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Volatile markets ahead

The July soybeans traded 4 higher at 1442 1/2 and the November traded 4 1/4 higher at 1375 1/2. We saw no overnight sales announcements Friday for soybeans. Weather is still the driving factor in these markets. Soybeans were trading near their highs of the pit session for most of Friday morning, until we saw the midday weather maps come out. The midday weather added more rain to the driest areas of the eastern Midwest. This is bearish if they leave this in the forecast. The rain does not come until next weekend, so we will have an entire week to watch this system and GFS models develop. Soybean meal finished lower in July Friday, which was well off its early morning highs. This break in meal also pressured the soy complex late in the session, as products have been leading the soy complex. Outside markets were relatively quiet Friday, as the dollar was mixed for the majority of the session trading a very narrow range. The macro picture seemed a lot less threatening after a downgrade of several major US banks weighed on the market Thursday. As in any weather market, continue to look for volatility moving forward and the macro markets as we move forward.

Tighter Old Crop Stocks: We estimate USDA will find 662 million bushels left of the old crop supply as of June 1. When you add in our estimate of fourth quarter usage, Jun – Aug, we estimate the old crop year will end with 151 million bushels. That is tighter than USDA’s current 175 million estimate…Rich Nelson


Trade Recommendation:

(6/19) Buy November 1337 1/2, risk to 1317, objective 1368.

(6/20) Buy November 1400 on a stop, risk to 1390, objective 1410.

The trade was looking for a big 13% increase in feedlot placements during May and USDA counted 15.3% more. Cattlemen took feeders off those pastures that were drying out as they feared a rerun of last year. May placements become fat cattle between October and January. As we have said before, this number is artificially large. May 2012 had one more weekday than last year. In addition May of 2011 was a small number itself to be compared against. Marketings, the number of finished cattle leaving feedlots, were also disappointing. USDA counted 0.6% more finished cattle being sent to packers last month. That was quite off the average analyst estimate of 4.9% more. There has been a bit of a divergence between COF Marketings and actual steer/heifer slaughter in recent months and it appears the situation is not getting any better. In other words, analysts will continue being wrong this Marketing number. Most traders will ignore USDA’s beef stocks estimate found on the Cold Storage report. We will point out the May 31 estimate, at 499 million lbs. was below the average analyst guess of 521. This implies stocks fell 19 million lbs. from the month prior. Normally they decline only 1 million. Summing the week up we had cash cattle trade sharply lower at $116 (down $2 to $3), a bearish Cattle on Feed report, and a slightly supportive Cold Storage report. Bears are still in control here. Perhaps cash will trade down to $115 next week. Keep in mind we are at the typical turning point for cash cattle. They should bottom at some point in the next two weeks, trade sideways in July, and then begin the process of a rebound into August – December. When cash cattle bottoms we will get more serious about being long this market…Rich Nelson


Working Trade:

(5/17) Sold Oct 120 put 2.25, risk to 4.00, objective 0. Closed 2.87.

(6/13) Sold Oct 118 put 1.50, risk to 3.00, objective 0. Closed 2.12.



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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