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Pork exports to Russia threatened

Leftover selling from Thursday’s poor exports was certainly seen Friday. In combination with that, this corn market finally saw its seasonal drop into the 2nd week of December. 

After a relatively strong week, it was starting to look like the seasonal break was not going to occur. March corn still has room to drop down to first solid support of 714 1/2. This tells us that both by a timing play and a chart approach there still is a little more selling until support is expected. 

The trade is also looking for a slightly bearish report on Tuesday which can make all this work together. Keep in mind that the December report is the last estimate and the January report are the final real numbers. 

Bulls might have a hard time making much of a case for buying ahead of the final December estimate. On the other hand, we fully expect bulls to make a case that the final January numbers are going to show the market the 2012 drought was worse than anyone expected. 

Bears still have a horrible sales report from yesterday with no signs of improvement on their side. Bulls will be looking at the seasonal turnaround along with having pressured prices low enough to pick up more sales on next week’s report. 

So far, for December, the seasonal trade has played out as expected, there is no reason to think it will not continue to work.

Higher Ending Stocks: The grain trade suggests USDA will recognize this developing problem with exports on Tuesday. On top of that problem, we have clear skies for Argentina next week (bearish) and the river falling (now -2.18 feet).

 

Trade recommendations:

(11/26) Buy March at 715, risk to 705, objective 740

Closed trade:

(11/27) Sold March at 760, objective hit at 745, +$750

Working trade:

(11/21) Sold January 740 straddles (740 calls and puts) at 32, risk 45, objective 15, closed 22 1/4.

Livestock

Russia says it found pork from two US plants and from one Canadian plant that contained the feed additive ractopamine. This additive, approved for hogs for around 10 years, is marketed under the Paylean brand name. It is very widely used in the US pork industry. This news is a direct retaliation against the passage of the new trade bill with Russia from the US senate. 

On paper, a potential end to exports to Russia would be an issue for US pork. A full 23% of our production is exported. Russia takes 6% of that. This means 1.4% of our production goes to Russia. That would affect the February contract by $1.50, much of that priced in today. This news comes on top of an already negative change to psychology. Cash hogs posted their seasonal peak on Wednesday and packers will likely cut the kill next Saturday to regain some margin.

 

Working Trade:

(12/03) Sold Feb 87 call 1.90, risk to 3.10, objective 0.25. Closed 1.10.

(11/20) Sold June 96 put 2.35, risk 4.10, objective 0. Closed 3.15.

(11/20) Bought June/sold October 12.85, risk 11.35, objective 15.85. Closed 11.87.

 

 

Rich Nelson 

Chief Strategist 

Allendale Inc. 

4506 Prime Parkway 

McHenry, IL 60050 

815-578-6161

This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale Inc.’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions. 

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