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Rich Nelson: Highest corn close in two years

The highest close of the corn uptrend was reached today. It is oddly interesting to note this was the highest close since September 26, 2008. 

That is almost two years ago. Of course, at that level, the market was on its way down from June highs. 

Action got going last night with comments from the US Energy Secretary. As noted on the Grain Fundamentals 2 page of this year, the Department of Energy would have its review of higher ethanol blending on 2007 to current vehicles to the EPA by the end of the month. They would take until the end of November to get the statistics on 2001 to 2006 vehicles. The net message here is those comments we have heard all summer, that the EPA may approve a partial movement to 15% for newer vehicles, may be accurate.

More Commodity Investment: Wrapping up this week we see an investment advisory firm, called Calstrs, recommends the California State Teachers Retirement System invest $2.5 billion in commodities over the next three years. This is the second largest pension fund in the nation. The amount is actually not much for the fund. It represents 1.9% of their $132 million in assets. They recommend a structured investment composed of $150 million in year one then completing the rest in the second and third year. The fund will take the advisors recommendation to the oversight board in the coming weeks. What is interesting about this particular recommendation is they are not looking at a long-only index stance.

Direction: The main driver of this uptrend, concern over corn yields, remains. Until we get some definitive answers on how low the yield has fallen, look for bulls to be in control. This week we pointed out this market has not broken 495 yet. Stay on the bull side for trading and hold from further sales for producers. We were long this week but stopped out very close to the week’s lows…Rich Nelson

Trading Recommendations: 

·      (09/24) Buy December 523 1/2 stop, risk 512, objective 545. 

Closing Hogs Commentary

Lean Hogs: There was a little confusion with this afternoon’s Hogs and Pigs report. Though initial flashes over the newswires indicated the breeding herd was 4% lower it was actually only 1.7% lower. There is a clear pattern we need to point out here. In March and June the breeding herd was 3.9% and 3.0% lower than last year. Sow slaughter from the June 1 report to the end of August was 16% lower than last year. Though producers may not be adding a ton of gilts (young females that have not had their first litter) they are holding onto currently producing sows. The first half of the corn rally did not phase them. So let’s get into the thick of this supply picture. A breeding herd that is only 1.7% lower than last year, due to constant gains in efficiencies, means we will switch to above last year slaughters by the second quarter. On the Livestock Fundamentals page you can see we were pretty darn close to USDA’s numbers. This means we did not change our production estimates too much from this report. Numbers are in billion lbs while the percentages are comparison with previous year.

ALLENDALE PRE-REPORT PRODUCTION ESTIMATES 

             I        II       III        IV 

2010     5.607     5.301     5.325     5.805 

2011     5.509     5.328     5.386 

ALLENDALE POST-REPORT PRODUCTION ESTIMATES 

             I        II       III        IV 

2010     5.607     5.301     5.325     5.819 

2011     5.535     5.350     5.432 

          -3.5%     -3.4%     -6.5%     -2.9% 

          -1.3%     +0.9%     +2.0% 

Short Term: The heavy weight end of the Kept for Breeding numbers, at 5.6% smaller than last year, falls to 3.4% smaller in the next weight category. This means slaughter levels, which have run 6% lower than last year, will fall in early October.

Direction: Though market ready hog numbers are tight now, they will start getting bigger due to more hogs and fresh corn in the coming weeks. Next week we will release updated price outlooks…Rich Nelson

Trade Recommendations: 

(09/24) Sell December 77.00, risk 78.60, objective 74.00 

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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