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Rich Nelson: A tightening of supplies

The trade did not see the Russian agriculture ministry correct Prime Minister Putin’s comments from Thursday. A larger portion of the trade will now believe Russia may actually ban exports of grain through most of 2011. Add onto that was the overnight news that unknown and Egypt bought 385,000 tonnes (14 million bushels) of US wheat. We had noted in previous commentaries we have added 75 million bushels to USDA’s previous export forecast due to strong exports. On the world side we look for USDA to make one last adjustment to key numbers. The trade will see “another tightening of supplies” and will trade accordingly.

 

WORLD WHEAT STATS

million tonnes

           Production      Ending Stocks

     2009    680.30           193.97

     2010    645.73           174.76

ALDL 2010    639.00           168.97                                                                                   

10 Yr Ave                     161.38

A 13% decline in world stocks will be seen from 2009 using our estimate. As we have noted many times, though tightening of supplies is supportive in the short term picture, supplies are still above normal. This is different from corn…Rich Nelson.

Closing Hogs Commentary

Lean Hogs: We can write off the hurricane as being a factor in this market. It followed the predicted path away from inland and has not caused damage to processing plants or farms that we know of. With that in mind that leaves us looking at a holiday reduced kill next week then full kills following. One thing we found interesting was today’s pork cutout fell right back down after yesterday’s sharply higher trade. For the week, wholesale pork prices fell $2.20. Cash hog prices, through the midday report, are down $2.28 for the week. The bottom line here is the “actual” market is still hesitant to say much has changed here. We had our summer high and are seen moving lower into fall/winter. We will use $72.50 for our objective for October futures. One thing that must be discussed here is feed costs. December corn has advanced 15% in one month. One thing impressed upon us through our consultations with hedge funds that invest in corporate meat producers is their concern over feed costs right now. At this point hog producers will not change their expecting farrowing plans yet. That could change (lower pork supplies and higher prices) if this corn rally continues…Rich Nelson

Working Trades:

      ·       (08/25) Bought December 72 put/sell 78 call .25, risk to -.55, objective 3.50. Closed .47.

Rich Nelson

Director of Research

Allendale, Inc

4506 Prime Parkway

McHenry, IL 60050

800-262-7538

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