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Losing corn and soybean acres-Rich Nelson

Beans were higher all session and farmers continue to wonder why. The eastern Corn Belt has a great opportunity to plant over the next few weeks. Those farmers are ready to plant and will plant as fast as they can. As we continue to hear estimates from other firms, it seems the trade believes we may lose acres in beans as well as corn. Our unofficial stance right now is that we don’t feel there will be much change for acreage. We don’t think we will see a big increase in soy acres due to the profitability in corn at this point. We also shouldn’t see a decrease in acres with the weather providing a great opportunity to plant. This was a good week on the charts and funds were buyers. Next Thursday is a USDA supply and demand report. We may see an increase in carryout for new crop as USDA is too optimistic on demand. This could bring a round of profit-taking early next week. The fundamentals are still bearish but the technicals have the trader’s interest for now.

Acreage and Yield

USDA rarely changes acreages on this report anymore. The last time corn acres were lowered on this June report we saw a slight increase on soybean acres. They are also resistant to changing yields when producers are still actively planting. Since 1993 they have only changed yields in 1995 and 1996.

Direction

Today’s close is friendly on the daily, weekly, and monthly charts. Beans had been in a sideways range for more than two months. This breakout had the bulls on the long side this week and may continue to buy next week on technicals alone. We bought beans yesterday on a breakout and looking for a move to 1440 next week. First area of resistance will come in near 1431 then 1440 with support near 1402 ½ and 1398. Beans finished the week 34 3/4 higher…Steve Georgy.

Fundamentals

While some in the trade are looking for lower acreage to support prices on next month’s supply/demand, for now, the picture is a little negative. Look only for demand changes…Rich Nelson

Trade Recommendation(s):

 

  • (05/25) Sell July Beans 1363 1/2 stop, risk 1383, objective 1335.

 

Working Trades:

 

  • (06/02) Bought July Beans 1404 stop, risk 1384, objective 1439 ½, closed 1414 ½.
  • (05/25) Sold July Bean 1440 call 19 7/8 cents, risk to 34 cents if futures are stopped out, objective 2 cents. Closed 22 ½ cents.
  • (05/26) Bought July Bean Meal/sold December Bean Meal at $6 premium July, risk at $2 premium July, objective $20 premium July. Closed $8.

Lean Hogs

Wrapping up the week we would like to take a longer term perspective. Producers have reason to be disappointed. After hog and grain futures were implying profits of $30 per head for the summer they are now seeing hog prices right at breakevens of $88. This market has been hit by poorer than expected pork demand and higher feed costs. One thing we are happy to see from a longer term perspective is that producers are keeping the breeding herd in check.

The recent four weeks of sow kills from US based producers shows numbers are up 6% over last year. This is good news to an industry that was surprised by the March breeding herd numbers (+0.5%). It is important for us to be reminded from time to time of the bigger picture meat deficit this market is looking at for the bigger picture. 2012 will see a significant drop off in beef production. Combined with moderate pork and chicken numbers, and great exports, we will offer the US consumer the lowest amount of meat since 1993! Yes, the summer picture is not as pretty as we expected. The longer term picture still looks great.

Direction

This market is stuck in a bad time of year. The seasonal decline into June is happening right now. However, it is not time yet to say the market is done yet. We will start buy betting there is not a $3 break still left in store by selling a put. In a couple weeks we plan to work on more aggressive positions…Rich Nelson

 

Working Trade:

 

  • (05/25) Sold July 90 call 1.80, risk to 3.00, objective 0.40. Closed 1.62.

 

Trade Recommendation:

 

  • (06/02) Sell 86 August put 2.00, risk to 3.50, objective 0.

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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