AG INVESTOR
Prepared by North Star Commodity Investment Company
Fundamental Factors
World Weather Update
(May 19, 2000) China: Some much needed rain fell last week in Eastern China, but they have turned warm and dry and the rain was not enough to reverse the situation. Forecasts predict rain for this area late next week. Some yield loss can be expected for the wheat crop, but there is still plenty of time to help corn and soybean crops.
Australia: After receiving heavy rains earlier in the year it is now becoming quite dry as winter wheat seeding begins to take place. Rainfall is needed soon or germination problems will develop.
India: The northern regions remain in a severe drought. The monsoon season begins in late May and lasts through July. It will be very important for this area to have a good monsoon season or crop losses will occur. India relies on the monsoon to recharge their reservoirs so they can irrigate their crops from August through January.
United States: After a week of torrential rainfall across the Midwest, parts of this region may experience the wettest drought in history. The big winners this past week were Minnesota, Northern Illinois, Indiana and Iowa. Less than expected rainfall fell in central Illinois, western Iowa, eastern Nebraska and most of Missouri. Too much rain fell in Wisconsin, Michigan and northwest Ohio. Corn and soybean planting in this region has been delayed. Replanting of some fields can also be expected. The Southeast continues to suffer from lack of rain and hot weather. It will take an extended period of hot weather to support grain prices.
Europe: Near ideal conditions continue for this region.
Frost Damage?
Cold weather last weekend in the western areas of Nebraska and Colorado may have reduced hard red wheat production. Agronomists in Colorado and Nebraska report some fields were exposed to 25 to 31 degree temperatures. The cold snap hit the region when wheat fields were in the flowering stage. Cool, wet weather during the next 10 days is needed to help prevent further stress. On Friday, hot and dry weather is in the forecast for the region. This may cause further stress and reduce yield potential. Major swings in weather patterns are also ideal for disease problems to develop.
Corn Strategy Update
LDPs were taken last fall on 100% of the corn and cash corn sales were pushed to 60% to 75% the week of May 5th. With the hard down in corn and soybean futures this week, we received many calls from customers who had not made the old crop corn and soybean sales we previously suggested on the recent rally. For those producers or farmers who want to increase sales here are two alternatives to consider. First make sure your offers are in place to get 75% sold if July CBOT corn rallies back to $2.55 or higher. The last 25% would be sold either when July CBOT corn hits $2.70 or during the middle of June. The other alternative is to sell 20% of your crop each week for the next five weeks.
Soybean Strategy Update
Soybean LDPs were all taken last fall and on the rally above $5.70 the week of May 5 th cash sales were brought to 60% to 75%. Soybean prices are now down about 35 cents from the highs made two weeks ago and down 25 cents from our last sale recommendations. If you missed that sale recommendation or now want to increase sales, here are two alternatives to consider. First make sure that you have offers in to go to 75% sold if July soybeans rally back to $5.70 or higher.
The final sale would be made at $6.10 in the July CBOT soybeans or during the middle of June. Make sure your offers are in place! The other alternative is to sell 20% of the soybean crop each week for the next five weeks making your sale on the day when futures are higher. Storing cash soybeans into July is almost always a mistake, even in drought years. If you still believe the drought hype in late June, then hold calls.
CRB Update
Higher energy futures, strong sugar, strong coffee and strong cocoa prices rallied the cash CRB to new highs for 2000. One of the positive factors for grain prices this week was the ability of the CRB to trade sideways to higher on the days when the corn and soybean market fell sharply lower. The next objective on the CRB is at 224 to 232 with a seasonal high due by mid-June. With higher energy prices and higher interest expenses, the cost of farming will be up substantially over the next 12 months. The pattern is bullish for commodity prices but odds are good that prices will setback some time into August to October 2000 when the next low is due.
Analysis And Strategy
CORN: Good rains in the western Corn Belt and forecasts for cool, wet weather dropped prices sharply lower into mid week. Good commercial demand and changing forecasts (get used to it) helped prices stabilize into the close today and gain back some of the losses incurred earlier this week. Nearby corn was down $0.05 _ per bushel for the week. Chart analysis shows July corn putting in an important 55-day low during Monday, Tuesday or Wednesday at $2.32. That level offers major support and the high of $2.58 on May 3 rd , 2000 will be resistance. Support for December corn is at $2.50 with resistance at $2.72.
Strategy--Producers locked in 100% of the LDP last fall, gaining $0.26 to $0.41 per bushel. At the same time, 50% of that corn was forward sold into March, June and July 2000. Producers with corn under loan locked in their buyback using form 697 on January 3 rd , 2000. At least 50% of that corn was then sold ahead. The price target to go to 60% to 75% sold was hit the week of May 5 th when July CBOT corn rallied up above $2.53 to $2.55. If you missed making that sale, make sure you have resting offers in place. The market may give you a second chance. Do not miss it again. Make sure you are a minimum 75% sold if prices get back to $2.53. Time cycles suggest a possible top within the next two weeks.
New Crop--Producers who need to sell right off the combine have made two sales at 10% when December CBOT corn hit $2.48 and an additional 10% at $2.55. The target to make another sale at $2.72 was hit the week of May 5 th . Producers should be 10% to 30% forward sold depending on your storage and current crop outlook.
SOYBEANS: Good weekend rains in the western Corn Belt and forecasts for major rains in dry areas dropped soybean futures sharply lower early this week. Aggressive buying again surfaced from China and rainfall amounts were less than anticipated. The net result was a late week rally with nearby soybeans closing $0.10 _ lower than last week. The low at $5.36 ½ is now major support with resistance at $5.80. Support for November soybeans is at $5.46 with resistance at $5.90.
Strategy--Farmers took $0.94 to $0.98 per bushel LDP on 100% of their 1999 crop soybeans last fall and then forward sold 50% of those soybeans. Producers with soybeans under loan were advised to sign form 697 on January 3 rd and forward price 50% of those soybeans. The first price target to sell 10% to 25% of the 1999 soybean crop was hit the week of May 5 th when July futures rallied above $5.70.
Replacement-If you are long 50% to 100% of your crop holding cash, call options or futures, you should have cashed in 25% to 50% of those positions when July soybeans rallied above $5.70. With the time of year and improved moisture situation, producers should get a minimum 75% sold if July CBOT soybeans can rally back above $5.70. The next price target is at $5.90.
New Crop--No sales are recommended. Most farmers can not sell ahead at a price that is above their new crop loan. The first price target we have for off-the-combine sales is the $5.90 November futures with additional sales at $6.10. If the $6.10 target on November soybeans is hit sales should be at 10% to 30%.
SOYBEAN MEAL: Sharply lower soybean prices pulled meal futures lower this week. After the recent $20 rally, prices were overbought on the daily and weekly charts with key support now at $180. Two closes below $180 suggests a down move to $165 to $170. Look for resistance at last week's high. The long-term trend is for higher meal prices. Two closes above $191 will open the door for a test of the $200 to $205 price level.
Strategy--Livestock feeders have meal bought ahead through December 2000 on earlier recommendations with gains of $10 to $15 per ton. Stay long.
SOYBEAN OIL: July soybean oil futures dropped down this week to test support at $16.50 before rallying back into the close. July oil closed $0.29 lower for the week. Look for good support at this week's low. Major resistance is at $19.00. Nearby oil took out support at $18.00, so this will now be short-term resistance.
Strategy--Cash sunflower sales should be at 75%. We do not recommend any additional cash sunflower sales at this time.
WHEAT: Improved crop conditions for the hard red spring wheat crop and sharply lower corn and soybean prices pulled wheat prices lower as well. Futures gave back about 50% of the recent rally on the wheat continuation chart. Look for good support three to five cents lower with resistance at last week's high. Short-term time cycle analysis suggests a possible low May 30 th to June 1 st . Watch for a Friday-to-Friday higher close to suggest a short-term low. We do not recommend any sales at this time. Odds favor higher prices late June.
Strategy--Wheat producers should have taken 100% of the wheat LDP last August and September. Cash wheat sales should be at 50%. No additional cash sales are recommended at this time. The first price target we have is at $3.50 for May MGE wheat with the best chance of hitting that price during late June. The first price target for new crop is at $3.80 Minneapolis September wheat futures.
HOGS: The cash market remains in a major sideways pattern with support at $46.00 and resistance at $52.00. Pork product prices also remain weak, which is a sign of poor demand. The grill season officially kicks off next week starting with Memorial Day weekend. The monthly Cold Storage Report shows pork supplies have decreased slightly, but supplies still appear to be more than adequate. The weekly slaughter weights averaged a record 264 pounds for the third consecutive week. We look for a decline in slaughter numbers to begin increasing in another month. Technically, nearby futures closed lower for the week, but prices are approaching short-term support. The daily continuation chart formed a gap when June futures became the lead contract back in April. The markets first price objective is to fill this gap at $68.40. If this does not hold, look for major support at $63.00 to $64.00. The individual charts show prices trading down to their long-term, uptrend line. In the big scope of the market, we believe the global equity situation has changed and that the highs are in for the year. We do not expect a major collapse in prices, but the odds of seeing $55.00 cash hogs this summer appears remote.
Strategy--Maintain put protection. Profit levels are still very good. Cash prices have not changed that much in the past two weeks.
CATTLE: The box beef price remains quite strong with prices up at $77.00. The cash market is trading between $70.00 to $72.00 and will likely drift lower in the months ahead. The futures market is trading at a $2.00 discount to cash and a $9.00 discount to beef cutout values. The Cattle on Feed Report was viewed as slightly negative. The marketing number was lower than expected and the placement number higher than expected. The monthly Cold Storage Report shows beef supplies continue to increase as higher prices are slowly cutting into demand. The only positive figure this week was another four-pound decline in weekly slaughter weights. Technically, nearby cattle closed slightly higher for the week. The current price action in livestock suggests this market has lost its upside momentum. The market will be very weather sensitive. A return to hot, dry weather could lead to even lower prices. Major support is at $68.00 with nearby resistance at $70.50. The short-term trend is sideways to lower.
Strategy--Stay with the put options and do not buy any feeder cattle for another month.
Time Cycles Suggest Important Lows
July CBOT corn chart analysis shows new contract highs or new highs for this year when prices rallied up to $2.58 on May 3 rd . Futures fell hard this week into the important low at $2.32. That level now offers critical support with resistance at $2.55 to $2.58. If you missed the earlier sale recommendation at $2.53 to $2.58, make sure your offers are in there now. If hot and dry conditions develop and the high at $2.58 is taken out, then look for a test of $2.70 to $2.75.
Corn Time Cycle Update--Corn prices put in a major low on July 9 th , 1999 at $2.19. From that low the next major low came in 109 days on December 13 th later at $2.09. The next low came in 55 days later on February 28 th , 2000 at $2.28. The ideal day for an important low came in on Monday, May 14 th , which is 55 days from the February 28 th low and 110 days from the December 13 th , 1999 low. In the upcoming weeks the key change of trend days we will be watching for a high or a low include June 30th to July 3rd and September 14th to the 18th . The 144-day change of trend would be about December 6th to the 8th , 2000.
July CBOT soybean chart analysis shows the rally up to the recent high at $5.82 on May 3rd . From that high July futures fell into the Wednesday low at $5.36 this week. This week's low offers major support with initial resistance at $5.82. Previously we had suggested moving sales up to 60% to 75% at the $5.70 level. Make sure that if you missed earlier sale recommendations that you have your offers in place. If July soybeans can close above $5.80, look for a test of the $5.90 to $6.10 price level.
Soybean Time Cycle Update--Soybeans put in a major 6, 12 and 30-year low in July 1999 at $4.40. The July chart shows an important secondary low on December 13th, 1999 at $4.65. From that low prices rallied to the January 28 th high before prices fell into the 55-day low on February 28th , 2000. The low on Monday, May 14th was 55 days from the February 28th low and 109 days from the December 13th, 1999 low. Now the key dates to watch for a change of trend are June 30th to July 3rd , September 15th to 18th and December 6th to the 8th . With the farm program set up the way it is, finding the lows is as important as finding the highs.
May 19, 2000 Alan Kluis and Mark Schultz North Star Commodity Investment Company P.O. Box 15086, Minneapolis, Minnesota 800-345-7692