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Rich Nelson: Feed for the bulls

A strong weekly soybean close should keep the bull fed for now. We are targeting 1450-1475 in the short term on the March contract.

Last week, profit-taking was seen early today as traders bought the close for a long weekend. Argentine weather will still be a focus this week, as forecasters continue to keep the rain events through the weekend. The bottom line at mid-day Friday brought Argentina some potential for relief from recent dry conditions. However, it is important to keep it all in perspective. The nation needs more than 0.50 to 1.50 inches of rain more frequently to see a dramatic reversal in crop and soil conditions. The rainfall coming up in the next week will be welcome and good for short term improvements in crop and field conditions, but much more rain will be needed to assure dryness does not come back. The volume today was the lightest we’ve seen this year. The funds were buyers today of almost 4000 contracts and fund rebalancing has come to an end. We are closed on Monday but trade will resume on Monday night. Have a great long weekend.

Direction: Key long term issues we continue to watch are La Nina influenced drought in Argentina (mainly Santa Fe, Cordoba, and Buenos Aires regions) and China’s strong soybean purchases. There is also a concern of Argentina stopping exports next week as farmers go on strike once again. Our upside objective has been increased to 1450 – 1475 after this week’s new ending stock numbers. The trend is up and fundamentals are still bullish and we will continue to buy on pull backs. We are now long from 1409 on our recommendations and look for a strong move early next week. Support will be at 1409 and 1405 with resistance near 1430 and 1440…Steve Georgy

Trade Recommendation:

  • (1/12) Bought March soybeans 1409, risk 1394, objective 1440. Closed at 1422 1/2

Closing Cattle Commentary

Fundamental Support: A great week has been wrapped up. The February contract posted a strong $3 gain. Through today’s midday report, wholesale beef closed up $3.36 for choice and a full $6 for select! Cash cattle traded solidly at $108. That is up from last week’s $106 average. This now retests the previous $108 record highs posted in October of 2003. In that week the average was $108.17. However, the TCFA reports that there were a couple hundred heifers that week which moved at $111.  

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New export information, out today, indicated November beef exports were up 25% over last year. Imports in that month, were down 23%. Wow. In case you are not aware the US has historically been a net importer (on quantity) of beef. That changed in the fourth quarter. We will post our first year as a net exporter in 2011.

Direction: This market is still in a very tough situation, supply wise. Beef supplies are set to tighten after March. Demand, both from exports and from the US consumer, is up. With livestock this “tight supply” situation simply cannot be made up anytime soon. Futures are trying to price in something that we have not seen before on this scale. Even though current prices would appear to be overvalued we have no intention of selling cattle anytime soon. Wait until you see the livestock presentation on Friday!..Rich Nelson

Working Trade:

  • (12/14) Sold February 101 put 1.02, risk to 1.85, objective 0. Closed .12.
  • (01/03) Sold February 105 put .75, risk to 2.00, objective 0. Closed .37.

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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