Soybeans on a Rally This Week
Soybeans ended the week on a bullish note as follow-through buying from yesterday continued Friday. Soybeans have now rallied 44.25 cents off yesterday’s lows. We argue that the reports of 420 million ending stock numbers are not as bullish as the past two days reactions but the funds came in long beans, and have been aggressively adding to their position ever since the report was released.
With the market settling above the psychological $10.00 level this opens the door to test the next chart target point at 10.19. Today’s weekly soybean sales totaled 1,747,274 tonnes (all current crop). That handily beat the 900,000 - 1,200,000 trade expectation.
USDA's whole year export goal is 2.250 billion bushels (left unchanged yesterday). That would be a new record, 4% over last year's previous record and 26% over the five-year average. Year-to-date sales, though, are only 921 million bushels. That would be 11% under last year at this time and 4% under the five-year average. By any measure we are behind where we should be. Neither Allendale, nor USDA, are too concerned at this time. The simple fact is, the market has become so accustomed to exports being revised higher as the year goes on, we have all learned not to panic about weak early year sales but it is will need to be monitored.
China is the world’s biggest buyer of beans. Yesterday the General Administration of Customs reported September trade data. September soybean imports ran 8.11 million tonnes. That was 13% over last year and represents a new record for any previous September. China operates on an October through September marketing year so this wraps up their old crop marketing year with a 93.492 million tonne import. UP 10.2 from last year. This beats the 92.5 mt import posted on yesterday's report from USDA. As a heads up, USDA's current expectation for this marketing year, from Octpber 2017 - September 2018, is for a new record of 95.0 mt.
You can expect that number to eventually be increased in the coming months if history is any indication. With the U.S. soybean ending stocks to use tightening down from 11.0% to now 9.9%, stocks lowered but usage unchanged, it would imply $9.70 for economic value for futures. With this in mind we would encourage producers to use rallies toward last summer highs as cash selling opportunities and replace the sold bushels with options for a lower risk ownership play for any South American production problems that might take the market even higher.
We assume a problem at a plant or two today is what brought the week's kill estimate down so much. With only 105,000 head suggested by USDA's weekly packer survey for Friday's kill, the week would run at only 622,000 head. That would be a bit off the 648,000 posted two weeks ago that represents the year's high. A minor decline into mid-October is not all that surprising. This one, though, is likely an artificial problem. Beef plants have all the incentive they need to run at full speed. Cattle processing is running with +$100 gross margins per head. Allendale was looking for 640,000 this week as early as or morning estimate. That was within range with other analysts. This week's lower than expected run would be 3.6% higher than last year.
Beef exports were not bad, it is just that they were not bullish. Weekly beef exports this morning came to 12,949 metric tonnes. That is the lowest number in three weeks. This number ran 3% over last year. Our year to date export sales come to 9.7% over last year.
USDA yesterday reduced the Q4 beef production estimate slightly. At 7.115 billion lbs, they are calling for a 7.4% year-over-year increase.
Wholesale beef will end a winner for the week, choice +1.63 and select +3.62 as of Friday morning.
Thursday's weight data suggested cattle feeders are relatively current on marketings. Steer weights are 1.7% under last year and heifer weights are 1.3% under.
The trend is up for beef futures at this time. You could have the December break down to $115.15 before violating the uptrend. The real excitement is with 2018 contracts, though. New contract highs were just posted for April yesterday. Though the next two Cattle on Feed reports won't show something crazy for placements, we are lined up for some bullish looking ones in the coming months. They will "look" bullish as we will be compared against huge numbers last year. From November 2016 - June 2017, placements ran 12% over last year. We have no problem discussing valid bullish issues here but let's keep things reasonable. The exact flow of bullish and bearish trading may not turn out exactly like 2017 but it is clear we are running in cycles here. Where we are at from the recently completed bear cycle since May is another question.
We remain concerned about feeder prices. They should be hitting seasonal pressure and also at current prices cannot break even. Q1 feeder contracts are implying feeder prices will be at a premium to Q1 2017. we are slated for lower fat cattle prices than last year for some time. At this time we are not sellers. Bulls are still staunchly in control on that side. Calf prices however, are seen a light amount of seasonal pressure. It is nothing like last year, however. We do like the April and June fat cattle futures but not 2018 as a whole.
This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.
DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.
The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Allendale Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.