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THE ALLENDALE ADVISORY REPORT
Prepared by Allendale, Inc.
Commodity Wrap-Up For January 12, 2001
World End Stocks
No major adjustments in corn, beans and or wheat. A couple of surprises you may want to consider headed into the February report. They are USDA did not increase the size of the Brazil or Argentine soybean crops and our sources indicate the early growth potential is very good. The other surprise is the major importers of soybeans was left unchanged which could lead they way to a quicker exchange of the passing of the baton on export sales from the U.S. to South America and a potentially larger soybean crop in China for 2001. The slant on soybeans appears to be weakening.
Winter Wheat Seedings
Came in below the low end of the pre-release trade range. They came in 5% below last year's level and USDA has now successfully carved what could be the sixth year in a row of consecutive lower wheat acres. The 41.3 million acres USDA suggest planted is the lowest level since 1971 when only 38.072 million acres were planted. A bit of a surprise is the estimate Kansas has planted 1% more wheat for 2001 production than they did a year earlier. Oklahoma and Texas not up to par versus last year. The weak acreage could be the shot heard around the world and grab competitive countries attention. However with the export sales of 17% weaker than the five-year average, this took some of the show room smell out of what could have been a great high performance vehicle. As mentioned last night wheat spreads continue to suggest storing wheat pays good money and only until the snow melts and wheat comes out of dormancy, the trade could be in for a rude awaking when the stand looks pale in comparison to years past. Even though the wheat went into dormancy better than year ago levels, it has been under some adverse weather. The near-term slant should be sideways to higher. The most recent data USDA has to offer indicates the March prospective plantings are typically 2% to 4% less than the final Acreage report and the June Planted Acreage report is 1% to 2% less than the final Acreage report.
Quarterly Grain Stocks
Corn; they are bigger than a year ago by 6% and it doesn't help matters on farm stocks are 7% larger than a year ago and elevator stocks are 4% larger. Another knock against the corn is the stocks as of December 1, 2000 are the highest level since 1987. Soybeans; are also bigger by 3% than year-ago levels and on farm stocks are 6% bigger than last year and off farm stocks are 1% weaker than year-ago levels. For the next 30 days this news regarding off farm stocks could keep basis levels healthy. Wheat stocks are down 4% from year-ago levels, with on farm stocks down 4% versus year-ago levels and 5% less for the off farm. The quarterly stocks situation could be short-term positive for basis and cash levels in the beans and wheat but over all could push basis levels back as ice makes way for clear water later February into March and April.
Production
The annual Production report for corn was a little larger than what the trade anticipated and 6% higher than year-ago levels. USDA suggest crop yields were down from November estimate in the heart of the Midwest and in the central and southern Plains, but even with all of the dry weather in the West, the recorded yield/acre of 137.1 is the second highest on record. Accompany this crop with such a bad export campaign and some of the stuffing could have been rightly pulled out of its most recent rally. The USDA did lower exports by 50 million bushels to a level of 2.150 billion bushels. Export potential at 2.150 now represents 21.5% of the 2000 crop annual production. We estimate the February report could show a further pull back in 2001 old-crop exports. Even with the colder weather corn feeding dropped from 5.85 billion bushels to 5.775 billion bushels. With the coldest weather of the year possibly behind us, we may have seen the largest feeding number of the year. Overall USDA increased end stocks 52 million bushels versus the last report. However, as long as the trade is willing to support the idea of an acreage switch away from corn over to the soybeans due to high NH3 prices this spring, their could be an attraction back up to the 50% retracement level of 2390 to 2400 for the March corn futures. Talk of dryer than last year subsoil levels in the west Corn Belt could propel December '01 futures back up to the recent highs. Funds as well as locals managed to take out last week's lows in the corn and could be headed for a small gap in the December chart of 2532. Consolidative support of 2490 could hold and offer a spot to use bull call spreads to head back up to the 2620 area. We have added new buy recommendations for March and December corn.
Soybean Production
Soybean production ends up 4% higher than 1999 and does represent this countries largest soybean crop ever. The 38.1 bushels/acre yield is 1.5 bushels/acre larger than 1999. Projected end stocks are as unchanged from last month to this month as well as the average price range of $4.50 to $5.00. Iowa and Nebraska certainly did end up with weaker soybean production and could support the seed companies theory that ample supplies of good germinating soybean seed could be hard to come by unless it is imported from the larger producing than last year states of South Dakota, Missouri, Illinois, and Indiana! Once again the soybean production in South American could be huge. Technically damage has been done to the soybean chart and the small round of short covering leaves the trade very leery of trying to pick a low. A violation of Thursday's low could send futures down to life of contract lows. The lower futures the past 48 hours has shown some positive effect on basis levels at the Gulf which could domino the interior to be more competitive with their basis levels. Due to the timely more than adequate rains in South American soybean country we were able to reach our objective on our short calls and will now look to sell a March soymeal call on a correction. Consider selling a rally in the futures up against the old support levels. If you need to sell cash use the same rules in as we use in the corn, when basis and futures are trending positive and add one which is when the spread is closer to 10 cents rather than the 15-cent level. You should happen to notice the basis levels should be a little more aggressive when the spread is nearer the 10-cent level.
January 12, 2001 Joe Victor Allendale, Inc. 4506 Prime Parkway, McHenry, Illinois 800-262-7538
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