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Allendale: Bulls Are Buying Corn

Additional support was seen at the tail end of overnight trade which likely came from an FSA announcement that 1.5 million corn acres would be in prevent plant. That certainly helped out prices early this morning but likely did not come as much of a surprise to trade. Most of the support is still likely coming from pre buying next week’s tour. Two resistance points were taken out today which will allow for open room to buy next week during the tour. Now the big question is: Just how much additional support is left if trade has already been pre buying the tour for 3 days this week?

Old crop traders:

Sep/Dec continues to hold a low of 12 cents, this suggests a possible bottom but might be early to make that call just yet.

There is general talk that the dumping of old crop has slowed recently, this could help support that spread now.

New crop traders:

Fundamentally there isn’t much reason for corn to be at current levels, most of the buying appears speculative.

FSA did release a prevent plant acreage of 1.5 mln acres today, supportive but not likely much of a surprise.

That prevent plant number is an initial one, it can move higher or lower but a fair amount before seeing a final number.

Bulls:

Another day of strong pre buying seen today that helped out the bulls.

The resistance level of 377 3/4 was taken out which opens up a technical window to the mid 390′s.

With bulls pre-buying the tour next week, be cautious that profit taking could also occur early next week.

Most bulls will likely exit profits well ahead of seeing the final national number.

Bears:

Bulls are continuing to show they are active buyers suggesting that bears should hold off selling for now.

While current levels seem very temping to be selling, bears have to recognize that next week is a typical week for the bulls.

Not much has changed on the longer term outlook, this is still a market to be sold when bulls have run their course.

 

Lean Hog Commentary

It was great to see hog futures manage a moderately higher close. Bulls could even point out that Thursday was a positive trade as well when you consider how well prices rebounded off of that day’s lows. Let’s not get too excited though. For today’s trade, which looked so good early on, October settled over $2 off its highs. December was over $1 off its highs. This is not the sign of a market that has high confidence.

This week’s kill will come out to 2.017 million head according to USDA’s afternoon report. That is a sharp increase over the 1.919 million from last week. We previously reported that our kill estimate, noted at the beginning of the week, would be the largest since early. The actual kill level was little a little larger. This was the biggest kill since the last week in March. If we wanted to find a bright spot, we could note that it was 7.7% under last year in the same week. On the other hand with our weight problem, 4.3% over last year, the actual pork production was 3.3% under last year.

There is a lot of bearish news in the pork market right now. Between the seasonal surge in supplies and the Russian ban on our meats, no one can argue for cash hog prices to make a bullish rebound. The only question here is whether futures have correctly guessed how low prices will fall by October 14 and December 12. The lean hog index, the measure of cash hog prices that futures are settled against, is $115. Futures are implying a $20 drop in cash hogs over the next two months. That is a bit larger than normal. While we could see a small rebound here it just may not be worth risking a bullish speculative trade on it. We continue to encourage producers to hold their hedges.

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Rich Nelson 

Allendale Inc. 

815-578-6161

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