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Bullish numbers, lower soybean prices

11/01/2013 @ 3:32pm

For the second day in a row, beans retreated following very bullish export numbers.

Informa released its estimates that offered no support whatsoever. They raised the yield from 41.7 to 43.3 and production from 3.176  to 3.298. When you have export numbers exceed all analyst expectations and yet the market sells off, it’s no surprise that the bulls are running for cover. 

Apparently demand is not the issue, and the focus will instead be on supplies. USDA will release its supply-and-demand numbers at 11:00 a.m. next Friday.  The fact that there was not an October report adds more significance to November’s numbers. With supplies as the focus, we have to make note that crop progress across the country, along with good growing conditions in South America, will make it hard for the bulls to get on board. 

The market continues to tell us to sell beans now. Unlike the corn, beans have a negative cost to carry and provide no incentive to hold into 2014. It is better to transfer risk, by using reownership strategies such as a bull call spreads. To summarize, expect further declines next week, and be prepared to sell beans on any rallies.

Trade Recommendation:

6-11-2013  Bought 1 unit of November $11.00 bean puts for 10 cents,  Risk value of option will hold until anticipated  “fall break”..

Cattle Commentary

Cash cattle traded at $132 in Kansas and Texas today. That was equal with the bulk of last week’s action and down $1 from the few $133s traded last week. This can be considered a disappointment after the tremendous gains made in recent weeks. Don’t forget the cash cattle market made its initial move off the summer lows then fell asleep at $123 from mid-August to mid-September. In the six-week period after that, we had a $9 rally! While Allendale has been one of the biggest long-term bulls on the block, even this move surprises us. But realistically, the month of November should be a little quieter. Slaughter is now running about 3% lower than last year. It won’t be until December rolls around that the next drop in supplies hits the market. Don’t forget our contention that a few weeks in February will see slaughter as much as 8% to 10% lower than year ago. Yesterday’s COF report was bullish, but those numbers have been priced in already. We hope to see a minor setback in prices for us to increase our long trading position back into an excessively long position. In our opinion, the cattle market is the trade for the agricultural complex.

Trade Recommendation:

(10/31) Buy February 132.65, risk 130.80, objective 136.10.

Working Trade:

(8/14) Sold Feb 128 put market 1.65, risk to 1.25, objective 0 Closed 0.70.

(10/15) Bought Feb cattle/sold Jun cattle 4.92, risk to 3.32, objective 8.42. Closed 5.40.

 

 

Rich Nelson 

Allendale Inc. 

815-578-6161

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