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Buyers to gain confidence-Rich Nelson

After a week of selling in this corn market, the trade expected some Friday buying to develop. What turned out was some choppy trade where corn started on a positive note, was then pulled down by beans and attempted a strong close. 

There were no big changes in fundamentals after yesterday’s ethanol vote. Many bulls continue to look for a bounce that is well into the double digits, but each day continues to offer a reason for lower trade. Today’s trade doesn’t help to put much faith into a strong bounce in this market. 

Monday is always a new week and as long as the funds stay on the sideline, as they did today, buyers will gain more confidence to put their money in this market. 

On the technical side, July corn still has room for more selling as first support is near 680 with next support 659. Those numbers will be important to watch as both are possible targets for an end to the selling. Today was obviously speculative long liquidation instead of any changes in fundamentals. We can see that because July stayed under pressure all day while December held strong through most of the day. Watching the good to excellent rating on Monday will be crucial for trading the December contract. 

If weather holds well with no major threats, a good yield can still be made on the corn that didn’t get flooded out. Many producers are telling us that except for some drowned out holes, the rest of their fields are off to a great start. Speculators need a major bullish story to convince them of putting money back in this market. Hedgers will want to become more active as long as weather holds steady. As was mentioned before, new crop traders are only focused on yield and until there is a weather problem a bounce is likely but a large scale turnaround might be tough.

Direction: Today was disappointing as many looked for heavy profit taking buying. This market was certainly sold too fast which warrants a bounce but those looking for a move back to 710 in December might be forgetting the improved GTE rating corn has seen since the June 9th report. We still look for a bounce soon and if Monday’s crop ratings are good, those expectations could be lowered…Ryan Ettner

Acres: We thought you would be interested in one of the acreage studies completed this week. Corn rallied 9% from their initial survey in March to when producers were in the middle of planting. In four of the past five years with a big increase in price, acreage increased. This even was seen in each of the past two late planted years (2008, 2009)! Before being adjusted for flooding and late planting expectations, this study would suggest corn acres to increase 1.4 million from the March survey. USDA last week suggested a 1.5 million acre decrease…Rich Nelson


Trade recommendations: 

Stand aside

Closed trades: 

(6/15) Sold December corn 651, risk filled 661 6/17 for -$500.

Live Cattle: This afternoon’s Cattle on Feed report did a lot to explain this week’s cash cattle action. We have pointed out in the past that this market was a long term bull picture. We have stated placements would soon fall as available calf and feeder supplied dried up. That would really tighten slaughter levels at the end of this year and into 2012. Those expectations were confirmed by today’s Placement numbers for the month of May. Placements fell 10.8% from last year’s May. That was more than the 7.5% decline the trade expected. Cattle Placed in May finish out between October and January.

Short Term Surprise: While we have been right on this market for our long term bullish expectation today’s report showed the front end supply of cattle was smaller than expected. May Marketings, fat cattle leaving feedlots, were a large 7.3% larger than last year. That was far above the trade’s expectation of 3.2% higher. This Marketing number is a real shocker. Typically, Marketings are the easiest category for analysts to guess. Essentially, we marketed 77,000 head more cattle in May than expected. That means we have 77,000 less head with us in June. This certainly helps to explain why packing plants suddenly panicked this week and bought cattle at sharply higher prices.

Direction: Expect this newly found bull market to last for another two to three weeks. We have a chart based objective of 110.62 on the August from the Head and Shoulders bottom formation. That should be filled on Monday when this market opens over 1.00 higher. Also, slaughters will be moderate during July so do not look for a major correction then. The real question comes when we have those December placements roll through. They will hit during August and push slaughters sharply higher than last year. Aside from our concern over August and early September supplies, this market has been cleared for a pretty bullish outlook. IF there is a dip in prices in August we will use that to establish more bullish positions in the far deferreds. Stay bullish far deferreds and get neutral to bullish nearby’s…Rich Nelson

Working Trade:

(06/16) Sell February 112 put 3.90, risk 3.00 from entry, objective 0.

Working Trade:

(06/09) Sold December 110 put 2.45, risk 4.80, objective 0. Closed 2.02.

(06/15) Sold February 110 put 3.10, risk 5.25, objective 0. Closed 2.32.

(06/09) Sold August 106.02, exited 108.50 on the electronic 06/17 open for -$990.


Rich Nelson

Director of Research

Allendale Inc.

4506 Prime Parkway

McHenry, IL 60050



Hypothetical performance results have many inherent limitations, some of which are described below.  No representation is being made that any account will achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.  One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.  In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.  For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results.  There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.

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