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Rich Nelson: USDA data remains solid, little change seen

Corn: USDA’s report pegged the yield at 162.5 vs. Allendale’s survey at 162.3. First, we want to thank everyone who helped with the Allendale survey. Farmer participation is key and Rich Nelson and staff did another incredible job. We believe the report is solid on yield and we should not see much variation from this number. The trade however feels that a significant decline in yield is still likely. Based on facts, crop conditions did not reflect much more of a decline than the yield already factored in today. Secondly, USDA normally increases the yield in coming reports 70% of the time over the last 20 years. AS for prices, we believe that the following table will provide you guidance:

            End     Average    Futures       Futures
Bushels    Stks   Stocks/Use Cash Price Upside Target Lowside Target
162.3     1.090       8.1%      $4.20         $4.80          $4.10

Next week we should see the markets begin to reflect harvest activity. WE would turn to the sell side of the market in the 480 area if rejection is seen and over time, we will look to be a buyer on a harvest sell off. Remember, the 1.1 billion bushel end stock, we now have, is tight…but it is not a shortage unless there is a huge jump in demand or a production problem next year. Price RANGE not one sided TREND is more likely.

Direction: Support is 430. Short term resistance is around 480. End users should buy cash due to the wide >60 cent basis. Producers should be cautiously using options or futures to adjust previously sold option positions up to current levels. Getting a start on 2011 would also be a good idea as profits against operating can be locked in…Bill Biedermann

If Yields Continue to Decline: Last week we sent the brokers some quick ideas on what to expect with tomorrow’s report. The table below is a recap for your perusal…Rich Nelson

160.0       929       6.9%      $4.50         $5.20          $4.40 
158.0       792       4.9%      $4.85         $5.60          $4.80
Trade Recommendation:

  • (09/10) Buy December 470 3/4, risk 460, objective 491.

Closing Cattle Commentary

Live Cattle: There were some important changes to note on this morning’s supply/demand report for beef. Though USDA increased its estimate of 2010 beef production by 60 million lbs, they more than offset that by dropping imports by 50 and upped exports by 70. The net result is beef left in the US for our consumers will total 2.6% smaller in 2010 and another 1.1% smaller in 2011. For price direction we are neutral on the short term picture but hold long term bullish hopes for this market with $105 expected on the April 2011 contract…Rich Nelson

Trade Recommendation:

  • ·       (09/07) Buy April 100.00, risk 98.20, objective 104.80. 

Working Trade:

  • ·       (08/19) Sold December 95 put 1.35, risk 2.80, objective 0. Closed 1.27.
    ·       (08/26) Sold December 102 call 2.50, risk to 3.30, objective 0. Closed 2.20.

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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