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Soybeans race to 2013 finish line

Beans ended the last full trading week of the year on a positive note, settling 13 cents higher for the week.

 

Argentina weather continues to be the driving factor for the move higher. The forecast is for Argentina to see temps top out in the upper 90s to 105 degrees with mostly dry conditions being seen with the heat through the first part of next week. The first shot of relief will come Wednesday into Friday.

 

The trade is concerned that the relief will not be enough to counter evaporation resulting in the need for more rain. Argentina has received enough rain recently that a few days of hot, dry weather should not do much damage to the crop’s production potential. But with next week being a shortened week due to Christmas, it looks like some in the trade choose to liquidate shorts in fears that next week’s rain does not materialize.

 

On the bearish side of the argument, the trade is concerned China will eventually cancel U.S. purchases and shift them to South American origin. We continue to look for a choppy trade next week as many in the trade will be taking next week off to celebrate Christmas, and this will keep trade volume low.

Trade Recommendation:

  • Bought a November $11.40 put, sell a November $10.00 put, sell a November $12.20 call for  4 cents. Settled credit of  4 1/2 cents.

 

 

Cattle Commentary

Higher trade was seen today as traders reacted positively to word that progress was being made to expand the offerings of U.S. beef that China accepts. This is a great sounding story. While it does fit into our overall bullish viewpoint, we will actual discount some of the bullishness of this particular story. Annual beef exports to mainland China went from almost zero in 2004, after our BSE finding, all the way up to 23 million pounds last year. However, this year, with their resistance to feed-based additives, our exports are down 17% year-to-date.

Someone seeing this “progress with beef talks” story would suggest we will soon regain those lost sales. The real story is that China IS ALREADY getting our beef. From 2004 to 2012, exports to Hong Kong soared from 2 million pounds to 201 million. Again, in 2012 we sent mainland 23 million but Hong Kong a full 201 million! So far in 2013, our exports to Hong Kong are up 177%. This should show clearly that Chinese buyers have been getting shipments through Hong Kong and that any official relaxation for mainland buyers will simply shift the balance. Altogether 95% of our beef exports to China come through Hong Kong and not mainland.

The 2 p.m. Cattle on Feed report today was slightly bullish. Placements of new calves and feeders into feedlots were 96.9% of last year (-3.1%). The trade was expecting a 0.4% increase. This is supportive for second-half April through first-half August, when those cattle will finish out. Marketings of finished cattle during November totaled 95.5% of last year (-4.5%). The trade was expecting 94.5%. More cattle leaving feedlots than expected is slightly supportive the December and February contracts. The number of cattle in feedlots on December 1 was 94.5%. Based on the previous months’ of Placements, Allendale suggests slaughter levels are prepared to fall sharply into February/March. From that point on they will rise moderately and become more manageable by summer.

In the past few weeks cash cattle has fallen $3 from late November. December has been marred by a few extra hogs showing up in the meat supply. This adds to the tonnage already seen from chicken. At the same time, we can suggest demand for Q1 is a big concern. Packers have reacted with efforts to cut kills as we go into an already slow holiday kill schedule. In the coming weeks, Allendale suggests the focus will shift back to beef supplies. Slaughter levels in February will run as much as 8% lower on a year-over-year basis. This will exaggerate the normal seasonal rally seen for February futures that runs from December 10 to February 25. Our target remains $140 for February futures.

Trade Recommendation:

  • (12/20) Buy February 133.02, risk 131.70, objective 138.20.

Working Trade:

  • (08/14) Sold Feb 128 put 1.65, risk to 1.05, objective 0 Closed 0.45.
  • (10/15) Bought Feb cattle/sold Jun cattle 4.92, risk to 3.32, objective 8.42. Closed 4.87.
  • (11/21) Bought February 132.57, risk to 130.80, objective 138.22. Closed 133.90.
  • (11/22) Sold Feb 131 put 1.42, risk to 1.82, objective 0. Closed 0.77.
  • (12/9) Bought Feb cattle/sold Jun cattle 4.70, risk to 3.50, objective 8.50. Closed 4.87

 

 

Rich Nelson
 

Allendale Inc. 

815-578-6161

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