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Monday's soy crush data eyed

The bean market finishes the week on a mixed note, as bull spreads dominated the markets action today.

This activity kept the old-crop contracts in the green, while pressing the new crop into the red. Old-crop beans continue to find support on a tight cash situation, due to strong demand from soy crushers and continued export demand.

The crush demand will move to the front of the trade’s attention Monday as the NOPA monthly crush number will be released at 11:00 Central time. The trade is looking for crush to come in at 118.1 million bushels. The trade estimates ranged from 110 million to 126 million bushels. The April crush came in at 120.113 million bushels. If the average guess for May is correct at 118.1 million bushels, it would be 15% lower than last year. A 15% cut in crush sounds like a lot, but it still needs to slow down even more. If the trade estimate for the May crush is correct, it would mean the September through May crush would still total 2.7% over last year due to the very strong early season rates. If the crush does not slow dramatically over the next few months, we could see soybean ending stocks estimate revised a little closer to 100 million bushels from the 125 latest estimates. USDA helped out a little on Wednesday as they moved their crush estimate up from 1.635 to 1.660 billion. They think crush will end 2.5% lower than last year.

One way to solve the problem would be to import meal from S.A. But for this to work, U.S. meal prices need to move high enough to make imports work, pricewise, and we are not there yet. We could also import beans and crush them (some soy crushers are currently doing this) but with only 1/3 of the NOPA bean crushing facilities in the South and Southeast, it will be hard for them to bring in enough beans to meet the crush shortage.

 

Monday’s crush number will have an impact on the old crop beans next move, while weather will impact the direction of the new crop. The current forecast is for three shots of rain for the Midwest, over the next 10 days, and this will continue to cause producers problems trying to get the rest of the crop in. The trade is looking for beans planting to have reached the 85% to 90% level, for next Monday’s report. In addition to the crush report and weather we also have the Grain Stocks and Planted Acreage report out on June 28.

 

Unless the NOPA crush give us a bearish surprise, we believe old crop beans will continue to be supported by the demand for meal. Watch the meal contracts for a sign that the bean market has topped. If we start to import bean meal into the U.S. that would be a very negative sign for the old-crop bean market. As for new-crop beans,  Allendale has a long-term bearish view for the new-crop beans and is currently looking for a “fall low” at the $10.54 level, so we continue to recommend producers take advantage of rallies to get more downside coverage. As for you fathers out there, have a Happy Father’s Day . . .
 

Trades Recommendations:

  • 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

This week can be wrapped up just like last week. Cash broke a full $2 Friday afternoon. Texas trading at $120 is getting started. Both supply and demand are concerns here. On a seasonal basis the biggest kill week of the year happens anytime over the next six weeks. Additionally, packers will now be buying cattle to fill post-July 4 needs. As noted in the hog comments, consumer demand generally pushes lower in the later half of the summer. This is why cash cattle prices often don’t post their yearly low in July or August. As it stands the $2 lower trade today fits right into where June futures are trading. This week typically has a 50 cent positive basis vs. the June futures, that gives you $120. Basis typically switches to a 32 cent negative next week. That means the market is already pricing in $119 cash cattle next week. August futures, with normal basis, are pricing in a cash cattle low at the end of July at $115/$116, and a rebound to $116/$117 at the end of August. In the big picture, this market is following our projections pretty well. We see the cash cattle low for the summer at $113 and have a $115 target for August futures…Rich Nelson

Working Trade:

  • (5/13) Sold August 124 call 1.12, risk to 1.92. objective 0. Closed 0.22.

 

 

Rich Nelson
Allendale Inc.
815-578-6161

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