentally bullish to corn
Allendale research suggest when the Consumer Price Index reaches above 4%, approximately 12 months later its impact may be felt within the grains. Month of Jan 2007 the CPI registered 2.1%, reached a low of 2% in August and then matched a high of 2.8% in Sept, made a new record of 3.5% in the month of October. Food and Beverages account for 15% of the total CPI make up, third to Housing at 43% and transportation at 17%. CPI Food and Beverages Jan of 2007 at 2.42% 4.06% by July, 4.36% in Sept and reached a record high of 4.37% by Oct. The question we asked, dating back to 1970 has there been any other years when a two month growth change has been equal to or greater than the present 1.5% growth, and if so, what if any impact did it have on corn and wheat futures. Allendale research found one such year in 1987 and impacting the May futures as the 1.7%, two month growth occurred by April. Specifically the May 1987 wheat futures increased by 30 cents and May corn futures increased by a similar 30 cents. Allendale suggest given the present growth of the CPI's food and beverage sector, it may have a positive result for the May 2008 corn and wheat futures.
weekly soybean sales more than double primarily as a result of China 70% share of the total weekly sales. China maintains a reduced 3% to 1% import tariff for soybeans and is aggressive before its holiday period begins. 30 minutes after the weekly data was released, USDA did announce China was an overnight buyer of 226,000 tonnes of soybeans which will be recorded as part of the weekly export sales for the Nov 29th release. Corn, soybeans and wheat weekly export sales were enough to reduce the amount needed on a per week level in order to reach the 2007/08 export target for each, another positive development.
Soybeans Protection: Allendale Inc President Paul Georgy came up with an idea to protect your 2007 soybeans. He suggest in recent years the old crop soybean market typically tops before the month of May as South American soybeans will be available for use by that time. Please view a graphic of reward to risk, where you would normally find our morning Weather Watch page. Selling a May 1300 call and buying a May 1000 put provides down side protection with a window for greater profits on cash beans. Current market conditions would allow you to put this spread on for 10 cent plus a portion of the margin requirement of underlining futures. The 10 cent option play or $500 per 5000 bushels is at breakeven from 9900 to 12900. However if May futures should happen to break below 9900 because of the S American bean competition and larger US soybean plantings, and reach a level of 8900, the option strategy per 5,000 bu contract could be worth $4,500 and at 7900 be worth $10,000. If May futures reach 13100, risk is $1,000 per contract and greater if futures move higher.
Fundamentals: Bullish to soybeans is China eagerly buying soybeans during the Oct-Nov and Dec time period as its import tariff has been reduced from 3% to 1%. Oct 2007 soybean imports for China are 26% higher than Oct of 2006. After Dec, look for China to weigh more demand on South American supplies and begin to wean away from the US. IF South America soybean production maintains its positive early growth potential into the pod fill stage, do not rule out the possibility of cancellations which wheat has experienced. Most immediate broad based fundamentals are more bearish than bullish for soybean futures. Total S America soybean production may reach 119.1 million tonnes (4.376 billion bushels vs 116 million a year earlier. S America is hedging new crop production vs the May 2008 futures which closed at a life of contract high of 11.07/bushel on Friday and viewed as an incentive to continue to plant in southern Brazil, Uruguay, Paraguay, Bolivia and Argentina. The seven day weather outlook for S America is mainly neutral to slightly bullish to May futures as Argentina is forecasted to experience net drying.