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Rich Nelson: Fundamentally bearish

Corn:  This week the US recorded the largest export sales report in 16 years. Big daily sales were also reported to unknown destination, Egypt, Japan, rumors of China and indications that we have won South Korea back. Rumors that Russia will buy over 5 mmt of “grain” and increasing chances the US crop will be disappointing all contributed to bullish enthusiasm. Funds were large buyers this week. One fund was credited for buying nearly 12,000 in the last 60 seconds on Friday’s close. Obviously they wanted a good chart close for the week and they got it. Fridays close was the highest daily chart close since January 11, 2010 and was about 9 cents higher for the week. 

Crop Tour: After the close, the crop tour pegged yields at 164.1 bushels per acre (bpa) and a crop size of 13.290 billion bushels. This compares with USDA’s latest estimate of 165 and 13.365. The tour’s numbers are higher than the trade had expected as most were thinking 159-162 based on the state reports that the participants were reporting throughout the week. The main problems associated with nitrogen loss combined with heat stress resulting in tip back, short ears and small girth. These problems combined with the reported population issues of flooding were reasons traders braced themselves for a very sub-par yield. We would have to guess that futures will open lower Sunday night.

Yield Survey: We will be completing the Allendale Farmer Survey at the end of next week. If you have not already completed a survey, please do so by either calling our office or online at www.allendale-inc.com <http://www.allendale-inc.com> .  Anyone completing the survey will get the results before the public. In the past, this has been a very accurate assessment of the crop. Obviously with the wide variation that is out there, the larger the number of participants the more accurate it will be.

Direction: Technically Dec corn will need to clear 438 resistance in order to keep the ball rolling. Failure to penetrate through 438 will likely lead to some long profit-taking and farmer selling. Seasonally, the market tops by August 10 and so far the 438 high was put in on 08/05. If this high remains in place, then the current rally is simply confirming that the summer high is “in” and the chart will develop a double top. Strong demand and reduced yields will need to occur if this high is to be taken out. Fundamentally we are bearish based on our assumption that the yield is +164 but our survey will shed tremendous light on that. Key support is at 405 and there should be good buying against this area. If this is taken out, then the uptrend is broken and we would expect to see massive long positions begin to exit. We sold into the rally this week and will not risk much since the trend is still up. Producers (hedgers) are completing all box strategies for a cost of 6-20 cents for the 2010 crop and some have poked at some “flat price” sales (futures) on this rally. We are also seeing some great profits locked in with a BOX on 2011 at a cost of 10-26 cents (today the 450-500 box was 22 cents). If you have any questions about this, call us – we are normally in the office until 9pm Monday-Thursday…Bill Biedermann

Trade Recommendation: 

·      (08/12) Sold December 432, risk 440, objective 410. Closed 436 1/4. 

***Disclaimer*** The commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Corn found some late strength today and closed up against the recent highs. The bulls need to see a close above 438 3/4 soon to keep momentum going with the current uptrend. We remain short from 435 in case they can't…Monica Moehring

Closing Hogs Commentary

Lean Hogs: A 7% lower slaughter number this week has been on part with the three previous weeks. Estimates made from the June Hogs and Pigs report did foresee a dip in slaughter. That was only set to be around 5% or so. That leaves us with fewer numbers than expected and it has last for four weeks now. At the same time as this deficit has popped up, buyers were securing Labor Day needs. 

Cold Storage: Supplies continue to tighten. The amount of pork left in warehouses at the end of July totaled 391.252 million lbs. Stocks are now 28% lower than last year. They are also the lowest since 1997. Another way to look at it is, even with low stocks at the start of July, we had a normal drawdown from June (22 million vs. 5 year average 23 million). Technically, the pork stock number was a little higher than our 383 million lb. estimate. However, the general direction of the change was on target. We call this report slightly supportive for lean hog futures (10 cents higher on Monday). The cut of the month, pork bellies, saw stocks at 21.802 million. That is a huge 64% lower than last year. It is also the lowest end of July pork belly stocks on record. It came close to our 23.402 estimate. We call this supportive to pork belly futures to the tune of 20 cents. Get this…total stocks of Chicken, Turkey, Beef, and Pork are a full 15% lower than last year. The respective declines for each of those meats are -1%, -22%, -13%, and -28%. 

Direction: In the short term this market is still getting supportive news to chew on. In the big picture we will get by this “marketing hole” and lower prices should easily been seen. We will wait another day or two before trying to pick a top. We do not urge traders to sell this market yet…Rich Nelson

Trade Recommendations: 

·      (08/19) Stand aside. 

***Disclaimer*** the commentary and trades below are derived from technical indicators provided in our Allendale Advanced Charts pages and may not correspond with the fundamental commentary above.

Advanced Charts Direction: Hogs saw further weakness today and closed below support at 77.37. This could lead to further selling next week. Support can be found at the 50 & 100 day moving averages near 76.00. We will leave a sell order up at 79.75…Monica Moehring

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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