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As expected, but big USDA numbers

Friday’s USDA/WASDE corn report  <http://www.allendale-inc.com/premium-content/am-market-movers/usda-repor... came in slightly more bearish than expected for the old crop and moderately more bearish than expected for new crop. Total old-crop carryout was raised just 2 million bushels from 757 last month to 759 today. Changes were nothing outside of expectations with domestic demand going up 48 million bushels largely from ethanol and exports lowered by 50 million. New-crop carryout was watched much more closely today where trade was expecting a 1.973 billion bushel carryout that came in at 2.004. This was slightly larger than trade was expecting, which resulted in moderate selling today. One of the most surprising numbers on the new crop balance sheet was the fact that USDA lowered its yield estimate from 163.6 trend line down to 158. This is the largest cut in yield from the baseline estimates to the May report that has ever been seen since they started giving early yield estimates on that baseline report. This shows a sign that USDA did indeed try to factor the delayed planting into today’s report. Turning focus over to weather, there was another rain event put in to the 6– to 10-day <http://www.allendale-inc.com/ag-tools/weather-links/>  forecast suggesting 1″+ totals for North Dakota, South Dakota, Nebraska, Iowa, and Illinois. This event is scheduled to start a week from today and cut through the central Midwest on Saturday. While it is Friday, this update only offered light support as traders were not willing to buy aggressively knowing this map can change in a big way by Sunday. Last Friday there were good rains in the forecast: They disappeared Sunday night, which caused a gap lower to start this week. Sunday night’s forecast will once again set the tone for next week. If maps are as wet as suggested today corn could be up 10 – 15, if they dry out, then December could break 10 cents. Heavy support is still expected around 520 December, which makes selling tougher to make a move than buying will right now. Corn bulls and bears will need to watch the Sunday night maps closely once again. Trade did not offer any estimates for corn planting progress, but it is fair to guess that a 12% jump to 24% would be fair.

Trade recommendations:

Sell December corn 569, risk to 575, objective 535

 

Cattle Commentary

The 11 a.m. supply/demand report <http://www.allendale-inc.com/premium-content/am-market-movers/usda-repor...  from USDA held some negative news for the meat world. USDA added 214 million pounds to its 2013 production estimate (25.190 billion now). The U.S. consumer was set to see 3.0% smaller than year beef on their table. Now that decrease will only total 2.3%. This spells rough news for the remainder of the 2013 calendar year. On the other hand, they released their first 2014 figures today. They see beef production next year falling a very large 1 billion bushels (-4%). This will drop the amount of beef for the U.S. consumer to a new low for modern times. This sounds good, but is not as ideal as it sounds. Higher chicken, pork, and turkey production will actually make 2014 see a net 1% increase. The net result between both pieces of news is not great. On top of this week’s reversal in cash cattle prices, we cannot say there is any change in the general narrative right now. Procurement for Memorial Day is about finished up. What greets us in the coming weeks is a slight drop in demand and a few more market-ready cattle numbers. The real drop in cash cattle prices will be seen in the heart of summer. All producers should be hedged.       -Rich Nelson

Trade Recommendation:

(5/10) Sell August 124 call market, risk 0.80 from entry. objective 0.

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Rich Nelson 

Allendale Inc. 

815-578-6161 

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