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Macro factors take center stage

Spreaders were in the soybean market today taking premium out of the July/November spread as we saw the July finish 10 lower at 1386 and the November finish 5 1/4 at 1308 3/4. Deliverable stocks of soybeans at all but one location were higher this year than they were last year which shows the supply of old crop is abundant compared to last year. We had some export sales reported this morning at 8 am. China bought 262,000 tonnes of 12-13 crop and cancelled 147,000 tonnes of 11-12 crop. An unknown buyer also bought 120,000 tonnes of 11-12 crop. This move looks similar to what the trade has been seeing recently which is bear spreading in the market as these purchases were rolled forward. We took out the 20 day moving average to the downside yesterday and failed to hold above it in early morning trade. We could be looking at moving towards the lows of 1317 1/2 on the 1st of June. Informa released their planting estimates this morning. They are estimating soybean planting of 76 million acres, up from a May estimate of 75.8. Keep in mind the USDA had soybean planting in March at 73.9 million acres. The macro factors are still a large part of this market and the trade is looking at the situation in Greece this weekend with some caution as well. Greece has an election this weekend between two opposing parties each of which has their own opinions on the European bailout and this is what has the market concerned. Weather for the weekend has turned a bit wetter on the noon run of the forecast and with the maps suggesting better rains through central Illinois and lighter rains in parts of Iowa. If these rains hold and we see good coverage we could see additional pressure on Sunday night but a lack of moisture and a favorable election in Greece could mean higher trade Sunday night.

Demand vs. Acreage: This week we discussed how old crop crush and export demand is still being underestimated by USDA. It is a good story but is overshadowed by the discussion on extra acres. Almost everyone in the industry looks for another two million acres to be added. USDA’s original survey, conducted in early March, would not have picked up the full extent of how early winter wheat planting would increase double cropping. With the current forecast it would appear soybean yields will not suffer too badly. The market has completed our 13.40 November soybean price target and can now see 12.80 based on extra acreage…Rich Nelson

Trade Recommendation:

Stand Aside

While hogs are at the tightest supply portion of the year, cattle are seeing the biggest supply of the year. June futures are priced about right as they currently value cash cattle at $116 later this month. As noted last night, our key focus is on the longer term. The beef industry is discussing higher placements in May due to the dryness that ran from May to the first week of June. Drying pastures lessen the amount of calves and feeders that can be supported on grass. That situation is changing now as the Plains have seen some rains but we may have a few extra cattle in Q4 than we thought last month. For speculative trading positions, we have advocated bullish long term positions using only short puts. Until the market hammers out a cash cattle low for the summer, which could be in two to four weeks, we will not buy with futures. Hedgers should hold those 127.37 sales in the June until those cattle are sold…Rich Nelson

Working Trade:

(5/17) Sold Oct 120 put 2.25, risk to 4.00, objective 0. Closed 3.02.

(6/13) Sold Oct 118 put 1.50, risk to 3.00, objective 0. Closed 2.25.



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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