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Trade watches soybean weather
USDA Crop Production and WASDE: The very most key points to the
August report are as follows;
Old Crop Soybean stocks of 575 mil bu was 11 million bu than the pre
release ave with new crop soybean stocks of 220 mil bu. You would have to
venture back to 2003 to find fewer domestic stocks. World wheat stocks are
projected at 114.8 million tonnes, 1.75 MT less than the July estimate. You
would have to fall back to 1980 and 1981 to find fewer stocks of 113 MT and
compare to yr ago levels of 124 MT and 149 MT in 2005. The projections
suggest a fourth consecutive year of declining stocks. World corn stocks
dropped 6.16 million tonnes and are now projected to be 102.2 MT vs year
ago levels of 101 MT and two years ago of 123 MT. The season average farm
price for corn and soybeans were left unchanged from the July estimates of
$3.10 and $7.75 respectively. The season average farm price for wheat was
increased by 30 cents/bu and is a new record of $5.40/bu. It is the first
time in history the season ave farm price would exceed $5/bu and only the
fifth time above $4/bu.
Corn Fundamentals: USDA raises 2007 corn production by 214 mil bu but
projected end stocks were increased by only 14 million bu, Export
projections were increased by 150 mil bu, see Weekly Export Sales
Observation section below. Bullish to see USDA recognizes with thin
projected world stocks and even with record USA corn production, demand is
surfacing very early in the new marketing year. Strong weekly new crop corn
export sales is supportive to futures as well as soybean's worries of
sufficient rain for pod fill. Also supportive to corn futures is the
technical strength in the wheat futures. Demand for US corn remains strong.
Bearish to corn is wheat's vulnerability to profit taking by funds and
locals and unforeseen thunderstorms for the soybean crop. We need to add,
by late Friday, private forecasters are suggesting less heat by the middle
of next week and thunderstorms which could drift further south in the
Midwest which could be perceived as bearish to futures.
Ethanol: Based on the first nine months of ethanol production data, USDA
needs to cut the amount of corn used for ethanol production back by 19 mil
bu from its standing target of 2.15 bil bu. Within the August WASDE,
released on Friday, USDA left demand unchanged. Word is USDA realizes some
trimming needs to be done but is butting heads with the Dept of Energy and
the US Census Bureau. USDA had targeted a 34% yr on yr increase in corn use
for ethanol production, only the months of April and May have exceeded the
target. The pace needed per month in order to reach USDA present use of
2.15 bil bu is now 47% above yr earlier levels. Ethanol stocks as of May
stand at 9 million barrels vs 7.8 one year earlier.
New Crop Marketing: Based on our most recent price projections, Dec corn
futures in a downward correction and estimated bottom near the 3200-3300
level. With the recent low of 3244 made on 7/23/07 Dec corn has met our
downside correction and may have found its seasonal bottom on 7/23. We do
not recommend forward contracting at present levels. Before Dec corn
expiration futures are expected to work back towards 3700-3800 level. End
users and producers, use the preceding information for your individual
Old Crop Marketing: A move to 3650-3700 vs the Sept futures is projected to
complete old crop marketings. The market was ripe for old crop cash corn
sales on Tuesday. A drive higher in basis values by Wednesday were plucked
in front of the USDA Friday reports resulting in a 7 cent downward
correction for the Gulf basis by Thursday afternoon. Allendale sold its
cash corn crop on May, 31, 2007 and was fortunate not to suffer basis
Trade Position: We bought Sep and Dec corn on Monday's dip and reached our
objective on Tuesday. We re entered new longs for old and new crop on
Thursday, reversed to a short on old crop but maintain a long position for
new crop on strong domestic and foreign demand.
18 Years: Take part in Allendale's 18th Annual Crop Yield Survey beginning
Monday August 13th through August 24th, Allendale will begin to conduct
its 18th Annual Crop Yield Survey, with the results to be released Friday,
September 7th at 7:30 am. That is 3 trading days before the September USDA
Supply and Demand Report. The Sept Crop report is more detailed as kernels
and pods are counted. This survey is designed to determine the degree this
year's crops are above or below normal. Your participation would be greatly
appreciated. Please click on the link below to begin the process.
Soybean Fundamentals; Trade remains focused on weather as it is the portion
of the growing season where the crop does or does not fill its pods.
Allendale suggest the week of August 13, November soybeans are likely to
break out of its recent trade range of 8350 to 8950. If rains do
materialize for the central south region and into the Delta region, a break
lower is expected. Also be aware as we draw closer to the US fall harvest,
S America draws closer to its planting season. Brazil is expected to
increase production by 2 MMT over its record 59 MMT 2007 harvest while
Argentina is expected to be very near its record 2007 harvest of 47.2
million metric tonne harvest. Five consecutive weeks the trade has been
observant of the good to excellent soybean conditions free falling from a
level of 68% to the most recent level of 56% vs the five year ave of 56%.
To be aware, the five year average trend suggest next Monday's report
typically expresses a slight improvement but then continues its downward
trend into harvest. To offset the bullish enthusiasm is the beginning trend
of a 5-10% larger planted Brazil soybean crop in 2007 for the 2008 harvest.
S America interest in hedging 2008 production began at a level of 9100 vs
May 2008 futures. Scale up hedging occurred into the 9770 area and tonights
close rest at 9040. We do not see potential acreage limitations in S
America until 8750 vs the May 2008 futures is breeched.
6-10 Day National Weather Forecast: a significant change in the 6-10 day
forecast for the second consecutive day. A broader area of above normal
precip for the north central region for the period of Aug 16-20. A
significant change in the 8-14 day forecast as it all but pushes below ave
precip out the east central US and suggest normal to above normal precip
for the major Midwest. Given the time of year we do not place a great deal
of trust in forecast much past 1 to 3 days but funds carry the big stick
and certainly can be unpredictable. The 1 to 3 day forecast suggest good
rains for the northwest cornbelt.
Old Crop Soybeans: Allendale has and continues to recommend unhedged
soybeans to be sold to the cash market unless adequate month to month carry
is offered by your buyer. Strong resistance of 8750 for Sept futures could
trigger firm offers left at the country elevators. Cash soybeans are
working with an inverted market from Aug to Sep, but plenty of carry after
Sept. We suggest this is a signal to move any old crop inventory.
2008 Soybeans: Allendale officially hedged it first portion of 2008
anticipated production on July 5th and has written orders to add as
outlined in our Hedge Advice page. Allendale had resting orders to hedge
10% more new crop 2007 at 9200 filled Thursday, July 12.
From July 15th to August 15th: Allendale researched the Nov futures price
action between mid July to mid August, over the most recent 15 years and
discovered odds favor an ave of 23 cents lower futures. 10 out of the 15
years favored a lower move during the time period with an ave loss of 47
cents and a maximum loss of $1.11 cents. Since July 15th, 2007 Nov futures
have lost $1.09. Of the five year higher its been by an ave of 24.4 cents
with a maximum gain of 40 cents. Since July 15th of 2007, Nov futures have
lost 78 cents with three days remaining to trade.
Trade Position: We have written new trade recommendations within our Grain
Trading Strategies page to trade new crop soybeans in a trade range of 8350
to 8950 with some notice of resistance at 8750.
Technicals: Old and New crop corn and soybeans and new crop wheat. For the
short term trader, Allendale uses its own unique custom Moving Averages to
monitor price momentum, define key support and resistance levels as well as
advise where key pivot points are located when bulls may turn bearish and
bears to turn bulls. We also include last weeks closing price for the
weekly chartist as we draw closer to the end of the week to anticipate the
possibility for futures to have a positive weekly close or if weakness is
Observation: As alerted on Thursday, CBOT wheat futures were within
striking distance of breeching key #1 MA, came to fruition on Friday and
surprisingly brought KCBT and MGEX wheat down with. Be aware of the #2 MA
just below. If breeched, Allendale suggest a correction of 50 to 60 cents
could be in the making. Both old and new corn futures are within a few
cents of breeching the key #1 MA and could come under pressure from its
starch cousin of wheat.
Observation: Yes, both corn and soybeans sales are already above USDA's
target objective for the 2006-07 marketing year. Based on the present
shipment pace thus far in the marketing year, USDA may need to increase its
present target for corn from 2.1 bil bu to a more realistic level of 2.185
bil bu. For soybeans the present pace of shipments suggest USDA may need to
trim some of its enthusiasm from the present target of 1.05 bil bu to a new
level of 970 mil bu. Disappointing to see old crop corn sales of 12.3 mil?
Not necessarily so when you compare to the ave range levels in the
paragraph below. New crop corn sales are now at a level of 314.7 mil bu vs
yr ago levels of 90.1 mil bu. Foreign buyers well aware of last years
contra seasonal rally at harvest and paid the price to get its piece of the
Wheat Fundamentals: Tight stocks, strong export demand as sales are now
106% above its five year average and a strong upward technical trend line
of support is not to be sold until either chart based technical weakness
develops or signs of economic rationing begin to appear.
Thursday Morning: we alerted you via our Grain Fundamentals II page of the
potential for funds to pull profit out of tangible commodities such as
wheat because of the news out of France that French Bank BNP Paribas
suspended redemptions in some of its funds overnight. Also under pressure
are Deutsche Bank, Royal Bank of Scotland, and Credit Suisse. The growing
concern within the US commodity futures sector is these bank's funds could
place pressure on soft commodities to generate the capital needed to
support itself. Let's discuss this a bit further. French wheat futures are
at $9.65, US futures at $6.73 and yet US cash wheat prices are $5.75. A
divergence of nearly $1. Have the bulls over extended the true economic
value in which foreign buyers of cash US wheat supplies are securing? True,
world end stocks are projected at levels not experienced since 1980 and
1981 but after witnessing how funds can become less than convicted to a
position even when stocks are tight as the have been for corn from 2006
into 2007 and 2004 into 2005 sugar, we strongly advise to be on top of
present technical chart developments as the initial warning signal to take
action with cash wheat markets.
Marketings: For cash marketings typically the Oct-Nov time frame when cash
wheat prices peak. We recommended to sell into the cash market in the
October time frame. However do not ignore present firm cash prices for
wheat to sell into. Check your local cash-basis markets. As an example no
carry in the cash wheat market from Aug to Sept delivery but 17 cents from
Aug to Oct. At 5800 cash value, cost of carry is 4.8 cents/bu/mth or the
need for 9.7 cents to carry from today to the first day of Oct and the
market is offering a premium of 7.4 cents. In such a case the market is
willing to pay you to store the cash wheat. But not all regions are the
same. Call your Allendale Representative for your specific cash marketing
New Crop 2008: The July 2008 CBOT wheat futures are locked in a range of
5600 to 5900. There is plenty of bullish enthusiasm for world wheat and we
are on the lower end of the trade range, be patient in here. We recently
recommended to hedge a minimum of 15% of new crop 2008 wheat futures
against anticipated production and filled at 5760.
Trade Position: We will recognize the trend is still up and news is still
coming in bullish. However the technicals are indicating overbought status
and due for a minor setback.
Lean Hogs: two week lows in hog futures based on fund liquidation, China
rejecting a portion of US pork imports because of a growth promoter found,
and weakening cash. More than 2 million hogs slaughtered this week and sets
a record for this many hogs slaughter this early in the month of August.
Ideas suggest another 2 million to be slaughtered next week. USDA lowered
pork export projections for both 2007 and 2008. According to our Allendale
Advanced Charts, Oct futures close below 38% retracement suggest the
immediate floor target could be zeroing in on 50% retracement of 7060 which
was able to hold on Thursday and although penetrated on Friday, its closing
price held. Chart gap above from Wed to Thursday of 7245 to 7195. Fund
liquidation is expected to target of 6910 before thinking about corrective
rallies to likely be sold.
Live Cattle: wholesale beef trade was lower for the fourth consecutive day
for select with choice able to stop the slide from Tuesday through Thursday
by closing on a positive note. Cash cattle trade on Thursday of $90-$90.50
vs $91 early in the week and $92 last week. Those with access to our
Allendale Advanced Charts please make note of the chart gap left above on
Tuesday from Monday. If there is a positive development the chart gap left
in July was filled Thursday but be aware another exist lower from June near
the 9300 level. Weakness comes from the neighboring hog futures trade pit
in the form of fund liquidation. Key psychological support breeched at
9500. New immediate technical support at 9410. In order to turn trader
momentum around for the bulls a close above 9625 is needed vs the Oct
futures. One bright small light above, the chart gap 9765 to 9760 left on
8/06 to 8/07.
USDA Crop Production and WASDE: The very most key points to the August report are as follows; Old Crop Soybean stocks of 575 mil bu was 11 million bu than the pre release ave with new crop soybean stocks of 220 mil bu. You would have to venture back to 2003 to find fewer domestic stocks. World wheat stocks are projected at 114.8 million tonnes, 1.75 MT less than the July estimate. You would have to fall back to 1980 and 1981 to find fewer stocks of 113 MT and compare to yr ago levels of 124 MT and 149 MT in 2005. The projections suggest a fourth consecutive year of declining stocks. World corn stocks dropped 6.16 million tonnes and are now projected to be 102.2 MT vs year ago levels of 101 MT and two years ago of 123 MT. The season average farm price for corn and soybeans were left unchanged from the July estimates of $3.10 and $7.75 respectively. The season average farm price for wheat was increased by 30 cents/bu and is a new record of $5.40/bu. It is the first time in history the season ave farm price would exceed $5/bu and only the fifth time above $4/bu.