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U.S. holds bean price advantage

Soybeans traded higher for the session finishing today at 1267 ½ per bushel, which is 9 ¼ cents higher for the day. Good export sales this morning and follow through buying from the China deal were the main cause. The delegation ended up signing deals to eventually buy 13.4 million tonnes. There is also support on dry weather in southern Brazil’s growing areas. Some of what we are losing in Brazil may be offset by good rains in Argentina early next week. We can see why this market is finding some support as demand is not dropping off. The record Chinese deal is just another sign this good demand continues to grow their domestic livestock industry. Another interesting note on why we may see more Chinese purchases down the road is the price of beans between Brazil and the US. Including freight, Brazilian beans can be bought, and delivered, for $547 dollars per tonne. US beans can be bought, and delivered, for $536 per tonne. On a per bushel basis this is about 30 cents cheaper to buy US beans. After seeing this information, it is not a surprise we saw a purchase of 173,000 tons of old crop beans sold to China this morning. Do not be surprised if we can see some additional purchases of beans in the coming weeks. For the entire month of February, US beans have been priced below Brazil and for the month to date we have seen the beans rally 65 ½ cents and the funds for the month have added an additional 30,000 contracts.

US is a Value: The discount between US and Brazil soybeans, for immediate delivery, has widened in recent days. While we have this opportunity we may scratch out a few more sales.

Working Trade:

(02/15) Bought March 1250 put 10, risk to 0, objective 40 cents. Closed 5 5/5.

Cattle Comments: Cash fat cattle trading exploded today with big $5 gains at $128 and $129. This is pretty timely as last night’s chart showed this is typically a strong time until March/April. The bottom line is that after four weeks of packer kill cutbacks they finally reached the point where feedlots said enough is enough. With rumors of an early start to outdoor grilling, packers didn’t want to chance not have supplies for their customers. As we have noted before, packers do have temporary pricing power in cattle and beef prices but it cannot last forever. April futures are now $2 higher than Allendale’s projected $129 expiration. We will not consider calling a top in cattle, for the seasonal decline into summer, until mid-March or so. Our bias for far deferreds remains clearly intact with a target for October at $138. Tonight’s chart gives an update on the real story in this year’s beef market. The base unit of production, calves and feeders, are where the bull story lies. Next week’s Cattle on Feed report should indicate the second month in a row of declining placements into feedlots. It should offer further evidence that whatever tight supplies the current market is arguing about on the live cattle end, won’t hold a candle to what lies in store in the second half of the year. Our bullish target for spring feeder prices has already been surpassed by futures. We are not turning bearish though. Our target for fall calf sales, at $176.68 for October steer calves, would be 35% over last fall. Avoid trying to call a top in feeder prices for speculative trading this year.

Working Trades:

(9/07) Sold 2 April 118 puts 2.57 each, risk to 1.00, objective 0. Closed 0.17.

(11/23) Sold 1 April 122 put 2.67, risk to 1.30, objective 0. Closed 0.37.

(1/24) Sold 1 August 122 put 2.15, risk to 3.50, objective 0. Closed 1.87.

(1/24) Sold 1 April 124 put and 1 April 133 call 2.77, risk to 3.90, objective 0. Closed 2.30.

(2/1) Sold 1 October 128 put 3.42, risk to 4.90, objective 0. Closed 3.15.

(2/1) Bought 1 October future and sold 1 October 136 call. On entire position risking 3.50 from entry, objective 7.00 from entry. Futures bought at 132.27 and closed today at 133.65. Call sold at 3.70 and closed today at 4.22. Net position +$0.85.

(2/13) Bought October/sold June 5.50, risk to 3.85, objective 8.00. Closed 5.17.

 

 

Rich Nelson
Director of Research
Allendale Inc.
4506 Prime Parkway
McHenry, IL 60050
815-578-6161

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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