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Wheat is not hard to find

The USDA surprised the market with a bearish report this morning. The government put the U.S. ending stocks at 878 million bushels. This was 50 million bushel increase from last month estimate. The increase in the carryout was caused by decreasing exports by 50 million bushel. The fact that the government cut exports was not a surprise. The past few months’ exports have been disappointing as we are having a hard time competing with other countries due to the price of our wheat. The trade was surprised by the extent of the cuts as the trade was looking for ending stocks to increase by 2 million bushels. As for the world numbers, the USDA raised world production by 5.7 million tonnes. Higher production translates to a current ending stock reading up to 208.5 mt. The increase in the world production numbers should not have been a surprise as Australia, Argentina, and Canada all raised their production forecast in the past few days. Today’s report has not changed out mind as we still anticipate wheat will continue to trade in a sideways to lower range due to the amount of wheat in the world. We do need to be careful and not get too bearish as with the funds carrying a near record short position (short 42,200 coming into today’s trade). Any positive news about wheat or the macro economy could cause a short-covering/profit-taking rally as we wrap up the trading year.

Not Hard Finding Wheat Around: Stocks to use, the measurement of “tightness of supply”, tells a clear story here. The wheat situation has been at well-stocked levels for each of the past three years…Rich Nelson


Working Trade:

(12/7) Bought 1 Minneapolis March wheat 815 ½, risk 799 ½, objective 844. Closed 827 ¼  

In case you have missed our commentary in recent weeks, there has been a clear change in direction for wholesale beef prices. Not only did it show no concern with last weekend’s forecasted snows in the Plains, but it continued to move lower this week. Exports have fallen down to equal last year’s level instead of the accelerated levels from this past summer and fall. Today, cash cattle traded actively in the Plains at $120. That was down $4 for Kansas through Texas and $6 for Northern areas. Futures are implying cash will get down to $117 at the end of the month. This market could stay at these lower levels for another couple weeks before the tight 2012 situation refocuses the trade northward…Rich Nelson


Working Trade:

(09/07) Sold 2 April 118 puts 2.57 each, risk to 3.00, objective 0. Closed 2.17.

(11/23) Sold 1 February 118 put 1.60, risk to 2.72, objective 0. Closed 2.42.

(11/23) Sold 1 April 122 put 2.67, risk to 4.20, objective 0. Closed 3.70.



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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