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Rich Nelson: China slows markets

Fundamental Support: What a difference a day can make, especially when China comes into the picture in a big way. Just into overnight trading, China had announced that they want speculators out of their commodity markets. This sounds just like our markets back in 2008 and their markets instantly reacted just as we saw here a couple years ago. Other talk was that China is also looking to raise interest rates over the weekend. There is little doubt that our corn market is already assuming that will indeed happen. China slowing their economy is certainly not what any market wanted to hear. Also on the news front is that Argentina is negotiating with China, attempting to come to an agreement on export business. That is something that needs to be watched but should not have immediate affect for now. Looking ahead it would be expected that Sunday night and Monday will follow today’s price action. It may not be another limit move lower but a continuation is expected. There are a number of technical levels to consider now that should be watched. First in line is the 50 day moving average in December which comes in at 531 1/2. That moving average is a common target that finds fund sell stops. Following that is filling the gap down to 528 1/4. That gap has been watched since it was made and will be a quick target to reach for sellers. Lastly is the long term uptrend line from when this entire rally started. Coming into Monday that line will cross around the 505 area. If that line is broken, we may very well be on our way to a full setback until funds and other large speculative traders are out of this market. Today made for a major turn in outlook. Any bounce that should occur will now likely be met with heavy selling from those who did not do so today.

Direction: A continued lower trade is now expected at least into early next week. If funds do not liquidate on a large scale then we may see a recovery mid week. This is now a sale that should be covered with a call rather than standing aside…Ryan Ettner

 
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Previous Dips: There have been two other instances of short term dips in this corn market since June. It would take a move down to 519 3/4 on December corn before we exceed the 14.1% decline posted last time…Rich Nelson

Working Trade: 

(10/11) Sold 1 December 520 put 12, risk 20, objective 0. Closed 8 3/8. 

(10/12) Bought 1 January 600 call/sold 1 December 700 call 27 1/2, risk at 10 filled 11/12 for -$875. 

(11/12) Sold 1 December 555 put 14 1/8, risk at 22 1/8 filled 11/12 for -$400. 

Closing Cattle Commentary 

Fundamental Support: This week can be called disappointing for the beef industry. Some traders felt the US would be able to wrap up the free trade deal with South Korea during Obama’s visit. Though those expectations may have been a bit optimistic it was still disappointing. Cash cattle traded today at $98 which was steady with last week. Wholesale beef dropped $1.33 and $1.95 for choice and select respectively. Last thing wrapping the week up was the China news. As we noted in the AM comments China has accounted for 5% of our exports this year. The one bright spot was we reached a big milestone in overall weekly exports this afternoon. Last week we shipped out 18,255 tonnes of beef. That was the largest one week sale since August 14, of 2003! This news is great but cannot overcome the fact we have too large supplies right now. Last week’s production was 4% larger than last year. This week’s kill was 7% higher.

Direction: We remain solidly bullish 2011. Our price target is still $108 for April futures. The only question we have in the short term is whether the current oversupply of beef is tailing off…Rich Nelson

Working Trade: 

(08/19) Sold December 95 put 1.35, risk 1.60, objective 0. Closed .25. 

(11/10) Bought February 102.40, risk 101.30, objective 104.40. Closed 101.92. 

Rich Nelson 

Director of Research 

Allendale, Inc 

4506 Prime Parkway 

McHenry, IL 60050 

800-262-7538 

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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