Allendale Inc suggest the closer to 70% harvested a crop is, the closer we come to the heaviest part of the harvest for that particular crop we are and transition away from the production phase and enter the demand phase. Those involved in the evolution of the grain trade will always look to the weekly exports for corn and wheat while soybeans add in the monthly U.S. Census Bureau of soybeans crushed (NOPA reduces the level by approximately 6 million bushels/month and worth noting).   

            Soybeans are well more than 70% harvested and performing admirably as both exports and crush are working in positive demand phase tandem. Weekly export sales of soybeans are running 75% of target while shipments are running 31% above (Allendale Inc updates weekly). The U.S. Census Bureau soybean crush is 9% above target and Allendale Inc is poised to ask the question will USDA increase in its Dec WASDE the necessary 23 million bushels? Will the export baton be handed off to Argentina and Brazil in April/May of 2010 as it normally does, experience tells it will but we will continue to follow the 3-5 day forecast to see just how aggressive S. America will become it 2010. Allendale Inc has not wavered with its 2009/10 recommendations by selling soybeans off the combine and into the cash market in this demand driven, less than full on or off farm cash and futures carry market.

            Corn remains but is doing is best to transition way from its production phase into its demand phase and relays upon the weekly export sales market as its initial barometer. US corn sales are running 37% of target and as of 11/27/09 are at a pace which suggest a target of 1.431 billion and not the 2.100 billion bushels which the USDA is presently using. Allendale Inc is well aware of the 4.25 billion bushels which ethanol is anticipated to use and is not in the camp which suggest ethanol blend will jump from a national blend rate of 10% to 15%. Allendale Inc remains bullish to the corn and soybean meal utilized for poultry feeding but remains bearish to USDA projections for feeding of meal and corn to dairy, beef and pork.

            Fundamentals suggest a weaker outlook for corn and wheat as they are not demand driven, soybeans are. However are we trading fundamentals?

 

 

 

 

 

We need to spend some time with wheat as it is offering an opportunity for 2009 into 2010. This leads us into our first question as to what is right with the wheat, why is it rallying. Could it be wheat has found a rally because of poor quality wheat conditions within Brazil, smaller than expected crop in Argentina, delayed soft red winter plantings in Illinois or the fact corn, beans, soymeal and soyoil has rallied and now its wheat’s turn? All of the preceding has been discussed within the industry well before the 200 day Moving Average of $5.60/bushel December and $5.96/bu July futures were penetrated. Old crop stocks of 885 million bushel, the largest dating back to 946 million in 1999 domestically and 188 million tonnes vs 202 million tonnes in 2001 globally have created the following spread, which is twice the normal amount of carry.

            Spread traders of new crop July wheat vs corn have witnessed old resistance of $1.60 per bushel become new support with new resistance now found at $2.00 per bushel. Allendale Inc is well aware of the present 5 year wheat index which implies an 11.3 % rally as well as other “outside” influences such as rally in base metals and crude oil as well as channel decline in the US dollar futures.

            The increasing futures whether old crop or new crop is offering an opportunity to price old crop supplies, as well as begin new crop hedging. Allendale Inc was fortunate enough to hedge its first 20% of new crop wheat this week because of the opportunity presented and will respect the seasonal index as well as other outside influences for  anticipated 2010 production. Allendale Inc is well aware of the softness presented by weaker than last year fertilizer prices as well as other inputs but the hedge, spread and host of trading opportunities are numerous and we must act now.  

 

 

 

 

 

 

 

When Allendale Inc analyzes the current days’ supply of starches, proteins and veg-oils, we find that corn is clearly the winner with wheat and soybeans lagging behind. Please remember the number of days’ supply is the cushion we have available after all demand is met.

            We’ll start with the corn. Domestically, the days’ supply fell by 1 with world supplies falling by 2. Also, the current 46 day supply is five fewer than a year ago but equal to the 2007/08 level and rests precariously above the record level low of just 34 days in 2003/04. Globally the number of days’ supply matches the record level low of just 54 days, equal to 2006-07 and well below the record level high of 104 days in 1999/00, the eleven year average is running 68 days. Corn remains supportive to the futures as long as the number of days’ supplies remains tight and outside futures such as crude oil and base metals remain in an upward trend. Allendale Inc continues to advise storing corn at least into March 2010 and keeping an eye on the Dec/Mar spread.

            Wheat was not kind to the Nov USDA results as the number of days of global supply grew by 1 day while the domestic supply grew by a massive 6 days. In just a very short two growing seasons, the number of days of domestic wheat cushion has grown by 3.2 times, to a level of 154 days and above the previous record of 145 days in 1999/00. Globally, wheat increased by a day and now stands at 89 days, one day short of the 2004/05 high and 18 days off the eleven year low dating 2007/08. The eleven year average on the wheat is running 91 days.

            The third starch, rice, came in unchanged, both domestically and globally, for November vs. the previous month. The global supply of 67 days is off from the eleven year average of 86 days. Cumulatively, the three global starches measure 8% higher than the historic lows from just two growing seasons ago 94% of the domestic starch growth of starches coming from wheat and Rice. Corn remains unchanged at just little more than one and a half months.

            With respect to the soybeans, the global number of days’ supply did increase by 2 to a level of 67 and represents the third largest over the past eleven years. The domestic days' supply increased 5 days to a level of 31 vs. last year’s near record level low of just over than two weeks. The present domestic increase of 14 days pales in comparison to the 26 day increase from 2004/05 to the 57 day cushion in 2005/06.

            All world veg-oils increased by 3 days in the past month and remain 2 days less cushion vs. last year’s levels and hold an eleven year average of 31 days.

            Allendale, Inc remains optimistic for corn use but that wheat still has the darkest of black clouds overhead. Until the economic times permit less wheat supply (we would love to see an increase in wheat demand), corn, rice and soybeans are likely to experience tempered usage.

 

 

 

 

 

 

Allendale, Inc. strongly advises to cash forward your corn, sell the soybeans off the combine and utilize the “present” tradable markets. We understand the pace of the 2009 corn and soybeans harvest and 2009 winter wheat plantings are slower than normal. Allendale cannot find a year since 1985 when harvest of corn and soybeans has been as slow as this year. This year’s corn harvest is running 65% behind the five year average with soybeans down 42%. Winter wheat plantings are running 13% behind and are skewed hard based on a few states which are battling rain to remove corn and soybeans. We need to mention Allendale will publish its official lower winter wheat planting estimate on January 23^rd, 2010. The delayed harvest is fundamentally supportive to the soybean and corn futures, not cash, but only to a degree with the contra-seasonal rally primarily coming from the outside markets.

 

Take a serious look at the following chart to view a commodity which has rallied 36.8% from its recent low to high, yes more than a third.

Now look at another commodity chart which has rallied 25.1% from recent low to high and it may be difficult to ascertain the difference between the two commodities but both have been in an uptrend for more than a month.

The list is endless when it comes to the commodities which have experienced a rally but they do include some of the following; crude oil up 25.1%, corn up 36.8%, soybeans up 17.1%, wheat up 31.1%, cotton up 21.9%, coffee up 20.8% and cocoa up an astonishing 61.1%! Let us not forget the base metal tangible assets of silver up 15.3%, copper up 16.2%, gold making new highs of 9.9% and the seasonal lumber of 18.7%.

 

What do all have in common? They are tangible assets which investors are securing as a hedge against inflation and you need to take advantage of both from a trading and cash grain standpoint. Each farming enterprise has its unique, fixed cost. However, in this particular case, we will use central Illinois where there is zero cash carry for the soybeans. As of today, the cash price of soybeans is $9.80/bushel vs $9.85/bushel for delivery in the month of January. The interest alone from early Nov to the first of Jan 2010 is 13.6 cents per bushel for soybeans and the cash market is only offering 5 cents for a sum loss of 8.6 cents per bushel. For corn the cash market is offering 7 cents from today until the first week of Jan and it will cost you 6.8 cents per bushel to store the corn. You have managed to make enough money to fully pay for the corn plus add to your merchandizing revenue. Based on Allendale’s seasonal research, we understand the corn futures can rally 9.5% into the month of March. The cash bid for March 2010 is 28 cents better than Nov for a per month increase of 5.6 cents and would more than cover the per month cost to store.

           

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