There is early discussion in the corn industry that the recent price break in corn could be more beneficial for feeder cattle versus ethanol production. As corn and ethanol prices are breaking lower, it may be increasingly difficult for ethanol companies to show improving profit margins where as for feeder cattle futures moving higher may be able to pencil in improving margins. The EPA may not have to make a decision to cut the 2008 ethanol mandate of 9 billion gallons in half as requested by the Texas Governor as long as margins remain constricting for ethanol. Allendale is presently researching hard number's to see if in fact these early ideas hold merit.
Fundamentally Allendale remains long term bullish to corn on tight stocks-to-use for both domestic corn and total world grain stocks. Short-term beneficial weather and the end to the Argentina farmer strike pressure corn, soybeans and soybean products. Allendale respects improving crop conditions, however crops conditions at the present stage of growth may not likely be a true indicator of impending yield. USDA is expected to adjust in its August 12 WASDE harvested corn acres lower as a more complete survey of early June's Midwest floods may be completed.
Bearish to soybeans is while open interest in corn has fallen by more than half over the most recent five weeks, soybeans have trimmed its open interest by only 25%. The trade remains nervous that soybean futures may have yet to experience similar liquidation like the corn has. The trigger for such trimming very well could be more apparent in approximately 10 days. It is then when extended precipitation maps may provide a hint as the whether rains could be sufficient for pod fill for the second and third week of August. Be aware, the trade anticipated thoughts are present weather patterns remind them of 2004 when yield was increased from 38.5 to 42 bushels per acre after beneficial rains fell in the month of August. Bullish to beans is the fact both domestic and world stocks-to-use remain tight. US soybean inspections, sales and shipments do not carry the same positive performance year on year, which corn and wheat presently hold.
Allendale remains long term bullish to soybeans as 2008/09 ending stocks are estimated at 140 million bushels and has an ending stocks-to-use of 4.7% versus old crop stocks-to-use at a record low of 4.1%. Allendale is a willing buyer of soybeans, but at a level suggested by a potential existing head and shoulders formation. See our Grain Trading Strategies page for entry, risk and objective levels
Wheat is short term technically bearish. To turn trader momentum to neutral a close above 8500 versus the December CBOT SRWW futures is needed. Bearish to wheat is improving weather for number 4 world exporter Australia and number 6 world exporter Argentina. Bullish to wheat is the weaning of seasonal harvest pressure on CBOT and KCBT wheat futures and strengthening spread activity for wheat versus corn. Positive news for the wheat is the 21% increase year to year wheat inspections, 27% increase year on year export sales and 18% year on year export shipments, a healthy tender line up and cooperative harvest weather helping to ensure high quality milling wheat. World ending stocks-to-use of 17.3%, representing the second tightest levels dating back to 1980 and second only to 2007. Despite the tremendous weakness in neighboring corn and soybean trade pits, wheat is performing well on its own. Technical indicators are currently bearish. While wheat fundamentals are mainly neutral and trying to turning bullish. Allendale is willing to buy wheat on penetration of overhead technical resistance.
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