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Corn to start Sunday at 6.78, analyst says
On Thursday, the USDA released the first official 2013 planting numbers <http://www.allendale-inc.com/wp-content/uploads/2013/01/ProspectivePlant... which came in at 97.282 million acres.
This was only slightly higher than the 97.252 million that trade was looking for. Active new crop selling was not just due to the slightly higher acreage number but was also due to the fact new crop traders had been buying the bearish trade estimate for over a week. Old crop saw a much more bearish report today. Trade was expecting to see US stocks <http://www.allendale-inc.com/wp-content/uploads/2013/01/GrainStocks03201... come in at 5.013 billion bushels and instead the USDA released a number of 5.399 billion. That results in a 386 million bushel larger pile of stocks than trade had factored on.
Let’s remember that over the last 4 months we have seen USDA raise “feed and residual <http://www.allendale-inc.com/wp-content/uploads/2013/01/2013-03-28-corn-... ” 400 million bushels. Now we see 386 million bushel higher than expected number.
We can’t know for sure if that is where the extra bushels came from but if we assume USDA has accurately estimated ethanol and export use, that is the next logical area to expect to see future changes. It is hard to argue with the USDA about a number that is difficult to quantify. We will see if the next supply/demand report shows a reduction in that category in early April.
Synthetically, the May corn finished Thursday at 678, which is where we would expect May corn to start trading Sunday night. This suggests continued weakness for the old crop Sunday night into Monday. For new crop, it didn’t look good taking out key 538 1/2 support near the end of the day but most of future direction will still be based on weather. If Monday’s forecasts call for cold temps, than early next week could start to see a slow bounce. If that forecast warms then a continued grind lower is expected. Let’s all keep focus on weather now, that will be our lead story once again going into planting.
Bought May 710 puts at 10, objective hit at 20, +$500
Lean Hog Commentary
Hog producers received good news from the morning grain reports. USDA’s count of corn left over as of March 1 showed a much larger amount than expected. This implies second quarter use (December – February) was low. Limit down corn today just lowered hog producers breakevens by $2.55 per lean cwt ($5.10 per head). As we would expect, continued losses in grain prices over the next week this will help even more. On the other hand we received a bearish surprise from the 2 pm Hogs and Pigs report. Analysts were expecting the March 1 hog herd to be 0.8% larger than last year. USDA’s survey found 1.5% more hogs. The jump came in the market ready numbers. USDA said the previous quarters of production were larger than expected. For up-front supplies (market hogs over 180 lbs.), the hogs that will be slaughtered from March 1 to April 15, the market hog numbers were 2.3% larger. We were also surprised by the 120 – 179 lb. hog group (+2.2%). This was the group the trade was expecting to be even with last year (due to summer breeding problems). So we have a jump in hog supplies that will hit in the spring. For the long term supply period, slaughters from Sep 2013 – Feb 2014, we look to the farrowing intention numbers. The Sep – Nov 2013 quarter will see farrowings 0.9% smaller than last year. The Dec 2013 – Feb 2014 quarter will see 0.8% smaller farrowings. Keep in mind this is what producers told USDA back on March 1. Will the lower feed prices we will now see put those contraction plans on hold? Bottom line for today is we found out there will be more hog supplies than last year from March through August. This comes on top of a weak demand environment. It also comes on top of what is the seasonal low for cash and futures. We still will expect higher prices in both cash and futures as we go into summer. That will still happen. The size of the rally will now be muted though. A full revision of our projected supplies and prices will be given on Monday…Rich Nelson
(3/26) Bought June/sell December 11.82, risk 9.57, objective 17.52. Closed 12.30.
(2/05) Sold Apr 90 call 1.40, risk to 3.20, objective 0.50. Closed 0.02.
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