Bill Biedermann, Senior Vice President at Allendale, Inc.
Corn Condition: NASS estimates the July 13 conditions at 64% at "good" or "excellent" vs. last week's 62% and year earlier levels of 64%, and a five-year average of 66%. Allendale suggest crop conditions to improve throughout most of this week, based on private and public weather forecast calling for beneficial weather and an absence of any extreme heat during pollination. Cumulative pollination as of July 13 is estimated at 13% vs. 50% a year earlier and a five-year average of 36%. The lag in the reproductive phase suggests the majority of this year's crop to pollinate in the second half of July and places the 2008 crop to pollinate during the hottest portion of the year. Look for the trade to focus on extended weather forecast for any signs of building heat. Allendale views Monday release as neutral for December corn futures.
Corn Fundamentals: Bearish to corn is beneficial weather for the major Midwest for at least this next week. Continued improving crop conditions headed into next Monday's report are expected. Also bearish to corn is the increasing substitution of feedwheat vs. corn. International buyers not only consider the feed values economics but are also reducing import expenses by securing supplies closer to home base. Bullish to corn is 2008/09 projected end stocks to use to be the second tightest, dating back to 1980 for the U.S. and the tightest world corn stocks to use at 11.9%, dating back to 1980. Also bullish to corn is the lag in growth progress, potentially placing this year's crop at risk by pollinating during the hottest week of the year.
Technically: December corn futures closed below the 50-day Moving Average (MA) on Monday. This has happened before with interesting results. On March 20, December futures closed below the 50-day MA, after holding a solid uptrend. One day later December corn futures closed above the 50-day MA and held until May 29. Once again, one day later, December corn futures closed back above the 50-day MA and held until July 14.
Old Crop Marketing: 6140 cash corn requires 4¢/bu. per month to store on farm. The present futures and cash market continues to offer adequate carry month to month. The present spread between September and December futures is offering 6¢/bu. per month and will cover your cost to carry if hedged in the December futures. Allendale has 30% of its 2007 production not priced to the cash market and will alert when to begin moving to the cash markets.
Trade Posture: Fundamentally, Allendale remains bullish to corn on tight stocks to use. Allendale respects improving crop conditions, however crops conditions at the present stage of growth is not likely a true indicator of impending yield. Technically, Allendale is bearish. Allendale is a willing buyer of December corn futures just above the recent double top of 7150.
Soybean Condition: NASS estimates the July 13 "good" to "excellent" conditions at 59% vs. last weeks 59%, year earlier levels of 62% and a five-year average of 62%. Allendale views Monday's releases as neutral/bullish to November soybean futures.
Soybeans Fundamentals: Bullish to soybean futures is the ongoing Argentina farm strike. A key vote by the Argentina Senate was scheduled for yesterday. The strike has been beneficial for greater than typical weekly export sales of U.S. soybeans. Also bullish to soybeans is the lag in crop maturity and may place soybean pod fill later in the month of August. Precipitation amounts more towards the mid and mid to late August are likely to be key. Bearish to spot month soybeans is a weaker than anticipated NOPA soybean crush report released Monday morning and perceived weekly soybean export inspections.
Soybean Spread: Declining old crop stocks, as a result of the ongoing Argentina farm strike, has soybean futures inverted. The August/November spread is presently at 23.4¢ premium. The August spread has technical based support at 10¢ and immediate resistance at 30¢. It was nearly one year ago when the spread was trading a very similar pattern to present day. A breakout above 30¢ premium, the August in July of 2007 allowed the spread to immediately race to 49 to 55¢.
Old Crop Marketing: $15.52 cash soybeans requires 9.3¢ of carry per month. If not hedged, make certain your local cash markets are offering you sufficient carry. The present August/September futures spread is at 13.6¢ inverse, suggesting it costs more to store the beans than to carry them.
Trade Posture: Allendale remains bullish to soybeans as ending stocks are estimated at 140 million bushels and has a projected end stocks to use of 4.7% vs. old crop stocks to use of a record low 4.1%. Allendale is aware of the potential bearish ramifications of an end to the Argentina farm strike and potential CFTC action on speculation but until those events happen, further rationing will be required.