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Rich Nelson: Spec longs run for the hills

Though we really laid out some rough corn news this week, the size of today’s decline was a surprise. Instead of new month and new quarter buying here, we saw a ton of speculative longs run for the hills. By the end of the day fund selling was estimated to be at least 40,000 contracts. Though we don’t like to repeat comments, a brief summary of the key points seen this week is needed. 1) USDA put old crop ending stocks 301 million bushels over the average guess. This reversed the previous quarter’s 303 million bushel surprise decrease. 2) There was no “new crop mixed in”. I personally discussed this with USDA. 3) The increase in old crop stocks will more than offset any reasonable decrease in yields. 

Direction: In an article written for Futures magazine this week we highlighted how nearby corn futures filled the 50% retracement mark left over from the June to December 2008 decline. The market pushed past it by 1 1/4 cents then completely failed. Shortly after we sent the article out one respected subscriber of ours backed up that exact point. For downside an easy chart objective is the 50% retracement mark from the rally we just finished. That is at 426.625. Our initial thoughts of seeing ending stocks push into the 1.2 billion bushel territory next week bring quick ideas of a 500 high end and a 420 to 440 downside target. We are getting to work on this week’s new information and will give our official target next week. For now, that 426.625 place is very reasonable…Rich Nelson

Working Trade: 

·       (09/30) Bought 1 December 484, risk 472 filled 10/01 for -$600. 

Closing Hogs Commentary

Lean Hogs: Another slide today gives the week to date total $3.42 lower. Cash hog markets, depending on location, declined $2 to $3.50. Though this week’s 6% lower kill did not represent a big jump in supplies, the trade knows they are coming. On a seasonal basis, slaughter numbers typically even out at the current high level. However, on a compared with last year basis kills may go from 6% lower to 3% lower. Net, numbers will begin to increase by mid-month. Other news you may hear about for this week was the loss of slaughter in an area in the southeast due to weather. Though kills were down today they will be made up tomorrow. We are still bearish in the big picture…Rich Nelson

Trade Recommendation: 

·      (10/01) Sell December 76 call 1.25 ob, risk 2.10, objective 0. 

There is a risk of loss when trading futures and options contracts. 

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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