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Rich Nelson: Weather has next

Wheat was sharply higher on a bullish USDA report and general commodity buying driven by a weaker dollar. 

The Chicago May wheat contract was up 24 1/4 for the day and 38 cents for the week. Funds purchased an estimated 5,000 contracts today with trade volume being heavier than normal. With a weaker U.S. dollar, funds seemed to be big buyers in the commodities markets today as both the energies and metal markets were sharply higher. 

For the report, the USDA gave the bulls a surprise by lowering the projected carryout 4 million bushels. The carryout was lowered as they raised the wheat used for feed by 4 million. Due to the price of wheat vs. corn it does make economic since to increase the amount of wheat in feed rations. The trade had been expecting for the government to increase the carryout by 18 million bushels. The world wheat picture was viewed bearish as world carryout is projected to increase by 900,000 bushels and end up at 182.8 mmt. This compares to 197.6 million tonnes last year so in the big picture world wheat stocks are still dropping. 

Weather is still going to be the major determining factor of this markets direction. Tomorrow’s rains in the Plains will be sparse for Kansas through Texas. Nebraska, the Dakota’s, and the Midwest will receive ample amounts.

The next chance comes for the middle of next week for both the Plains and Midwest. Spring wheat areas will receive at least average levels. The dryness problem on the southern plains is getting worse and without rain soon we will be doing irreparable damage to the crop….Jim McCormick

Direction: Weather will determine the direction on the wheat in the near term. With the near term forecast dry for the far western plains, and flooding in the spring wheat areas, we view the weather as bullish for the market. We would look for the dry forecast to support the Kansas City wheat and for the Minneapolis wheat to be supported due to too much moisture. We will still look to buy dips in these markets until the weather turns bearish…Jim McCormick

Trade Recommendations

  • (4/8) Stand aside

Closing Cattle Commentary

Live Cattle: This week was the turning point for cattle. It would be worth your time to check out the Special Reports section of our website. That weekly cattle kill chart should be printed off and next to your screen for the next two months. This week’s $4.25 drop in June futures comes as the trade realizes a 13% jump in supply as we go into May/June does not mean prices stay the same. For some unexplained reason June and August futures have been attempting to maintain the same price as April.

Inspections to Continue Despite Shutdown: As we noted yesterday, a potential government shutdown will stop most reports from USDA. The meat inspection service will continue as it is for public safety and financed by user (packer) fees.

Direction: Our price target for June futures is still $106. Now that the first quarter has finished we are rerunning our models and will release updated price outlooks next week. Cattle feeders should hold the 100% hedged position for marketings from April through July. Speculators should be holding bearish positions. Overall, this market is easily headed lower into summer. Those large December placements will hit the market from May through early July. For the second half of 2011 and through most of 2012 we are raging bulls…Rich Nelson

Working Trade:

  • ·       (03/01) Bought December/sold June 5.17, risk 3.17, objective 10.17. Closed 6.72. 
  • ·       (03/29) Bought August 116 put/sold 122 call/sold 106 put -1.42, risk -3.82, objective +6.50. Closed -0.42. 
  • ·       (04/07) Bought December/sold June 5.70, risk 3.70, objective 10.17. Closed 6.72.

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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