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Ideas of tight new corn supplies vs. demand support prices
Corn Fundamentals: The pre release estimates for
Tuesday's USDA crop production and World Ag Supply Demand report are about
as inspiring as were the weekly export sales for corn released on Friday
which were very neutral. Futures remain supported on ideas of tight new
crop supplies vs potential demand, strong domestic use and news of S Korea
to permit US Beef imports. This is positive growth for domestic use of corn
to feed out the cattle then ship the finished product.
Historical Price Trend: Over the past ten years, corn futures have averaged 10 cents
lower for this week 100% of the time. There has never been a
year when futures were able to finish unchanged or higher. In order to
break these heavy weight odds, next Friday's futures close need to close at
or above 2460.
Weekly Export Sales and Shipments: USDA set a target of 2.1 billion bushels
to be sold and shipped for the 2005-06 mkt yr. Sales beat the target by 136
mil bu and shipments beat the target by 40 mil bu. Thus there will be no
carry over into the 2006-07 from the export column. The new 2006-07
marketing year began Sept 1 of this month and export sales are a record
beating the previous ten years hands down.
Corn End Stocks to Use: Projected end stocks to use now at 10.4% vs 9.4% in
2003 for the domestic situation. Globally a level of 11.6% vs 2003's 14.3%.
Projected world end stocks for 2006-07 now 93 MMT vs 103 in 2003! Lets go
back to 1983 to find smaller stocks of 89 MMT!
Cash Corn Sales: Call your Allendale representative and ask them to explain
the history behind when cash prices peak for corn producers and where
prices find its low for end users. The graphs were sent to the Allendale
representatives shortly after the close on Friday. Most importantly, ask the
representative just how the end of 2003 unfolded into the beginning of 2004
and of key importance where those high 2004 cash prices early in the
calendar year wound up near the end of the same year. Allendale went into
great detail behind the specifics at the annual Illinois Bankers
Association meeting held in Springfield, IL on Thursday the 7th. We covered
specifically both the Illinois and national outlooks.
Corn Marketing: Our new crop hedges were rolled to the July to pay for
storage on farm and added an additional 9 cents to our storage revenue for
the 2006 corn crop. May 2700 calls to cover a third of the hedges were
bought 08-15-06 and are doing well to remove margin pressure. We will add
the second third of these hedges on Monday Sept 11th as outlined in our
Hedge Advice page of the Allendale Advisory Report. If you do not have new
crop hedges placed you may want to consider our anticipation of March
futures rallying 80 cents into the first quarter of 2007 to a level of
3400. We advise to not wait for a top, but rather scale up hedge into the
last 40 cent of the move and be certain to cover with at the money May call
options. We advise to anticipate cash prices peaking in the Feb-Mar-April
2007 time frame. Call if you have questions about your own particular farm
From Aug to Sept: on ave USDA is 50/50 when adjusting corn yield from the
Aug to Sept crop report. When they do raise production its been by an ave
of 1.7 bu per acre (range of .2 bpa to 4 bpa) or 147 mil bu. When the
adjustment is lower the yield on ave has dropped .9 bu per acre (range of
.1 bpa to 2.5 bpa) or minus 63 mil bu. USDA's most recent new crop
production estimate is 10.976 bil bu. Based on pre release estimates, the
trade ave suggest USDA could increase production by 14 mil bu for a new
estimate of 10.99 bil bu vs the Aug estimate of 10.976 bil bu. USDA's
largest increase in production from Aug to Sept, over the past ten years
was last years 289 million bu with the largest decrease of 180 mil bu in
Five Year Ave Cash Price: the five year ave cash price for corn for the
month of Sept $2.13, month of Oct $2.05, month of Dec $2.11.
Corn Technicals: Dec futures close is 2460 vs last Friday's 2456. Our key
custom Moving Averages are 2450, 2440 and uses a 2580 bear to bull pivot
point. March futures close is 2600 vs last Friday's 2604. Our key custom
Moving Averages are 2600, 2580 and a 2670 bear to bull pivot point.
Trade Position: We remain long both Dec and March corn futures and have a
risk reverse advised on ideas harvest pressure could push corn futures
below the August low.
Soybean Fundamentals: Heavy old crop stocks and beneficial, timely rains
for 2006 soybean production are bearish to new crop futures. Demand for
soybeans has been anemic. Soybean oil had been the legs under the beans.
Soyoil's attachment to crude oil has come under pressure as well as the
demand for cheaper Palm oil and these contributors makes it difficult to
stage much of a corrective fundamental based rally. Break 2480 in the Dec
soybean oil futures and a move to 2380 is very much possible. Given the
weakness in the crude oil futures, look for pressure to continue against
soybean oil and corn futures as renewable fuels.
Soybean End Stocks to Use: Projected end stocks to use now at 15% vs 18.2%
last year and 7.6% from 2000-2004 ave. Globally a level of 17.3% vs 18.8%
last yr and 15.3% from 2000 to 2004 ave.
From Aug to Sept: On average, USDA is 30 (increase)/60 when adjusting yield from
the Aug to Sept crop report. When they do raise production it's been by an
ave of .8 bu per acre (range of .5 bpa to 1.1 bpa) or 45 mil bu. When the
adjustment is lower the yield on ave has dropped 1.2 bu per acre (range of
.5 bpa to 3 bpa) or minus 84 mil bu. USDA's most recent new crop production
estimate is 2.928 bil bu. Over the past ten years, the largest Aug to Sept
production increase was 84 million in 1998 with the largest decrease of 219
mil bu in 2003. Pre release estimates have a trade ave estimate of 3.093
bil bu against an Aug USDA crop prod estimate of 2.928 bil bu for
expectations of a 165 mil bu increase, which if proven on Tuesday would be
a record dating back to 1980.
Soybean Marketing: Only move enough old crop to make room for new crop
supplies as old crop basis is weak and expected to remain weak into the end
of the year. Our new crop hedges were rolled to the July to pay for storage
on farm. Long range projections suggest when the March 31st Planting
intentions report is released, more corn and wheat acres to be planted at
the expense of fewer soybean acres and thus friendly to futures and cash.
End users and spec longs are advised to be long into the glut of the 2006
soybean harvest and keep an ear open to S American planting progress.
Five Year Ave Cash Price: The five year ave cash price for soybean for the
month of Sept $5.52, month of Oct $5.53, month of Dec $5.61.
End Stocks to Use: Projected 2005-06 end stocks are 81% higher than the
previous four year ave. Projected 2006-07 end stocks are 48% higher than
that same four year ave.
Soybean Technicals: On Friday, Nov futures close is 5480 vs last Friday's 5514, down
1% for the week. Our key custom Moving Averages are 5550, 5560, and bear to
bull pivot point at 6070. January futures close is 5616 vs last Friday's
5646, down 1% for the week. Our key custom MA's are 5650, 5650 and bear to
bull pivot point at 6140
Trade Position: We are short new crop and Jan soybeans on increasing yield
and heavy old crop stocks.
Wheat Fundamentals: Argentina is back in the news over dryness issues in
the #2 and #3 key growing regions. Forecast do not hold much in the way of
much needed rains for the weekend or into early next week. Plenty of talk
out of Australia as estimates are now suggesting a crop which needs to step
lower to 15 to 16 million tonnes vs last months 18 MMT and a beginning
target of 24 MMT vs last years 25 MMT.
Projected world end stocks are 128 MMT vs 132 MMT in the bull run of 2003
leading into 2004 where stocks corrected to 151 MMT. Anything less than 128
MMT, you have to venture back to 1981's 113 MMT.
Weekly Export Sales as Demand: Wheat export sales are running 21% behind
year ago levels and 27% below the most recent 3 year ave. Shipments are
running 9% behind last year and 18% below the most recent three year ave.
Wheat Technicals: DECEMBER CBOT SRWW futures close is 4154 vs last Friday's
4194, down 1% for the week. Our key custom Moving Averages are 4190, 4150
and 4010. DECEMBER KCBT HRWW futures close is 4802 vs last Friday's 4850,
down 1% for the week. Our key custom Moving Averages are 4810, 4820 and
4740. DECEMBER MGEX spring wheat futures close is 4616 vs last Friday's
4704, down 2% for the week. Our key custom Moving Averages are 4630, 4620
and 4620, now viewed as key resistance.
Trade Positions: Long CBOT, KCBT and MGEX futures position based on the
fundamentals and technicals.
Wheat Marketing: Projected domestic end stocks to use are 21.3% vs 2005-06
26.3% and five year ave levels of 26.94%. Projected global stocks to use
are 17.7% vs 19.7% the previous year and five year ave of 22.44% and most
importantly smaller than 2003's 18.9% which caused futures to rally. Based
on this data timing is expected to be extremely important to move 2006
wheat production in the March-April 2007 time frame. 2006 Dec wheat futures
hedges were rolled to the July 2007 futures to cover storage cost. From Oct
2003 into March of 2004 futures rallied nearly 90 cents then nosed dived.
Five Year Ave Cash Price: The five year ave cash price for SRWW for the
month of month of Sept $3.43, month of Oct $3.51, month of Dec
Allendale Lean Hogs: A big 1.884 million head kill will be put together
this week after Saturday's 229,000 head slaughter. That would
be up 2.4% over last year and the third week in a row with a normal kill
schedule (staying on pace with projected supplies). Typically, slaughters do
nothing but increase into early October from here. Cash hog prices usually
fall this week before finding strength on October National Pork Month
promotions later this month. Today's wholesale pork price, via the pork
composite cutout, closed $1.21 lower. For last week, it closed down
$2.74. There is a gap around $65.50 traders may use as a short term bear
target. We project Monday's lean hog index to be $69.99. It still appears
October futures are discounted enough. There is some talk that traders are
concerned new beef sales to South Korea will replace some of the extra pork
we have been sending them the last two years. Though pork sales to South
Korea actually declined in 2004 they jumped a huge 168% in 2005. Year to
date sales (through June) are up another 93%. Yes, pork has made extra
gains to replace beef but we wonder just how quick sales will be made
Allendale Live Cattle: So we got back our former #3 export customer and
nearby futures drop over $1. South Korea announced they will
lift the ban on US beef and could see US product entering the country by
the end of the month. In 2003 they accounted for 23% of our exports at 587
million lbs. Right now, we are expecting to get back 15% to 25% of those
former sales by the end of the year. One good thing about South Korea is
they are only asking for boneless beef from cattle under 30 months of age.
That gives them more cattle to work with than the 20 month and under
regulation Japan has.
We certainly cannot argue
cash cattle prices have risen extremely quickly in the last three weeks.
This market will not go down and put in new contract lows. That was done in
the summer. Instead we would suggest the long term up trend is very much
alive. Having a week or two break here and there is not a big deal.
Interestingly wholesale beef traded slightly higher today. As we have said
before, breaks in this market are good chances to establish long positions
in deferred futures. Our upside goal for February futures is $94.
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.
Corn Fundamentals: The pre release estimates for Tuesday's USDA crop production and World Ag Supply Demand report are about as inspiring as were the weekly export sales for corn released on Friday which were very neutral. Futures remain supported on ideas of tight new crop supplies vs potential demand, strong domestic use and news of S Korea to permit US Beef imports. This is positive growth for domestic use of corn to feed out the cattle then ship the finished product.