Allendale is well aware of the fact how dominate China is as a holder of starch stocks when compared to total world stocks. The facts are at present China holds 35% of the world corn end stocks, 50% of the world rice stocks and 30% of the world wheat end stocks. China’s starch holdings clearly dwarf those of any other country.

            Since 2005, China has been incrementally building stocks in all three starch grains. When compared to recent lows for the three starch crop, China’s share of world stocks have risen from 28% in 2005 to 35% in 2008/09, rice from 48% to 50% and wheat from 23% to 30%.

            It should come as little surprise China had personally experienced a tragic famine from the spring of 1959 to the end of 1961 which caused death from starvation of approximately 30 million or 4.4% of its population. China’s government does not want to re-live the experience. In the event of a potential weather crisis, you must be aware of how well positioned China is and becoming less reliant upon outside sources of starch needs.

            Digging deeper into China’s hold on starch stocks, Allendale finds China’s end stocks as a percent of its domestic consumption is in fact on a notable rise, most specifically for wheat and then rice and corn.

The percent of wheat stocks vs the total annual consumption for China is at a high of 42% for 2008/09 vs just 33% in 2005/06. China does hold impressive, although less than wheat, corn and rice stocks as a percent of consumption. Projected for 2008/09 for corn is 29% vs a low of 25% as recently as 2006/07. And with regards to rice, China hold 32% of rice stocks vs consumption vs a recent low of 28% in 2005.

China is without question building independence from the world when analyzing its impressive stock build of corn, wheat and rice. Is there in fact other significant reasons other than protect food security? Why does China not have the same security for soybeans as its end stocks as a percent of annual consumption is only 9% and domestic stocks as a percent of world stocks are 8%. With China’s recent acquisition plan of domestic corn, rice and soybeans from its farmers Allendale estimates China is likely to provide incentives necessary to its farmers to be more aggressive for soybean plantings in 2009 and potentially to a lesser degree for the starches.

China’s building food security in starch stocks bears monitoring heading into spring planting season and beyond. Consider the impact such a decision could have on USA and South America soybean crops and extended network in 2009.

 

Allendale would appreciate your comments 800 551 4626 or research@allendale-inc.com

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Sources within South America’s Argentina suggest the current dry weather represents the worst drought in recorded history, more than 100 years. Less than 24 hours ago, Argentina’s Agriculture Secretariat announced a 7.3% reduction in soybean plantings and 2.4% in corn. With the drop in soybean plantings, it needs to be noted, plantings are nearly identical to year earlier levels.

            Just how serious is the present drought? Serious enough for the USDA agriculture attaché within Argentina to begin scouting production potential in Entre Rios on January 26 and working outward through the 28^th and have results on January 30^th just days in front of the February  10^th USDA crop report.

            The most obvious question is “does Argentina soybean production really matter?” The most immediate answer is yes, as it represents the largest exporter of soybean meal and soybean oil when compared to neighboring Brazil and the United States. Five year trends clearly indicate Argentina as a growing exporter of soybean meal, soybean oil and soybeans.

            Soybean production for Argentina has recently been tempered by drought but one must also be advised with rising fertilizer, seed cost, credit issues and declining soybean prices year on year, the overall environment is less than incentive driven. It must also be noted the friction between major farm groups and the country’s government is a far from cozy. Just as exports have been trending higher for the most recent five years, ending stocks of soybean meal and soybean oil have trended lower but continue to more than exceed those of Brazil and the US, implying a notable buffer even with the drought. In front of the attaché’s observation travel next week, news wire reports cite one of four major farm groups estimating the soybean crop from 47 million tonnes to 37 million tonnes.

            Present USDA estimates for Argentina’s soybean end stocks are 22.2 million tonnes, compared to 21.8 million tonnes a year earlier and well above 15.97 million tonnes five years earlier.

            Allendale advises the less than likely odds USDA may lower its present Argentina soybean production estimate of 49.5 million tonnes as aggressively as the Argentina farm group has, but lower is most likely in the cards. Allendale advises to use the recent strength in soybean futures to clean up remaining 2008 soybean cash sales in front of the Feb 10^th USDA crop report.

            Yes Argentina is a major player in the world oilseed market, however can its losses be bridged into northern hemisphere plantings and production in 2009? Have the recent China government procurement of domestic soybeans for state reserves come at a better time? Can March soybean futures break out of its recent trade range of $9.60 to $10.60 before the USDA Feb crop report?

 

Allendale would appreciate your comments 800 551 4626 or research@allendale-inc.com

           

Allendale Outlook Conference for Jan 23 and 24: Looking for Profit in 2009 and 2010? Get the answers, call 800-262-7538 or go to Allendale, Inc.

 

 

At preciously 7:30 am central time on January 12^th, the attitude towards corn futures experienced a notable change. Fading are ideas of worries of needing to buy 2009 corn acres and evolving are ideas of expanding soybean and spring wheat acres.

            Just in the recent two months of January and December, the balance sheet for 2008/09 corn ending stocks have risen 666 million bushels, largely at the hands of a 10.3% decline in potential exports of US corn and 10% decline in corn used for domestic ethanol production.

            End stocks projected at 1.79 billion bushels compares to year earlier levels of 1.624 billion bushels, and a five year average of 1.593 billion bushels. End stocks to use are now projected at 15% vs year earlier levels of 12.8% and a five year average of 14.22%.

            First Quarter use of corn for 2008/09 is 3.575 billion bushels vs year earlier levels of 4.083 billion bushels and a three year average of 3.694 billion bushels, solidifying USDA’s reasoning for building end stocks.

            To add insult to injury is a world corn end stocks projection of 136 million metric tonnes, representing a 9.8% month on month increase and 23.6% two month increase. The two major culprits are the US’s two month corn end stocks increase of 59% and China’s 25.6% build. World end stocks to use are presently projected at 15.8% vs year earlier levels of 14.8% and five year ave of 14.22%.

            Wheat (corn’s starch cousin) is of little help as US end stocks of 655 million bushels, are the highest dating back to 777 million bushels in 2001 and the 29 million metric tonne year on year stock build globally. This stock build is the third greatest correction dating back to 1980 with only 1997’s 32 million and 1990’s 36 million tonne greater.

            In the month of November when US corn end stocks were precariously close to 1.1 billion bushels, evidence pointed to the need to add as much as 3 million acres for 2009 plantings, above the 85.9 million planted in 2008. However with the recent 666 million bushels added in the last two months, it may suggest at 157 bu per acre “trend yield” rather than an acreage build required of 3 million to a reduction of 1.24 million to maintain the 1.1 billion bu end stocks.

            Consider the impact this may ultimately have on corn seed and fertilizer inputs and other connected service industries as opposed to added soybean plantings (new crop ratio of 2.33:1 as of 1/15/09). Also consider the impact on cash prices of corn and soybeans for the fall of 2008 as well as basis levels! Allendale would appreciate your comments 800 551 4626 or research@allendale-inc.com

            With recent notable change within the USDA balance sheet for corn, it is highly likely it could have a short term and long term impact on your balance sheet. Do you have an old crop-new crop marketing plan in place? If not, why not? If you do, call and compare to Allendale’s outlook.

 

Allendale Outlook Conference for Jan 23 and 24: Looking for Profit in 2009 and 2010? Get the answers, call 800-262-7538 or go to Allendale, Inc.

 

 

 

Since December 5^th, 2008, March CBOT soft red winter wheat futures have gained 35%, July futures have gained 33% and both are holding very impressive upward trendline support.

            Fundamental reasons for the notable rally vary from a strong tender line-up for milling quality wheat, potential US and world competitors reduced fall seedings, smaller harvest of quality milling wheat in both Argentina and Australia and preliminary signs of dryness concerns for the key production region of the southern Plains.

            Equally important and likely a more prudent reason for the recent rally is funds “new” money flow 2009. Wheat as well as a host of other commodity futures have benefited from the new money flow mentality since early in the month of December with soybeans up 29%, soybean oil up 29%, soybean meal up 27%, corn up 38% as well as a host of “agriculture softs” with cotton up 21%, cocoa up 20%, and sugar up 16%.

            As you are able to ascertain, supportive fundamental factors for wheat are not likely used in soybeans, cotton or cocoa and with the present strength in old and new crop wheat futures, opportunity may be knocking.

            Allendale is well aware odds have been solid for old crop wheat prices to achieve a national cash average high 50% of the time in the months of December and January and dating back to 1999, have never made the cash average high in the months of February, March or April.

            The cost of carry on wheat valued at $5.05 is 4 cents per bushel per month or 8 cents from March to May futures. The present March-May futures spread at twelve and three quarter cents has been ranged bound between 11 and 15 cents since the Sept and Oct timeframe. There is little technical or fundamental rational for the spread to narrow and may suggest if the spread is not willing to call for the wheat based on insufficient supply to meet demand, it may be prudent to take advantage of the present futures run on old crop wheat, by moving the 65% of wheat Allendale has hedged in March futures, to the cash market and lift the hedge, presently valued at $7.42 for nearly a dollar gain plus the cash value of the wheat. Allendale would also advise to move the balance (35%) of 2008’s wheat inventory to the cash markets realizing odds have not favored a cash rally past Jan through April.

            If you are bullish to wheat beyond present levels, you may consider re-owning the 2008 crop via old crop May CBOT SRWW futures on a pull back to the psychological $6 technical support level but with a tight stop of no more than 12 cents.

            Allendale invites your comments and encourages you to have your old crop wheat marketing plan in place and stick to it. If you do not presently have a plan, please contact your Allendale representative to customize one, specifically for your business operation…..Joe Victor

 

 

Allendale would appreciate your comments 800 551 4626 or research@allendale-inc.com

 

Allendale Outlook Conference for Jan 23 and 24: Looking for Corn Profit in 2009 and 2010? Get the answers, call 800-262-7538 or go to Allendale, Inc.