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Longterm fundamentals support wheat prices

For The Week: March corn futures closed up six and a three quarter cents
(1%) per bushel vs last Friday's closing price, March soybeans up thirty
four and three quarter cents (+2.6%) March CBOT wheat down sixty six cents
(-7%), March KCBT wheat futures down fifty eight and a quarter cents
(-5.3%) and March MGEX up three dollars and eighty two cents (+24.5%)

For The First Fifteen Days: thus far for the first fifteen days of the
month of February, March corn up 3.2%, March soybeans +10.5%, March CBOT
wheat up 10%, March KCBT wheat futures up 11.5% and March MGEX +52.7%.

Wheat Fundamentals: weekly export sales of US wheat are the second lowest
of the marketing year. Allendale's research suggest a forward decining
trend has been the historical norm with a notable drop by April. Japan
announced it will raise its wheat price by 30% beginning April which may
help confirm economic rationing. Japan has also announced it may be time to
seek other suppliers than just the US, Australia and Canada and are willing
to sacrifice high protein for a lower price. The US has purchased 25 K
tonnes of high protein spring wheat from Germany. The price of German wheat
is $3.73/bushel discounted to US spring wheat prices include $65 per tonne
freight cost at the time of the purchase. All old crop soft white wheat
bids have been pulled in Portland, OR. For the past 8 days Portland pulled
its Feb bid but effective today, all old crop bids have been stripped. Two
possible reason's, #1 current supply is enough to meet current demand and
or the import of high protein spring wheat from Germany in the amount of
25,000 tonnes. Effective for Thursday evening MGEX electronic trade, trade
limits have been increased from 90 cents per bu to a new level of $1.35.

End Users and Middlemen: The American Bakers Association is calling upon
all bakers to band together in Washington, D.C. for an industry march to
stress the urgency of the current wheat situation. This would be the first
national food price protest on Washington since World War I. They will meet
with the White House, USDA and key members of Congress. On March 12, ABA is
arranging for the "Band of Bakers" to meet with newly confirmed Agriculture
Secretary Ed Schafer and senior White House officials. They ask the USDA to
limit exports of US wheat or open up Conservation Reserve program acres to
ease price pressure for wheat. USDA says they are not considering imposing
restrictions on US wheat exports and interest in opting out of CRP has been
light.

February 22nd: option expiration is scheduled for Friday Feb 22. Consider
if it could be the function of the short term investment fund to inflict
the greatest amount of financial damage for the outsiders, funds could
target the $16.95 and $17.25 futures price at the MGEX. These are the two
strike prices where funds have the majority of the open interest, relative
to the present futures price of $19.35. MGEX's present $1.35 per bushel
daily trade limits are effective for Tuesday and Wednesday of next week.

Exports: wheat exports account for 50% of the total 2007/08 use. with 15
weeks remaining in the marketing year, cumulative wheat sales of 1.146
billion bushels to all nations are 62% higher than year earlier levels and
45% higher than the five year average. Shipments of 883 million bushels are
60% higher than year earlier levels and 79% above the five year average.

Trade Posture: Allendale has switched from trading March old crop futures
to new crop July. Technicals suggest rallies are more likely to be sold.
Allendale entered short new crop positions at the CBOT, KCBT and MGEX. The
short MGEX risk was triggered on Friday, but remain short at the CBOT and
KCBT. Longer term, fundamentals remain supportive as US winter wheat
conditions went into dormancy experiencing its third weakest good to
excellent conditions and odds suggest the conditions may not show a turn
around in quality ratings. Thin old crop spring wheat stocks may be able to
support MGEX March futures.

Corn Fundamentals: Beneficial to corn futures is continued solid exports as
a result of a weak US dollar and lack of international competition. Also
supportive to corn futures are tight world stocks of corn, rice and wheat,
at least until the new crop wheat harvest begins in the northern
hemisphere. 48 end user organization have signed off on a letter addressed
to the USDA Secretary of Agriculture asking for the release of conservation
reserve program acres or to limit exports of US grains, oilseeds and it
products. The likelihood the USDA would step in to control exports are slim
and none. The likelihood USDA would release CRP acres depends on if weather
is catastrophic this spring planting season.

Exports: corn exports account for 19% of the total 2007/08 use. with 29
weeks remaining in the marketing year, cumulative sales of 1.901 billion
bushels to all nations are 30% higher than year earlier levels and 54%
higher than the five year average. Shipments of 1.130 billion bushels are
15% higher than year earlier levels and 60% below the five year average.

Technically: according to our Allendale Advance Charts, March corn futures
remain range bound as of Jan 14th, between 5300 and 4910.

Trade Posture: Allendale is neutral to corn futures as world end stocks
remain tight along with sister starches of rice and wheat. Allendale is
willing to trade the range and did sell July corn futures on Friday, near
technical based chart resistance. For the short term we prefer to sell
rallies as opposed to buying against technical support. Long term Allendale
remains bullish to old and new crop given our outlook for reduced corn
plantings in the spring of 2008. Allendale has not recommended to sell any
of its 2007 corn harvest as this juncture and prefers to respect the long
term trend in futures and aware of the best odds when the national corn
price has historically hits its peak cash price.

Soybean Fundamentals: Latest South America weather forecast is viewed as
beneficial to crops. China estimates 40% of its rapeseed crop damaged in
last months winter storms. Be aware the likelihood of China to replace
damaged rapeseed acres with soybeans is real. International trade perceives
China's demand for cooking oils to increase in the form of palm, soy and
rapeseed oil from international suppliers. New life of contract highs for
biodiesel feedstock soybean oil is expected to further reduce capacity
utilization because of poor margins. US Biodiesel processors expected to
further feel operating profit margin pressure from high soybean oil
feedstock prices, presently 53% over break even.

Soybean Crush: National Oilseed Processors Association (NOPA) estimates
month of Jan soybean crush 152.439 million bushels vs 155.907 million the
month before and 148.858 million bushels in Jan of 2007. Actual results for
Jan 2008 were well below pre release estimates of 154.6 million bushels.
The facts are given the present crush pace from NOPA data, soybean crush is
targeting 1.833 billion bushels against USDA projections of 1.830 billion
bushels.

Trade Posture: Allendale is neutral bullish to soybeans, tightening
domestic and world stocks are fundamentally bullish to soybean futures.
However as the South American crop harvest approaches and a relaxing Brazil
Real vs US Dollar suggest a smooth transition from US supplies to S America
as we approach the month of March. As outlined within our Grain Trading
Strategies page, Allendale is willing to buy soybeans, soybean meal and
soybean oil futures.

Lean Hog Futures: Conditions continue to improve on the cash end of things
here. Five weeks ago we were still running through holiday backed up
numbers and slaughter was at 2.435 million head which was 17% higher than
last year at the same time. This week posted a 2.234 million head run. That
is still bad news as it was 11% more than last year. However, the point is
clear here. The worst is behind us and we will continue to narrow this
large oversupply closer to 2007 numbers as the year goes on. On the pricing
end the lean hog index, a measure of cash hog prices, posted a low at $48
during that devastating 2.435 million head kill week. In 2007 the cash hog
price was $58, essentially 17% lower. Making it clear the 17% higher kill
at the time made for a 17% lower price. The latest index price, which
covers cash hog prices through Thursday is $58. That was down 13% from last
year's $67 cash hog price at the same time period. So an 11% bigger kill
made for a 13% lower cash hog price. Things are still running at around a 1
to 1 relationship which is about where it should be. We are simplifying a
lot of things here but the main point is clear...bigger production equals
lower prices.

Live Cattle: At the time of this writing we have not heard of any live
based cash cattle sales yet. We have confirmation of some Nebraska dressed
sales at $145 and $146. That would be down from last week's $147 average.
It would also imply steady to $1 lower live based action. That would be a
disappointment for the trade. It does however fit into ideas this wholesale
beef market is topping. Today choice boxed beef was down $1.04 while select
was off 29 cents. Overall we are still in that $90 to $94 sideways cash
cattle range we expect to last through this month. April futures are priced
correctly for this. We are bearish on the June and August as that is when
the brunt of these extra placements will be hitting. Keep in mind talk over
next week's Cattle on Feed report is that it will show January placements
above last year which means numbers coming out in the summer. We are
satisfied with the current June and August hedges all applied and do not
plan to work on the April. The April/June fat cattle spread recommended for
speculators has not gone anywhere. It may take a higher trend in cash
cattle prices to get that going which will not happen until after this
month.

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

For The Week: March corn futures closed up six and a three quarter cents (1%) per bushel vs last Friday's closing price, March soybeans up thirty four and three quarter cents (+2.6%) March CBOT wheat down sixty six cents (-7%), March KCBT wheat futures down fifty eight and a quarter cents (-5.3%) and March MGEX up three dollars and eighty two cents (+24.5%)

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