April 2010 Archive for MGEX Research

                 India is only second to China when it comes to feeding a populace which at last count measures 1.18 billion vs China’s 1.3 billion. India continues to consume calories such as rice and wheat and not soybeans and corn.

According to the graph India has the largest end stocks to consumption in the rice and wheat sector.

World Weather Inc suggest west and northwest India is likely to experience above to much above monsoons in the June to October timeframe if they transition from an El Nino to La Nina as forecast.

What crop(s) are most at risk are a wheat harvest which last through the month of May, corn planting which spans from May to July and 80% of the soybean planting which has the same planting time frame as corn.

India has 17% end stocks to rice consumption but the largest production is far away in the east. This percentage compares to 30% for China and 24% for the US. India’s end stocks to wheat consumption is 23%, although on the rise, remains below China’s 58% and the US staggering 81%.

India’s end stocks to corn consumption at 4.5% pales in comparison to China’s 31% and the US at 17%, but if India’s milling quality wheat becomes feed wheat with too much rain at harvest, it is likely to compete against corn.

Soybeans could be a major problem as 80% of India’s annual production is in the same region as where the above to much above normal forecast resides and though soybean end stocks to annual consumption has increased 4.34 times year earlier levels, annual consumption can chew through its end stocks rather quickly.

Be reminded India with its 1.18 billion population is the 4th leading world consumer of soybean oil, 3^rd for rapeseed oil and 1^st with regards to palm oil.

Allendale Inc suggest you need to keep an eye on weather within India as wheat harvest, corn and soybean plantings takes place.

One question you may need to consider as we work into 2010 and beyond, will India have the water necessary to not only plant a healthy rice crop but potable water for human consumption? Are the water wars escalating?

 

We welcome your questions and comments.........Joe Victor

 

Allendale Inc welcomes any questions you may have by calling 800-551-4626 or

e-mail    research@allendale-inc.com

 

click below to learn more about us...

 

  

There has been a great deal of news regarding the potential for corn imports for China from the United States in 2010. As far as Allendale is concerned starch/protein from the US is making its way into China in the form of “distillers dried grain with solubles”.

China has displaced Canada as the number two importer of US “DDGS” with Mexico as the number one importer. In 2009 China imported from the US 661,320 tonnes (18.9% of the world market) of containerized DDGS vs the previous year’s 97,940 tonnes. The 661,320 tonnes of DDGS is comparable to 26 million bushels of corn. It is estimated the 661,320 tonnes of DDGS in 2009 may increased to 2 million tonnes in 2010, the equivalent of 78.69 million bushels of corn.

We must be reminded the crude protein of DDGS is in a range of 25%-30% vs crude protein content of 8.8% for corn and 48% for soybean meal.

Has the increased DDGS imports reduced China’s appetite for soybeans to be crushed into soybean meal and soybean oil? Not so as with 20.5 weeks remaining in the 2009/10 marketing year China is expected to import 43.5 million tonnes of soybeans vs 41.1 million tonnes the previous marketing year.

Swine numbers within China are up, cattle the third largest since 2006 and fluid milk imports are up a staggering 50% in one year.

We can explain to you historically China does not import corn until the month of February but the floor trade is of the opinion with China’s corn production down 6.6% in the last year, it is only a matter of short time when China will be forced to import corn.

What do you think, will China import US corn to feed its growing population? What impact has China local auctions of corn had on the world marketplace?

 

We welcome your questions and comments.........Joe Victor

 

 

Allendale Inc welcomes any questions you may have by calling 800-551-4626 or

e-mail    research@allendale-inc.com

 

click below to learn more about us...

 

 

 

 

 

Since the beginning of 2010, old crop corn futures have lost 80 cents or 18.3% of value. Key losses were noted via a month of January USDA report which included a bigger yield of corn as well the largest stocks of grain on and off farm dating back to 1976-77.

            The end of March planting intentions and quarterly stocks report reflected large stocks of grain which was bearish to futures and cash markets and yet did show the second largest use of corn dating back to 1976/77 with the exception of 2007/08.

            At present we are beginning to plant what is expected to be the second largest corn acreage in modern history. If plantings continue to be uninterrupted look for large stocks of corn and large planted acres to widen the prices between old crop (July futures) and new (Dec futures) as we approach the summer reproductive phase of corn near July 4^th. Allendale Inc does need to add our projected end stocks to use are smaller for the crop we are now planting vs old crop end stocks to use by 3%.

            Number two Argentina and number three Brazil have no problem exporting corn they are presently harvesting. For old crop USA corn which was harvested in the fall of 2009 there remains plentiful domestic stocks and end users can be immediate buyers of the cash inventory but be aware present end stocks of 1.899 billion bushels are expected to shrink to 1.627 billion bushels at the end of the 2010-11 marketing year.

 

Since the beginning of 2010 old crop wheat futures have lost 18% of its value. As demand driven is the soybean, soybean meal and soybean oil markets weakness has been an overriding factor for wheat. Typically 48% of the annual US wheat production is exported with this year a very anemic 39%. This fundamental fact along with poor economic recovery within the US labor force has crippled wheat. It is interesting to note a very strong North Dakota spring wheat processor has been purchased by a Canadian Co. This does suggest to us there is light at the end of the tunnel and yet we respect the fact it is a very long tunnel.

            Seasonals and a technical formation suggest wheat futures are moving higher to just before the July harvest. New crop cash wheat values are running 40 cents higher than old crop. If you can find good quality of old crop, you can be a buyer as an end miller user. Technically old crop wheat futures (May) point to 5.17 per bushel and new crop (July) futures to a level of 5.29 per bushel.

            Excluding last year the five year average end stocks to use have been 23% with last year at 47% and projected 2010/11 at 44%. This tells us cash and futures are anticipated to remain weak

 

Since the beginning of 2010, old crop soybean oil futures have lost only 6.6% of its value. From Jan 1 to Feb 1 soybean oil lost the most of its value of 14.3%. It is important to know soybean oil exports are expected to increase 48% in one year, soybean meal up 23% year on year and a big reason why they are holding a positive value despite record crops in South America.

            Soybean oil for biodiesel production still is not working within the US. It is no secret foreign countries are buying palm and soy oil for biodiesel production which has a season average price of 35 cents per pound vs 32.16 cents per pound the previous marketing year.

            Most recent fundamental news has China wanting to export steel pipe, shoes and toys to Argentina for its soybean oil. China has an incredible labor force and if the worlds #1 exporter of soybean oil will not get the clue, then beans will be bought from Brazil and the US and palm oil can be bought from Malaysia.

            Technically speaking old crop soybean oil is in a wedging formation and the weekly charts suggest we are running up against resistance. Now is not a good time to buy soybean oil as and end user. Funds which trades in and out of a market remain mightily long soybeans, soybean meal and soybean oil which is not end user friendly.

Use an average planting-reproductive pace for soybeans and by Fall suggest a better opportunity for soybean oil end users to cover three to six months of needs.

Allendale Inc is neutral/bullish old crop soybeans/soybean oil and soybean meal but bearish to new crop soybeans (fall 2010 harvest) as the likelihood of the second largest US soybean production could present stocks to use of 10% for the US vs year earlier levels of 6%.

 

We welcome your questions and comments.........Joe Victor

 

 

Allendale Inc welcomes any questions you may have by calling 800-551-4626 or

e-mail    research@allendale-inc.com

 

click below to learn more about us...

 

 

 

 

 

 

If history repeats itself, then the June corn planted acreage report will be higher than the March prospective planted acres report. A study Allendale Inc performed suggest there is an average increase of 2% with a range of .02% to 3.5% since 2004 from the March to June acreage report. If we use an average of 2% of the 88.8 million prospective planted acres released on Wednesday, then the June corn planted acres maybe in an area of 90.58 million. See Chart

Before you pound the LDP table Allendale Inc’s research suggest end stocks to be 1.627 billion bushels which is 15% less than present end stocks when we use 88.8 million acres planted. End stocks to use projected on 88.8 million acres planted is 12% vs 15% for old crop and if we use 90.58 million acres planted then end stocks to use is elevated to 14.1% still less than the present marketing year of 15%.

We have been advising the use of box option strategies for corn and beans clients and make certain a plan is put in place when 60% of the crop is planted.

 

We welcome your questions and comments.........Joe Victor

 

 

Allendale Inc welcomes any questions you may have by calling 800-551-4626 or

e-mail    research@allendale-inc.com

 

click below to learn more about us...