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Rich Nelson: USDA Report watch

The wheat market seems to have fundamental support. The wheat sold off today on index rebalancing and profit taking. The profit taking seems to be coming after the winter holidays instead of the end of the year profit taking that was expected. The March Chicago dropped 1.9% today. It is estimated that the funds sold 8,000 contracts today with 4,000 of these contracts being attributed to index rebalancing. For the week, March Wheat was down 22 1/4. This was the first weekly decline since the week ended Dec 12, 2010. 

On the export front, Egypt is seeking 55,000 tonnes US soft white wheat, 60,000 tonnes of soft/milling wheat, 55,000 tonnes US Hard red winter wheat and 60,000 tonnes of hard wheat. 

The weather is turning better for the Australian wheat harvest to finish up. There is snow in the forecast this weekend for the plains and will give a blanket of isolation from the bitter cold on the way for the next week. It looks like the cold for the Midwest will not be cold enough to damage the soft red wheat. The temp will need to be watched to make sure they do not fall lower than projected. 

Average guesses for next week’s report are for U.S. ending stocks to be at 842 million bushels. Global stocks are projected to come in at 174.607 million tonnes. Quarterly stocks, as of Dec. 1st, are seen at 1.937 billion bushel.  Winter wheat acreage is estimated to come in at 41.219 million. 

Direction: The March Chicago Wheat closed just short of the breakout point this week. A close above 811 is needed to signal a breakout on the March Contract. If we get a close over 811 we would look for the markets to test the August 6th high of 864 1/4. We anticipate more choppy sideways trade the next few days as the markets deals with index fund rebalancing and position squaring before Wednesdays report...


Trade Recommendation:

·       (01/04) Buy 1 March Chicago wheat 750, risk 735, objective 864.

·       (01/05) Buy 1 March Chicago wheat 812 buy stop, risk 794, objective 864


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



Lean Hogs Commentary

Fundamental Support: Though we don’t bring it up in every commentary we cannot downplay the importance of corn in hog pricing. Higher priced corn would theoretically encourage producers to market hogs at lighter weights (less near term pork production) and to cut the breeding herd (less pork near the end of the year). On the same token, lower corn prices would theoretically mean more pork production and lower hog prices. Corn has had two other corrections in this uptrend. In each of those declines, hog prices joined in the fun. This time corn prices have fallen 5%. What is interesting to see is hog prices are not falling. Will the hogs revisit this issue next week?

It is likely that next week’s report will be almost the only thing on the hog trade’s mind next week. Overall, we are still supportive for now…Rich Nelson


Working Trade:

·       (11/12) Sold February 70 put 1.82, risk 2.30, objective 0. Closed .15.

·       (12/30) Sold June 86 put 2.25, risk to 3.90, objective 0. Closed 1.77.


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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