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Traders 'bull' spread soybeans

New news to trade was lacking today, but that didn’t stop the bean market bulls from buying. The July beans finish the week on a strong note as the July contract took out the 200-day moving average and had a trading session high of $14.49 1/4, a price not seen since March 12.

 

Bull spreading was also a dominant factor in today’s trade with the July/November spread picking up another 10 cents today, last trading at $2.20. The old-crop beans continue to be supported by the record-tight supplies of old-crop beans and record-strong basis for this time of year.

 

The USDA's latest estimate is for ending stocks at 125 million bushels. When it is all said and done, old-crop stocks will probably fall below 100 million bushels by the end of the marketing year.

 

Weather was viewed slightly negative as the forecast keeps the bulk of the rain out of the Midwest until early next week. This drier forecast should allow producers to continue accelerating soybean plantings. The USDA reported today that exporters sold 138,000 tonnes of U.S. soybeans to unknown destinations; 18,000 tonnes were old crop, and 120,000 tonnes were new crop. In addition to these sales, they reported the sale of 120,000 tonnes of new-crop beans sold to China. The continued tight cash market should continue to provide support for the old-crop beans, while the larger-than-expected U.S. new-crop carryout and projected record-world numbers should continue to put pressure on the new-crop contract. We would recommend producers who have not sold new-crop beans make catch-up sales on rallies.

Working Trades:

(5/16) Stand aside

 

Cattle Commentary

The trade was expecting a bearish Cattle on Feed Report and the numbers were even a little worse than expected. Placements, the number of new calves and feeders entering feedlots in April, came to 15.1% over last year. That was just over the 13.1% expectation and right next to Allendale’s 14.7%. Much bigger-than-last-year numbers sound bearish for the time period where these numbers finish out in, September to November. We have pointed out that much of this big number was more due to the low April 2012 number that it is compared against. You may remember that April 2012 ran 14.8% lower than April 2011. Most bears will have a field day with this number. Let’s point out that the 2012 placement schedule was pretty screwed up. Though the April 2012 number was small, the May number was big. This means the June COF report will show an unnaturally small number as May 2013 placements are compared against May 2012. Placements, in April, finish out between September and November. Since these focused on the heavy categories of feeder weights, the cattle will finish out in the September/early October time frame rather than later. For marketings, USDA suggested we moved 2.2% more finished cattle out of feedlots than last year. This was just under the trade’s 2.8% higher guess, but right on Allendale’s 2.2%. We cannot say a 0.6% difference from the average guess is much of a variance. With this month’s report being so heavily weighted toward placements, the number of cattle in feedlots rose from -5.0% on April 1 to now -3.4% as of May 1. Today’s report also plays into the bear arguement from a seasonal basis as well. Seasonally, slaughters rise from now into summer. This report pushes the period of heavy summer supplies into that September time frame now. As it stands, we hold our expectation of cash cattle to hit a $113 summer low. We remain bearish. All producers should already be hedged with a base position protected by August $122 puts (also sold $128 calls and $114 puts).

Working Trade:

(5/13) Sold August 124 call 1.12, risk to 1.92. objective 0. Closed 0.55.

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Rich Nelson 

Allendale Inc. 

815-578-6161 

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