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(August 8, 1997) CORN: ALDL is still projecting a trend yield or a 9486 crop. However, this assumes we get the rain. ALDL is in the lower 50% of trade ranges. We do not agree with some traders estimates that are as high as 9771. Stocks should hit 1047 assuming China needs corn. It now appears we might have made an error in assuming China's needs. As Joe wrote this week, USDA thinks China might draw on stocks and avoid importing. This could be true and might be evident by their recent sale of corn to South Korea. But it will be a policy change if they are to draw down on their stocks. If they do not import, add another 40 mil. bu. back onto the U.S. stocks. Futures have economic value to sell at 260/285 range. If we get the rain, economic value to buy is down in the 220 area. The reason is obvious...if it rains, we know farmers will either need to sell or use the loan. So why would an end user pay much more than loan? Loan is at 189 cash or about 220 futures. Technically, the market topped at 269. A close above 265 is needed to show any signs that it can rally. Support at 252 must hold or the charts will suggest a move towards 230.
STRATEGY–Sell futures aggressively. Either 1) merchandise the crop out, i.e., roll to March/May for storage and interest and pick up basis gain for a net cash price of about 260 or 2) Ride futures down to loan (220 area) and take profit. The loan is your hedge from 220 and down. In the early stages of the loan program, futures will need to rally about 20 cents to get grain to meet near-term needs. Resell the 20-cent bounce. Now you have 60 cents profit to add to your cash sale price. If you sell at 220 cash, you net out about 280 cash.
Bill Biedermann
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