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Can't call the 'bottom'

09/23/2011 @ 8:18pm

Wheat closed the week on a positive note. It even ignored selling pressure in the soybean and corn pits. Also the across the board selling in the outside markets that had pressured the market the past few days was not present today. The US dollar was also weaker most of the day which was a little positive for the market. The Minneapolis December wheat contract lead us up today closing 31 higher on the session at $8.51. Spring wheat is leading the way higher as the market is anticipating the Small Grains Summary report next Friday. This report revises production of wheat, oats, barley and rye. Allendale is projecting the spring wheat production to come in at 469 million bushels compared to the USDA’s current estimate of 522 million bushels. There is also renewed concern about dryness around the world. Currently the trade is watching dryness issues in Argentina, Ukraine as well as the U.S. hard wheat belt. Even after the decent close today, we cannot call the bottom to this market just yet. The wheat market was oversold and due for a bounce and that is all today might have been when it is all said and done. The reality: it is impossible to know when this liquidation selling will have run its course. We are not trading fundamentals; we are trading fear. When the fear selling subsides the grains will move back to trading the traditional fundamentals, and at these current price levels grains are looking undervalued.

Spring Wheat Production: In the past two months we have wondered when USDA would get serious about its spring wheat estimate. That should be corrected on Friday…Rich Nelson

 

Trade Recommendation:

·       (9/23) Stand aside.

Today’s Cattle on Feed report was a bullish surprise. The trade has expected another month of big placements (+8%) as excess heat in the first half of August drove young calves and feeders off pastures and into feedlots. USDA surprised us with a 1% decline in placements. The weight breakdown, shown here, tells the story. Sure we got a lot of young calves pushed in. That was more than offset by the lack of placements for medium and heavy feeders. It is clear we 1) do not have many available and 2) high corn costs stopped them from coming. This report is supportive. However, we must note this weekend’s Greece news, of either a new bailout or a planned default, will determine Monday’s bullish or bearish reaction…Rich Nelson

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