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Argentine news could be bullish for U.S. soybean prices

Soybeans: It has been some time since the market received new news from Argentina. Overnight, their congress granted the president the power to determine grain export taxes for one additional year. This news could have bullish implications for soybean prices. The first effect is we can be certain is Argentine farmers will be protesting and blocking roads yet again after this spring's harvest. The second effect is soybean taxes could remain high again. Both of those factors imply they may not export as much as the trade thinks.

 

The drought this past year helped cut their soybean crop by 31%. That production problem, as well as the government’s influence, helped limit their exports. Allendale is currently plugging in a 48.5 million metric tonne production for the crop they will plant this October and harvest in spring. USDA is using an even larger 51 mmt figure which would be a record. One thing we have to keep in mind with this congressional decision is it is possible it will get reversed. The Argentine president's political party lost recent elections and her power over congress will be broken when new politicians take office in December. What will be one of their first actions? So, while today's news is bullish, we cannot guarantee it will last. Putting yourself in China’s shoes…you've got to buy soybeans and right now the US is the cheapest shop in town. However, when you get to October, and are starting to buy for spring deliveries, who will you buy from? Argentine could actually be planting a RECORD crop. Brazil is looking at a crop that is only 1 mmt off its record.

Between now and October we expect China to continue their frantic pace. Most that will be focused on procurement of US soybeans. In other words, the trade will have ample good export news to focus on. As of August 13 USDA reported they had purchased 6.9 million tonnes of our new crop. This week alone, they have bought an additional 866,000 tonnes which puts them at 7.8 million. Currently USDA has total exports for new crop equal to old crop levels at 1.265 billion bushels. It is simply inconceivable to us to see how USDA can think that way when our two prime export competitors will increase production by 25% this year. Instead we still must hold to the idea that during October, when South America is planting, the Chinese will slow their buying pace sharply. USDA will also at that time start cutting back its export estimates as well. Seeing an additional 50 to 75 million bushels added to ending stocks after harvest is very easy to see.

Direction: Our view remains intact that 900 is a good target for the November contract at harvest. This market could take a stab at 1000 from now until then be we do not look for it to last. As long as there is no frost damage then 810 is our official forecast for after harvest.

Trade Idea(s):
(08/13) Sold November 981 1/2, risk a close above 1002, objective 908. Closed 973.
Option Strategy(s):
(06/09) Sold Nov 1240 call/sold Nov 800 put 62 1/4, risk at 29, objective 20. Closed 11 3/4.
(06/16) Sold Nov 1220 call 45, risk at 24, objective 0. Closed 7 1/2.
(08/12) Bought Nov 1000 put/sold 1100 call for even, risking to -22, objective 100. Closed 53.
(08/21) Sold Nov 1100 call 20, risk to 30, objective 0. Closed 20 1/4.

***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: After rallying above 50% and the 100 day MA, beans settled back below the key 9.75 level to end the week. This doesn't mean the bulls are done though. We took profits on our long at 9.70 on this move.

Vital Technical Indicator: the next projected major turn day for soybeans is August 27, soybean meal is August 25, and soybean oil is September 2.

Closing Hogs Commentary

Hogs: This was a good week for hogs. Futures attempted to stop their downtrend more likely on technical factors than any big bullish fundamental change. On the supply side, we ran 2% more pork through plants this week than last year. Slaughter was about equal with last year but big weights are still a problem. On the cash hog side, we are looking at lean prices of $49 right now, and a seasonal jump in hog slaughter (as we transition from low summer to big winter supplies). We are not sure if the October, priced at only a $2 discount, is realistic given that jump in supplies coming. For now, we will assume this recent run higher in futures can last for a couple more days.

Cold Storage: The monthly count of frozen food products in warehouses for the end of July held good news for pork. Total supplies of pork were seen at 547 million lbs. While that is a record level for the end of July, we have to point out the previous two reports were also record numbers for their respective reports. Everyone knew to expect a record level. What we are focusing on was the 31 million lb. drawdown from the previous month. Typically the drawdown on this report is 17 million lbs. In the face of such a bearish fundamental picture for pork, this was not as bearish as it could have been. The count of pork bellies, the cut that is sliced up for bacon, were also a record for the end of July at 60 million lbs. The important point was the drawdown from last month was 16 million lbs. The five year average drawdown for this month was 17 million so we will call this neutral to pork belly futures.

Hedges Replaced: In accordance with last night’s recommendations, we have lifted all October and December hedges and replaced them with limited cost bear put spreads. In essence we banked the good profits from the hedge positions but still have some downside protection for a limited cost. This was simply a money management move.

Trade Idea(s):
(08/20) Buy Oct 44.45, risk 43.10, objective 48.05.
(08/21) Sell Oct 51.50, risk 52.90, objective 47.50.
Option Strategy(s):
(08/10) Sell Dec 50 call for 4.40, risk to 5.35, objective 0.
(08/18) Sold Oct 42 put 2.50, risk to 2.85, objective 0. Closed 1.27.

***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.

Lean Hog Technical Commentary: Hogs closed up against the 20 day MA today. This market hasn't seen this much strength in well over a month. It may still end up being a corrective bounce though, so we'll stand aside for one more day.

Vital Technical Indicator: Next projected major turn day for lean hogs is August 26.

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.

Soybeans: It has been some time since the market received new news from Argentina. Overnight, their congress granted the president the power to determine grain export taxes for one additional year. This news could have bullish implications for soybean prices. The first effect is we can be certain is Argentine farmers will be protesting and blocking roads yet again after this spring's harvest. The second effect is soybean taxes could remain high again. Both of those factors imply they may not export as much as the trade thinks.  

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