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Rich Nelson: Corn to get boost

Going into the end of the year there should be no surprise to see it end the way we have seen it trade for the entire second half, bullish. Market mentality is that funds will move back into the corn, buying it aggressively to start the New Year. It may be more accurate to look at this market year on year to start and end on the Jan report rather than years end. It appears we have come full circle. 

To start the year, corn rallied into the Jan report with an ending stocks number of 1.675 billion bushels. On the report, the March corn was trading as high as 459. After that report was released a fall off occurred that didn’t start a true turnaround until June 30th. Obviously corn rallied back quickly to current levels and now we are looking at a carryout of 832. Ethanol production is outpacing USDA’s expectations and there is little reason to think bearish right now. 

This sounds all too familiar to the mentality we had last year at this time. That means this time around everyone is bullish just the same as last year. Bulls will say that they have a better case this time around holding onto a drastically lower carryout. Bears will say that beneficial weather in South America could turn this market at any moment and also don’t put it past USDA to raise production numbers on the upcoming report. This time around it is ok to stay bullish going into the report, we just have to make sure to have some type of downside protection in case corn slides all the way to summer once again. We are not about to miss out on profitable Jan prices two times in a row. Prices are too high not to protect them in some manner. What appears to be the best lesson learned from last year would be not to get caught up in extremes. Let’s not allow those saying $10 corn to keep us from protecting current high prices and at the same time not allow talk of drastically lower corn prices in summer to keep us from putting some given profits in our pocket. 

Direction: Trade is fully prepared to start the year off with a bullish bang. There is still no reason to expect anything other than bullish trade leading up to the Jan report. This bullish charge may slow leading into the final few days before the report and direction from there will be determined by the USDA. If numbers are neutral or bullish, the charge higher is likely to continue. If bearish then corn has technical ability to set back aggressively…Ryan Ettner


Trade Recommendation:

·       (12/28) Sell December 11 corn 530 STOP, risk 10 cents from entry, objective 20 from entry.

·       (12/28) Buy March corn 610, risk 595, objective 640.

Working Trade:

·       (12/15) Sold March corn 570 put 30, risk 49, objective 0. Closed 19.




Closing Cattle Commentary

Fundamental Support: In the last week of 2009 cash cattle ended on a high note. It traded $84 and $85, up from $82 the week before. In this last week of 2010 cattle traded $106 and $107 at the highest price in seven years. That is quite a change. As the chart below shows, beef supply was very close to last year’s levels. 

What the chart does not show is that beef supplies left in the US after exports are at over 10 year lows. 

Cow/calf producers flooded the sale barn with extra heifers this year and old cows. This will draw down the breeding herd and therefore available calves for later next year. At the same time as cow/calf producers threw in the towel, foreign buyers rushed in and bought 22% more beef through October. Part of that was the US dollar, part of it was re-invigorated trade with South Korea, and part of it was strong economic growth in second tier countries. 

Even better, some key suppliers of our lower quality imports had a hiccup. Imports fell 11% through October. Even better yet, the US economy bottomed and we saw the return of the US consumer. Looking ahead into 2011 almost everything is expected to get better. Though cattle slaughter will remain large in the first half of 2011 it will tighten dramatically starting around late summer. Feedlots and packers are pondering how aggressive they will have to bid for supplies from mid 2011 through the next three years. What a way to end one year and what a way to look forward to the next. 


Trade Recommendation:

·       (12/31) Sell February 105 put market, risk to 2.20, objective 0. 

Working Trade:

·       (12/14) Sold February 101 put 1.02, risk to 1.85, objective 0. Closed .32.




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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