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Agricultural Markets Update by Futures Magazine
08 Jul 2008 at 09:30 AM GMT-04:00 CHICAGO

http://www.resourceinvestor.com/pebble.asp?relid=44174

Technicals: For the short - term trader, Allendale uses its own unique custom Moving Averages (MA) to monitor price momentum, define key support and resistance levels as well as advise where key pivot points are located when bulls may turn bearish and bears to turn bulls. We also include last week ' s closing price for the weekly chartist as we draw closer to the end of the week to anticipate the possibility for futures to have a positive weekly close or if weakness is ensuing. A detailed technical look at the grains and livestock are available within our Allendale Advanced Charts.

Conclusion: As stated at the close of trade on Thursday July 3, of the corn, soybeans and wheat, it was the corn and then the CBOT and KCBT wheat futures that were most vulnerable to breech technical support. Sure enough , corn and wheat crashed through what was support on Monday and now the respective #1 and #2 MA s are viewed as overhead technical resistance.

Corn Condition: The National Agriculture Statistics Service released its sixth crop conditions report for the 2008 corn crop. Pre release estimates suggested good-to-excellent corn conditions to come in a range of 62 % to 64%. NASS estimates the July 6 conditions at 62% vs. last week ’ s 61% and year earlier levels of 70% good-to-excellent and a five-year average of 67%. Based on Corn Condition graphic in our Special Reports section within our internet site, the five-year average has shown conditions sliding for the next nine weeks.

However, the conditions have slide from relatively high levels and it may be difficult to make a great crop greater. One must also consider how difficult it may be to make a poor crop poorer. Allendale suggest crop conditions to improve throughout most of this week based on private and public weather forecast calling for beneficial weather and an absence of any ridge building late this week. However preliminary forecast suggest a longer lasting ridge may begin by the middle of next week.

Conclusion: provided NASS's results above compared to pre release estimates, Allendale views Monday release as neutral for Dec corn futures.

Soybean Condition: the National Agriculture Statistics Service released its fifth crop conditions report for the 2008 soybean crop. Pre release estimates suggested good-to-excellent soybean conditions to come in a range of 59 to 63%. NASS estimates the July 6 good-to-excellent conditions at 59% vs. last weeks 58%, year earlier levels of 65% good-to-excellent and a five-year average of 63%.

Conclusion: Provided NASS's results above compared to pre release estimates, Allendale views Monday's releases as neutral to November soybean futures.

Spring Wheat Conditions: USDA estimates spring wheat good - to - excellence ratings are 69% vs. week earlier levels of 74% vs. year earlier levels of 78% good-to-excellent . Allendale views this spring wheat crop condition report as bullish to Sept ember MGEX futures. As stated above in the corn section above, potentially an instance of making it difficult to make a great crop greater.

Winter Wheat Harvest: The 18 states that made up 90% of the 2007 winter wheat acreage is collectively estimated to have 52% of the 2008 winter wheat crop harvested vs. 36% a week earlier, 53% a year earlier and 61% for its five-year average . Southern Plains weather forecast s suggest frequent rains much of this week creating harvest delays. This forecast could help to fundamentally support winter wheat futures. Also be aware weather reports for southern Russia suggest grain harvest delays this week. At this juncture, weather is not expected to be extreme enough to create quality issues. Allendale views the present pace of harvest for winter wheat report as neutral to futures.

July 4 Factoid: Since 1980, corn futures have experienced three limit moves on the first trade day after July 4. Two were limit down moves and one was a limit up move. I n one limit down move, the top had already been put in on June 20 , while in the other year July 2 was the high for the year. Of the one limit up move , the next trade day , July 6 , marked the high for the year.

Memphis , TN : Before noon on Monday , a research firm from Memphis , TN estimates corn yield at 152 bushels per acre (b/a) and total corn production at 12.002 billion bushels vs. USDA's most recent 148.9 b/ a and 11.735 billion bushels. The same firm estimates soybean yield at 41.9 b/ a and total U . S . soybean production at 3.019 billion bushels vs. USDA's most recent 42.1 b / a and 3.105 billion bushels. The question is asked, could corn yield have increased vs. the June 10 WASDE report ? I n a word, yes ; b ut by 3.1 b/ a in less than one month given the slow emergence, may be a stretch. Allendale will release its estimates on Tuesday for the upcoming July 11 USDA crop production report. Our earliest expectations are for a slight increase in corn yield.

Corn Fundamentals: Weather is presently viewed as bearish to futures as well as additional signs of rationing for the livestock and corn processing sector. Also bearish to corn as indicated in a variety of other agriculture commodities weakness such as cotton, cocoa, sugar and coffee is concern of any CFTC action on speculative trade. Bullish to corn is projections implying only a 19 - day supply of corn after demand is met for 2008/ 20 09, a historic low level dating back to 1999/2000.

Trade Posture: Fundamentally Allendale remains bullish to corn futures. Allendale will likely remain bullish into the initial stages of 2008 pollination. As viewed within our Allendale Advanced charts, Dec corn may be forming a Head - and - Shoulders top , but at this point has technical sup port at the 7356 level and 50% retracement at 6994.

Soybean Fundamentals: Argentina 's lower Congress deflated the hopes of the farm groups in Argentina as it passed a vote to exercise increased export tariffs on the country's soybeans. The farm groups now suggest they will seek the support of the country's Senate and possibly Supreme Court. Most likely after the recent vote, farmers are expected to resume road blocks and continue to push demand away from Argentina and to Brazil and the U nited S tates . Immediate weather forecast for this week is viewed as bearish to soybeans. Bullish to soybeans are Allendale's end stock projections for 2008/ 20 09 of just 66 million bushels vs. present old crop stocks less than 125 million bushels.

Trade Posture: Interesting to note is how today ’ s limit down move places short- term moving averages on the day ’ s low. Our Allendale Advanced Charts point to resistance of 15366 and even with a limit down move in futures maintains a long term up trend level of support.

Wheat Fundamentals: This week ’ s forecast is viewed as creating delays for the hard red winter wheat harvest. Weakness in wheat on Monday is likely attached to the weakness in corn futures. Of very important interest is how wheat futures were able to close off limit on Monday and may be used as the ray of light for a relatively quick bottom for corn. However , be aware at the close of trade on Monday, CBOT floor traders suggest corn is still very much the leader for wheat's fate. Synthetic Dec corn futures suggest a value of 7250 or 22 ¢ less than where futures closed today. Wheat continues to compete with corn as a livestock feed. Four weeks into the 2008/ 20 09 marketing year, wheat inspections are 7% higher than year earlier levels.

Trade Posture: Technicals have turned from neutral to bearish. Fundamental issues such as harvest progress, neutral and a 5% decline to spring wheat futures viewed as bullish may only briefly be able to hold wheat futures from further declines.

After the Dust Settled: At the close of the side - by - side CBOT trade session on Monday , floor trade estimates suggest funds in number of contracts sold : 4,000 wheat, 6,000 contracts of corn, 3,000 soybeans, 2,000 soybean meal and 3,000 soybean oil. Allendale's view is the price action on Monday may have implied a much worse case of selling.

Lean Hogs: In the first three weeks of June, all we have solid info on, the weekly sow kill was +8%, +12%, and +17% over previous year levels. It is clear hog producers started reacting to higher corn prices. Now that corn prices fell hard , will they keep the same enthusiasm ? So far we have not seen the liquidation needed to support the premiums in mid 2009 contracts. We have argued in recent days we look for cash hog and pork markets to stabilize soon. The CME Group trading indicators we follow (volume and open interest) have so far not backed up those expectations. Instead of an outright long on August here we will keep trading simple and work on the August/October spread. We remain bearish deferreds and have a price target of $65 for the December. For hedging we have the green light to add 2009 contracts to our hedge portfolio but are not pulling the trigger yet.

R-Calf Brings Up Old Business: USDA has been ordered to reopen the public comment period relating to last fall's decision allow imports of Canadian beef and live cattle. R-Calf had been unsuccessful in its bid to stop imports of Canadian beef and cattle. A recent lawsuit was successful in arguing USDA did not have an adequate comment period. Keep in mind this is not saying we will stop importing Canadian beef and cattle, only that they did not have a long enough comment period.

Live Cattle: Steep losses in corn, crude oil, and gold all helped trigger fears of a commodity sell off. This affects live cattle in two ways. The idea is sharply lower corn prices may make the drop in placements not as severe and therefore a few more lbs of beef in a few months. The other way is indirectly in the form of commodity buyers. We have argued around half the premiums in this market are correctly due to fundamentals. The other half is likely due to general commodity buying. Have cattle topped and will commodity buyers drain money out of this market? At this time we will assume the big money will be harder to knock of this market. We could see a lower open tomorrow based on an expected lower corn open but at this time cannot call a top in live cattle futures.

Joe Victor and Rich Nelson
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www.allendale-inc.com