Corn Fundamentals: news of Pilgrim's Pride closing a North Carolina facility has created a stir within the commodity investment sector suggesting domestic demand for feed use could suffer if other poultry units are shuttered or spills into the livestock sector. Since the beginning of the present marketing year, usage for feed and ethanol have slipped only to find the demand showing up in the export sector. Best-case scenario is as long as the US dollar remains on the slide, look for feed and ethanol use to appear in the form of exports. Worst-case scenario would be to have the dollar rally and pinch exports and allow S America to capture it.
Trade Posture: Long term Allendale remains bullish to old and new crop given our outlook for reduced corn plantings in the spring of 2008. Allendale bought July corn futures on strong performing fundamental demand and supportive technicals.
Soybean Fundamentals: Bearish to futures is China suggesting it may release additional state stocks of vegetable oils to help tame its food inflation. Bullish to futures is China's plans to increase the number and quantity of products held in state food reserves to ensure the adequate supply of grains, meats and cooking oils. China's reserves need to rebuild after bouts with livestock disease and bad weather. Bullish to soybean futures is tightening old crop stocks as a result of positive crusher margins and active exports of soybeans and soybean oil. Bearish to soybean futures is the Brazil's record soybean crop and faster than five-year average harvest pace.
Trade Posture: Allendale is bullish to soybean, soybean meal and soybean oil futures based on firm domestic fundamentals. Allendale has written fresh orders to buy soybeans, meal and soyoil on a stop above technical resistance.
Wheat Fundamentals: the American Bakers Association marched on Washington DC Wednesday and has plans to meet with USDA officials on Thursday. Most surprising is the talk of an export ban by the ABA have apparently materialized into the ABA suggesting it does not seek a ban, but wants to "examine USDA programs". Remaining on the ABA wish list is bringing less erodible CRP acres into production (6-7 million acres of 36 million total) and greater flexibility on federal ethanol mandates. USDA should give priority to the needs of the domestic food industry when supplies of wheat drop below the three-month stocks average. The last time a three month supply was available was 2005/06 marketing year when stocks to use were 26.5% and a season average farm price of $3.42 per bushel. The US farmer manages production risk via the use of futures and options. Allendale suggests end users may be able to manage input risk via the use of futures and options rather than try to manipulate farm policy.
Trade Posture: Technically the new crop trend is up for KCBT and CBOT. Our long objective for KCBT July wheat was achieved on Tuesday. Long term, Allendale remains supportive to new crop wheat futures based on how weak 2008 winter wheat conditions went into dormancy. Allendale is technically bearish to MGEX July wheat futures.
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