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Rich Nelson: Funds buy heavily into corn market


funds bought heavily this
week as outside market strength, reductions in European and FSU grain
production, and fears that US weather adversity would reduce yields. Friday’s
floor estimated holdings put the trading funds at 178,000 contracts long. Index
funds were also expected to increase holdings. The CFTC report, which updates
fund holdings, is out after our publishing deadline but is available on our
website under Government Reports, Weekly, CFTC Commitment of Traders Report.
You can also view a clear chart of outside money positions on the Special
Reports section of our website.

Weather: We believe that this large
fund position is vulnerable to liquidation. Although there have been many
arguments about weather adversity, there is no blocking “ridge” in the forecast
through August 10. This should allow enough moisture into the Corn Belt to
provide adequate “filling” conditions. There are pockets of poor crops in MO, S
IL and western IN as well as N IL and MI. But for the most part, we believe
yields are still 163+. Secondly, demand is backing off the market. Cash bids
fell 9 cents this week relative futures and many interior markets are posting “no
Bid” for nearby. Quality remains a problem. New crop supplies will be anticipated
and blended. Finally, the funds have built this huge position at prices above
current values. They normally do not hold losses. This week alone, futures fell
16 ≤ cents and closed below critical 385 support. This sets the chart up with a
head and shoulder top projecting prices to 360. Fundamentally, we expect a move
to 360 area short term, then if yields verify, a move to 333 is likely. The
summer high is most likely in.

Direction: We advised selling as a
trade and took profit today. We have advised farmers to be 100% sold via option
structures called a Box or 3-w. Most are sold between 390 and 460. If you need
to get in position, call us. Last night I stopped by the office and we were
still answering calls at 9pm. The Allendale broker wants to help you and is
there for you. We look forward to hearing from you early next week. Have a
great weekend..…Bill Biedermann

Working Trades:

·      (05/19) Sold
September 330 put 8, risk to 15, exit at market. Closed 1 1/2.
·       (07/22) Sold December 399, objective 384
filled 07/23 for +$750.

***Disclaimer*** The commentary and
trades below are derived from technical indicators provided in our Allendale
Advanced Charts pages and may not correspond with the fundamental commentary

Advanced Charts Direction: Corn
dipped below the 100 day MA & 38% level during the session today, then
closed in between them. Can the bulls resurrect this market again next week? We
remain short from 399. A close below 384 could trigger further selling very
quickly…Monica Moehring

Closing Cattle

Live Cattle: This week we were
surprised to see packers reach out and buy cash cattle at $95. That was up $1
to $2. It also marks the third week in a row of higher prices. During this time
we have seen little appreciation in beef prices. In fact, choice has fallen 12
cents and select is up 26. Without a reversal in beef prices we cannot see cash
cattle holding these gains. In fact, if you look at the cattle price chart we
updated on the Special Reports page, you can see August futures are implying
cash will be down to $92/$93 at the end of August.

Cattle on Feed: Leading up to today’s
report the industry had been apprehensive over the size of Placements. Last
month’s COF report, which covered the month of May, told us feedlots were
taking advantage of recent good profits and putting more calves and feeders
into feedlots. The trade knew June would see resurgence in Placements as well.
The trade was expecting a 20.5% gain over last year. USDA told us a 17.0%
increase happened. As Placements in June are marketed from late October through
February, this is slightly supportive the December contract. The report also
details the number of cattle that are leaving feedlots during June, called
Marketings. The trade was expecting a 1.7% increase and may be slightly
disappointed with the 0.4% increase that was given. This may be slightly
bearish to the August. The net result here is previous months placements were
down, and will still imply lower than last year slaughter through summer. The
change to higher placements, which started in May, will imply higher slaughters
from October into the first quarter of next year.

Cattle: USDA counts all cattle twice
per year. The industry unofficially calls this report, called Cattle, as the
Cattle Inventory. This report includes the numbers that are in feedlots AND
outside of feedlots. The entire cattle herd, both beef and dairy numbers, was
seen 1.2% smaller than last year. That is close to the trade’s guess of -0.9%.
The 2010 calf crop will be 1.0% smaller than 2009. The beef breeding herd, the
nucleus of future production, is 1.6% smaller. Showing that cow/calf producers
expect to continue contraction, beef heifer numbers set for the cow herd, are
down 2.2%. Bottom line here is the beef breeding herd, which has been in
contraction since 2006, plans to continue contraction. That means annual beef
production will likely post continuous declines through 2013 or so.

Direction: For the short term, bulls
grabbed this market and ran higher than we expected. It may need to set back a
little. Cooler temps into next week may take some of the heat related premium
off this market. It will not fall completely out of bed as heat will return in
the later part of next week...Rich Nelson

Trade Recommendation:

·       (07/21) Buy December
94.10, risk 93.00, objective 96.45.
Working Trades:

·      (05/14) Sold August
98 call 1.20, risk to .67, objective 0. Closed .10.
·       (05/27) Sold August 87 put 1.30, risk to 2.15,
objective 0. Closed .05.
·       (07/15) Sold December 94 put 2.55, risk to
4.15, objective 0. Closed 2.02.

***Disclaimer*** the commentary and
trades below are derived from technical indicators provided in our Allendale
Advanced Charts pages and may not correspond with the fundamental commentary

Advanced Charts Direction: Cattle
refrained from testing yesterday's high at 93.97 to finish out the week.
However, the market did close near its highs to leave the current uptrend fully
intact. We would buy on a correction near support at 92.15…Monica Moehring

Rich Nelson
Director of Research
Allendale, Inc
4506 Prime Parkway
McHenry, IL 60050

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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