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China rules the market news

China was in the news a few different ways today which suggested corn weakness. 

First it was yet another day where China came in with bean purchases but didn’t come in with corn buying. Early this morning there were estimates for China to increase corn acreage in 2012 by 2.7% or 35 million hectares. It is easy to see why this is expected with China seeing record domestic corn prices this year. Corn may also have seen some influence from China showing a GDP of 8.1% when estimates were more along the lines of 9%. With good rains currently falling and more anticipated over the weekend it was easy for new crop corn to lead the way lower. 

Monday does stand the chance at a turnaround, however. Bullish new crop traders will see the recent cold weather and weekend rains as slowing planting off the record pace start we have seen. That could offer some good start-of-the-week support. 

During trade today, there was more talk of potential Chinese corn buying even though it has not been seen on previous guesses this week. Old crop has been pushed ever further under fair value today. Support of 626 was taken out just slightly today but still managed to settle above that level. There are a few factors which suggest a stronger start next week but the true bullish trade will come from actual sales to China or rains that miss expectations.

Changing Perceptions: Through Monday, the Midwest will see chances for 0.90 to 2.50 inch rain totals. This may begin to change some perceptions about chances of hitting trend yields. It will also help pull the market from its focus on tight old crop stocks to a more balanced focus…Rich Nelson


Trade recommendations:

(4/12) Sell December corn 550 1/2, risk 559, objective 535.

h no! China’s GDP fell from +8.9% in Q4 down to +8.1% in Q1! That means they will buy less pork from us right? Limit down closes were seen in many futures contracts today. China was our #3 buyer of pork, based on tonnage, last year (a good deal of that non-muscle meat). This horrible news means they will buy significantly less pork right? Wrong. Tonight’s chart should tell you clearly how traders respond to perception rather than reality. The red bars show the year over year growth numbers for China’s economy. The blue line shows China’s actual purchases of US pork each of those quarters. If you take out the two spikes in their purchases, one from their 2008 Olympics purchases and the second from last year’s inflation/production panic, there has been a pretty steady increase in their purchases regardless of the change in GDP. Whether GDP was +8%, +10%, or +12% there was no direct influence in their purchases. If their “growth” slows to “only” +7% or even +6% do you think that makes any difference? We cannot say this market will suddenly rebound on Monday as traders get back to reality. In other news, which was not a market mover, the government reported February pork exports at 17% over last year. Though down from the unbelievable pace in January of +36% this is still better than USDA’s 2012 estimate of only a 2% growth. Since this market was in a generally weak position before the China news we may have a few days before we discuss buying this market again. We feel this market is a buy at these prices, the market will feel otherwise in the short term…Rich Nelson


Working Trade: 

(4/11) Sold June 90 hog put 1.35, risk 2.45 filled 4/13 for -$440.

(4/13) Bought June hogs 92.20, risk 90.80 filled 4/13 for -$560.



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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