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Corn bulls need fed-Rich Nelson

The trade was looking for a little profit-taking setback and in the December futures market that is exactly what happened Friday. 

Now that we have a carryout that suggests 710 new crop price, it is hard for December to move very far from that level. July on the other hand is seeing more speculative and nervous trade. There is talk that some areas are bidding up big for July cash corn trying to get their hands on it. That was enough talk to get some speculators active today just enough to run July up to 799 ≤. While the news was enough to put on some short term speculative buys, it was not enough to break the 800 level. Next week will give corn a new weather forecast and we will see if the corn bulls will have new material to buy from. For this market to continue higher there must be additional news to convince buyers to show up. We need to loose more acres, loose more yield, or increase demand to get buyers confident in running December past economic value. Until then we are likely to see trade continue just as it did today with moves over 710 being sales and under being buys. Yesterday’s bull move came while adding 15,000 contracts to open interest showing that even at these prices, buyers are still here. Weather had no changes today still suggesting a generally good forecast through the month of June. Bears will have to hold off getting too excited unless December falls back below 700. Bulls will need additional news to get others to jump in with new long positions.

Direction

December will continue to gravitate towards 710 for now unless we see a major change in news. Recent talk of the need to bid up on short term corn needs will add support to old crop even though carryout was left unchanged. Sideways to slightly higher trade can be expected to continue for now.

It is unusual for USDA to change acres on the June supply/demand report. We wondered if USDA was usually right in doing that compared with the results from their farmer survey coming on June 30. The chart here shows they were really “right” on their proactive approach in one of the past three years…Rich Nelson 

Trade Recommendations:

 

(6/9) Buy December corn 697, risk to 687, objective 722.

(6/10) Buy December corn 702, risk 698 ≤, objective 715

 

Live Cattle: It was nice while it lasted. Cash cattle gained $1 this week on a live basis at $105. Dressed sales were up $2 to $4. At the same time wholesale beef prices have tanked by $6. Those wonderful kill margins from last week, which modeled out at $67 per head, are now down to $7. Look for packers to be a bit tight fisted on spending next week. At the same time that cattle buyers are getting orders to tighten up on spending we are getting evidence that those big December placements are now coming to town. This week’s cattle kill was 3% larger than last year. One client of ours connected to the packing industry notes next week’s kill is lined up for a significant increase over this week. 

US Beef Trade: April beef exports fell to 223 million lbs from March’s 245. Imports into the US grew to 270 million compared with 248 in March. Both of these negative factors brought down our fledgling “net export” situation. 

Summer Direction: We are still confident of cash cattle hitting $101 this summer. June and August futures are pricing in $102 when normal basis applied. That means summer futures have $1 more to go on the downside. There is even a chance at lower prices when realistic supply expectations are applied (Allendale is usually conservative with our numbers). Keep in mind December placements, which are now being marketed, were 17% over last year. These higher numbers will be spread out through early August.

Long Term Direction: Placements are now falling hard. Cash cattle prices have tanked and corn prices are high. This will make market ready supplies from December through early 2012 incredibly tight. We estimate beef production will fall 5% from 2011! We look for cash cattle prices to slowly rally from summer into fall then make dramatic gains into early 2012. We still feel February futures are easily $10 under priced. This means we still plan to aggressively buy far deferreds this summer for a long term play. The exact low in the nearby futures is likely a few weeks away. We are not sure if far deferreds will wait for that point to bottom. Therefore we are slowly starting our long term bull program now. Initial phase will be to sell far away puts. We will wait until July to start buying calls/selling puts and buying futures…Rich Nelson

 

Trade Recommendation:

·       (06/09) Sell August 106.02, risk 108.50, objective 103.42.

·       (06/10) Sell February 110 put 3.50, risk 6.25, objective 0.

Working Trade:

·       (06/09) Sold December 110 put 2.45, risk 4.80, objective 0. Closed 3.20.

Rich Nelson

Director of Research

Allendale Inc.

4506 Prime Parkway

McHenry, IL 60050

815-578-6161

Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

 

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