Allendale Inc is not surprised by recent CBOT floor trade discussion regarding the potential for 2008/09 old crop soybean stocks to approach 75-77 million bushels. Within the last month nearly daily discussion took place of the eroding Argentina soybean crop, but with its harvest more than 90% complete and present Buenos Aires Grain Exchange production estimate of 32.8 million tonnes, it appears as though soybean bulls have switched pastures from Argentina to the US.

            Presently USDA is forecasting 2008/09 end stocks of 130 million bushels which compares to its month of April estimate of 165 million bushel and year ago May estimate of 145 million bushels.

            Allendale Inc would like to explore the potential for USDA to drop old crop soybean end stocks below 100 million bushels, let alone down to a level of 75-77 million bushels. If history is a good teacher we may only have to venture back to just last year as an example of what tactics measures USDA may utilize in order to keep projected days of supply above the existing 16 which mirrors 2003-04 (see graph).

            We can look back to the April 2008 WASDE to see just how quickly USDA was able to find an extra 77 million bushel of soybeans by reducing soybean residual use. Residual use may be defined as “reflects handling losses, on-farm extrusion of soybeans, and a statistical error term. Not only was USDA capable of discovering 77 million bushels of soybeans in its April WASDE to help offset the 55 million bushel of increased exports and 5 million bushels for crush, it went a step further in its July WASDE to post a negative 35 million bushel of soybean residual. USDA’s reasoning was for the -35 million bushels was the June 1, 2008 quarterly soybean stocks indicated a below average residual.

            There you have it, simply stated USDA was able to discover an extra 113 million bushels of soybean supply within its “residual use” accounting column to possibly ensure soybean end stocks would not slide below 100 million bushels.

            You may find it interesting, USDA presently has a rather “ripe” 73 million bushels of soybean residual use factored into the present balance sheet, just ready for its picking. The question is, just when could USDA harvest this particular residual? Will USDA hold out until the July WASDE, after its June quarterly stocks report or discover less soybeans were lost during handling, or on farm extrusion or chalk it up to an oversight statistical error, sooner? Remember, less than a year ago USDA was able to discover an extra 113 million bushels of soybean and if USDA decides to go statistically negative once more in 2009, may have room to discover as much as 109 million bushels at the stroke of a pen.

            Questions remain, could USDA find the magic necessary to ensure adequate old crop end stocks within the next month or two? How could its decision impact your old crop and for that fact new crop marketing, or investment strategies?..........Joe Victor

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

e-mail    research@allendale-inc.com

 

 

 

Allendale Inc is well aware of the latest corn planting progress report suggesting 48% of the 2009 corn acres are planted vs a year earlier progress of 48% and a five year average of 71%. At first blush this year’s progress may appear as less than alarming when compared to year earlier levels and aware the 2008 corn yield at 153.9 bushels per acre was the second largest dating back to 1999.

            However the nation’s second largest corn producing state of Illinois is entering a cross roads period of the planting season as it continues well below its recent historical pace. At no time dating back to 1999 has the states pace of planting been as far behind as it presently struggles with.

            As you are able to view via the chart, Illinois pace of planting at 10% (May 10^th) is more than a third off its weakest campaign of 2002 and 59% below the state average dating back to 1999. At 10% planted it compares to the 1993 Midwest flood year of 4%. Neighboring Indiana, typically the Midwest’s fifth largest corn producing state is a meager 11% planted and finding it difficult to put two consecutive days of planting in a weeks worth of time. Rains this week, mid and late are likely to continue delays and frustration.

            How long could it take to “catch-up” to projected targeted 2009 planted acres for Illinois and Indiana? The answer is there may not be enough time on the calendar. Estimating Illinois has 10.98 million acres remaining to be planted and Indiana has slightly more than 5 million acres, it will likely take Illinois more than four and a half weeks and Indiana slightly more than two weeks, IF it stops raining. 
          Allendale Inc finds it extremely interesting the USDA has already reduced yield potential for 2009 corn production as a result of the slow planting pace but did not adjust projected planted acres. Allendale Inc suggest both yield and acres need to be reduced in the month of June WASDE. By reducing trend yield potential for 2009 via the May WASDE, the futures market reaction was one of surprise to see projected end stocks of 1.145 billion bushels, 28.5% lower than 2008/09 end stocks. What if USDA has a repeat performance up its sleeve of its actions one year ago and ignores the 48% planting progress, increases acres planted as they did in the June 2008 Planted acres report by 1.3 million (five year average increase has been 1.74% increase), reduce yield from 153.9 to 148.9 from May to June WASDE, and then again from June to July WASDE by another .5 bu/acre. Then the major surprise of a yield increase from July to Aug of 6.6 bpa then retrace by 2.7 bpa into the Sept WASDE. It was not until the October 2008 WASDE when USDA decided to reduce planted acres to 85.9 million vs its earlier forecast. Needless to say, some very interesting adjustments through the heart of the 2008 summer growing season.

            USDA is presently estimating yield of 155.4 bpa on 85 million acres and suggest 1.145 billion bu of end stocks. If USDA were to use a similar yield reduction from the May to June WASDE as it did a year earlier, look for end stocks to shrink by 35% to a level of 752 million bushel.

            What are your thoughts regarding the pace of planting? Are you switching full season corn varieties to a shorter season? Are you preparing to switch from corn acres to soybeans or does the gross per acre still favor a fight for corn acres? Do you have your 2009 marketing plan in place, with room for price action adjustment? Contact an Allendale representative for a marketing plan comparison utilizing risk management alternatives.

 

If you should have questions, please contact an Allendale representative 800 551 4626……Joe Victor

 

Allendale Inc is well aware of the latest hot topics such as dwindling Argentina soybean production, China demand and the technical bull spreading of old crop futures (July & August) vs new crop (September? & November).

             However rather than dwell on what the trade has been recycling for weeks, lets look for opportunity elsewhere within the soybean futures.

            Allendale may have discovered an opportunity within the back month futures in the form of the January 2010 futures vs the November 2009 spread. Allendale has researched the bear spread dating back to 2002 and discovered the heavy favorable odds for the spread to build greater carry within a very important time frame which must be followed. The time frame measured is from early month of May to early month of September.

            We have discovered of the most recent seven years, the January futures gained on the November futures six times! Only in the 2002/03 spread did the spread lose 2 cents from when the spread was excited vs when it was initially entered and during the time the spread was working the amount of pressure reached a peak of 7.5 cents.

            In six of the seven years the spread was activated in early May and excited in early September, the spread appreciated an average of 6 cents, with a range gain of +4 to +8 cents. In the six years when the bear spread worked the average amount of pressure during the May-Sept time frame has been 2 cents with a range of +1 to +3 cents. Allendale anticipates with average pace of planting and growing for the 2009 crop new crop stocks are projected to be 376 million bushels and likely have a need to build additional carry (futures market means to store the crop) into the January futures vs the November.

            Allendale Inc recommends to buy the January 2010 soybean futures and sell the 2009 November futures as a spread immediately and hold until early Sept 2009.

            What are your thoughts regarding this particular soybean spread? Are there additional reasons to support this spread idea or reasons why you would not active either fundamentally or technically. Is the risk to reward of interest?

 

If you should have questions regarding the spread, please contact an Allendale representative 800 551 4626……Joe Victor