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A bearish soy market seen for next week

Soybeans:  We are finally coming up on the harvest window that many have been waiting for. Harvest talk is that combines will take out beans one way or another this weekend. Many are discussing drying the beans down even if they are harvested at 20%! This talk is not just limited to those who have received snow but producers from all over. If we can get the beans through the combine, they are going to go through no matter the moisture. We will come back Monday with what could be a surprising amount of beans harvested. Recent buying has not been met with much follow through and a close below yesterday's lows of 971 could be seen as quite bearish. While there is concern that corn harvest could be strung out, it is likely that bean harvest will move quite quickly. There is little doubt that fund selling in corn and wheat will also be felt in the beans although it will not be a commodity directly sold. Monday will see much more in the way of yield estimates, which we expect to be good, as well as harvest progress. New forecast, new yields and new harvest progress could not only cause basis to widen quickly but also prices to fall fast, much like the run higher.

Direction: A solid close below support on the charts will look very bearish especially when paired with either a better weather forecast or a recovery in the dollar. Yields are expected to exceed expectations. Even those that were once under snow are saying they are looking at some good yields.

Trade Idea(s):
(10/13) Sell Nov 976 SCO (stop close only), risk 16 from entry, objective 39 from entry.

Option Strategy(s):
(06/09) Sold Nov 1240 call/sold Nov 800 put 62 1/4, risk to 19, objective 0. Closed 1/4.
(06/16) Sold Nov 1220 call 45, risk to 11, objective 0. Closed 1/8.
(10/08) Bought Mar 920 put, sold 1020 call, sold 800 put for 10. Producer idea, there is margin required with this, but you are in a position to make 120/bu if the market breaks while leaving a 100/bu upside open before you are locked into a short.

***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.

Soybean Technical Commentary: Just like corn, soybeans posted an Inside Day which closed slightly lower. We are using the 977 3/4 level as main support and so far have not seen a solid close below it.

Vital Technical Indicator: the next projected major turn day for soybeans is Monday, soybean meal is October 20, and soybean oil is October 28.

Closing Cattle Commentary

Larger Placements Will Continue: As expected, cattle feeders placed more cattle in September than last year, 4.7% more to be exact. This was just under the average trade guess of 5.5% more. This makes it three months in a row of higher placements. This action is seen primarily because we have more feeders that were run on grass this summer than last year. We must also point out you will continue to see higher placements reported on the next two COF reports as well. The 2008 fall placement pace was much smaller than the big 2007 levels. October 2008 placements were 10.5% smaller than previous year. November 2008 placements were 5.1% smaller than 2007. So, simply because we are comparing this year's numbers with a last year’s very slow pace, you should expect to see this continue.

Larger Marketings Disappointing: Everyone had expected marketings out of feedlots during September to be smaller than last year. USDA said they were down 3.6% from last year's September. From February through June, placements were down about 3.5% so this fits right in with the marketing pace USDA reported. You may have some people suggest this is bearish as the average trade guess was for a 2.2% smaller marketing. They will argue we didn't market available cattle numbers. We personally do not think it was off that much as we were looking for a 2.7% smaller number. For future reports we will move marketings to equal last year then push over previous year numbers as head into the first quarter.

Cattle on Feed Is Growing: With placements reported at a higher pace for three months now, the mix of cattle throughout feedlots is slowly growing. Back on July 1, it was 5.3% smaller than 2008 levels. Now, on October 1, that total is .6% higher. As we continue the placement pace for another two months we look for the feedlot population to hit 2% to 3% higher than previous year levels. The key thing we must watch here is when these extra cattle will be marketed. Fourth quarter 2009 slaughter from feedlot style cattle (steers and heifers) will be smaller than last year. First quarter 2010 slaughter will push a little higher than first quarter 2009 levels.

The Big Picture: Speaking plainly here, a few extra cattle hitting first quarter slaughter is not a market moving event now. Changes in demand are the market mover right now. We have made our case on this demand issue very clear for weeks. While there will not be a raging demand market, we can clearly say the bottom in beef demand is just about here. In about two months we should end the job loss cycle. The economic growth side of things already bottomed and is in the recovery phase. The last two weeks now have been extremely important to watch. Wholesale beef prices, after weeks of falling, stabilized right at the point where they bottomed earlier this year. They found value, so to speak. Last week’s cash cattle posted an average price of $81.35. Cash traded at $82 earlier this week and then again at $84 today! We are now long futures and can make the claim that the worst prices of the next year or two were probably just seen.

Trade Ideas(s):
(10/16) Bought Dec 85.10, risk 83.85, objective 88.00. Closed 85.80.
Option Strategy(s):
(10/05) 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.

Cattle Technical Commentary: The market gave cattle a good market test with the lower prices early on. Where grain prices "rejected" higher prices Tuesday and Wednesday of this week, cattle "rejected" a test of lower prices today. This strengthens our confidence in buying on a breakout.

Vital Technical Indicator: Next projected major turn day for live cattle is October 27 and for feeders is October 29.

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.

Rich Nelson
Director of Research
Allendale, Inc
4506 Prime Parkway
McHenry, IL 60050
800-262-7538

Soybeans:  We are finally coming up on the harvest window that many have been waiting for. Harvest talk is that combines will take out beans one way or another this weekend. Many are discussing drying the beans down even if they are harvested at 20%! This talk is not just limited to those who have received snow but producers from all over. If we can get the beans through the combine, they are going to go through no matter the moisture. We will come back Monday with what could be a surprising amount of beans harvested. Recent buying has not been met with much follow through and a close below yesterday's lows of 971 could be seen as quite bearish. While there is concern that corn harvest could be strung out, it is likely that bean harvest will move quite quickly. There is little doubt that fund selling in corn and wheat will also be felt in the beans although it will not be a commodity directly sold. Monday will see much more in the way of yield estimates, which we expect to be good, as well as harvest progress. New forecast, new yields and new harvest progress could not only cause basis to widen quickly but also prices to fall fast, much like the run higher.

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