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Market prepares for USDA Report Tuesday

Two-sided, low volume trade dominated the day today. Once again, the underlying news remains slightly to the bearish side, but the trade is looking for a slightly bullish report on Tuesday which is keeping support in this market. 

The trade is looking for carryout to go from 1.887 billion bushels down to 1.871 on Tuesday. Obviously, this is only a small cut of 16 million bushels off carryout which isn’t highly supportive but is good reason not be an aggressive seller today. 

Beans and wheat are each expecting more bullish reports on Tuesday which could also lead to spill over support. 

Right now, there is reason to leave corn at current values or to trade small 4 cent ranges, but no reason to be an active buyer or seller. This could change on Tuesday, if given a surprise report.But, for now, both bulls and bears appear to be happy leaving this market right where it is. March corn is not sitting at contract lows and also not up at recent highs, leaving this market ready for any number that Tuesday will offer. Short term, look for more sideways trade at least up to the December crop report. Given no surprises on this December report, look for corn to continue drifting lower expecting larger production to be seen on the January report.

Trade Recommendations:

Sell March at 445, risk to 455, objective 422

Sold March at 435, risk to 445, objective 419



Cattle Commentary

This morning’s employment report didn’t give the cattle trade much clear direction. While the employment numbers looked good, which would theoretically be supportive to meat demand, they also raised the possibility of a Fed taper sooner than later. Keep in mind, there has been clear evidence that gains in the stock and housing markets have surpassed the underlying fundamentals of those markets. Much of the “face value” optimism here is Federal Reserve related. Without this artificial crutch… In other news, there has not been a dramatic shakeup yet in the supply part of this market. Kill levels have averaged 3% lower than last year in the recent four weeks. Due to higher weights the four week average of weekly beef production is running 2% lower than last year. We suggest that market ready cattle supplies will take a dip starting mid-month and will reach the worst of it in February/March. While we can panic over this week’s futures decline let’s simply point out 1) prices were actually lower than here in November 2) this market is pricing in almost NO premium for our favored February contract. Get this, beef production is running about 2% lower than last year right? Cash cattle prices in this same time ran about 4% to 5% over last year. In the month of February, we will have this supply problem, futures are implying only a 3% year over year increase. “The maths” may be hard sometimes but we certainly feel this is yet another buying opportunity.

Trade Recommendation

(11/22) Buy Feb cattle/sell Jun cattle 4.70, risk 1.20 from entry, objective 8.50.

Working Trade:

(08/14) Sold Feb 128 put 1.65, risk to 1.25, objective 0 Closed 0.45.

(10/15) Bought Feb cattle/sold Jun cattle 4.92, risk to 3.32, objective 8.42. Closed 4.62.

(11/15) Bought Feb cattle/sold Jun cattle 5.50, risk to 4.20, objective 8.50. Closed 4.62.

(11/21) Bought February 132.57, risk 130.12, objective 138.22. Closed 132.87.

(11/22) Sold Feb 131 put 1.42, risk to 2.72, objective 0. Closed 0.97.



Rich Nelson 

Allendale Inc. 


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