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Market eyes SA weather and Mo. River
Closing Soybeans Commentary
Broker Perspective: The soybean market broke hard in the overnight market and made new lows for the move in the day session. Today’s selloff began when Reuters ran a story reporting that China had cancelled soybeans purchases totaling 600,000 tons or approximately10 cargos. According to the story the China National Grain and Oils Information Center, an official China think tank, said that weak domestic demand and a drop in prices made these purchases unprofitable. At this time, the USDA has not confirmed the cancellation. Cushioning the blow of the Chinese cancelations was todays export report. The report showed that 559,700 MT of beans were sold for the 2112/2013 marketing year. This was up 14% from the four week average. China bought 371,500 MT of these bushels which included at 58,800 MT switched from unknown destinations. Last week China bought back about 60% of the bushels they were reported to have cancelled today. Weather in South American continues to be conducive to get the rest of the new crop planted in relatively good conditions. The Army Corps confirmed today that they will be reducing the amount of water flowing into the Missouri which then flows into the Mississippi River. The shipping industry is fearful that with less water flowing into the river system shipping delays and possibly halts could happen. The Coast Guard said that they are committed to keep the water ways open but acknowledged that the low water may restrict drafts and tow sizes. Federal government action would be needed to change the amount of water flowing down the river system or Mother Nature needs to provide much need moisture. Outside markets provided some support to today’s market as they rallied on “positive” news about the upcoming “fiscal cliff”. It looks like the congressional leaders, both republican and democratic, and President Obama made some progress today agreeing that spending cuts as well as increases in revenue will be needed to get the country back of a fiscally sound track. Allendale still thinks that beans are undervalued at these levels. With this in mind we would recommend end users secure some of their needs in case the South America weather turns for the worse. We would recommend using options to obtain ownership as their still is no sign of a technical bottom.
China Takes Action: A 600,000 metric tonne cancellation equates to 22 million bushels. That comes to less than 7% of their confirmed bookings that are still left to ship.
11/13 Bought Mar 1400 / 1500 Bull call spread at 30 cents risk to 0 objective 65 cents settled at 24 ≤
Closing Cattle Commentary
This afternoon’s Cattle on Feed report was right on expectations. October placements were 12.5% under last year. That was right on the average analyst guess of 12.6% lower. This now makes it four months in a row of sharply lower placements. Sale barns at this time of year are crowded with young calves. Placed in feedlots now, they would not finish out until summer. Feedlots simply don’t want to lock in a nine month commitment on feeding these calves high priced corn. Allendale looks for sharp declines in cattle slaughter, and high live cattle prices in the first half of 2013. Marketings, the movement of finished cattle from feedlots to the packing plant, in October were 2.8% over last year. That was very close to the analyst guess of 2.5%. It sounds like a good number, like feedlots were actively marketing, but that is not the case. After adjusting for two more weekdays this year vs. last, the true marketing number is actually lower than last year. Feedlots are holding onto market ready cattle numbers (because they don't want those new feeders). There is a very slight build in market ready cattle numbers. Put these two numbers and there is a very divergent issue hitting this cattle market. Feedlots now have 5% fewer cattle in them than last year. By January 1 that situation could be even worse. Our original $138 target for April futures is probably too conservative. One area of concern is demand for feeder cattle. If feedlots are not buying those numbers now they will be certainly still be there later. Feeder prices may act sluggish until cash fat cattle get moving higher (around the first of the year).
(10/30) Bought February cattle 129.35/sold December hogs 77.92 for a net price of 51.42, risk to 48.17, objective at 57.92. Closed 49.42.