Prepared by Allendale, Inc.

For The Week

Futures remained firm most of the week on anticipation that China would buy U.S. corn, wheat, and bean products. By Thursday, a crash in the Hong Kong stock market “shook” the grains. Then Friday, a stock recovery combined with a huge snow storm, China's decision to buy 700k of U.S. wheat and option expiration renewed market strength. For the week, December corn closed up +7.75, November beans up +7.0, and December wheat up 5.75 cents.

A Week Ahead

The snow storm is the most bullish factor. The storage and transportation problems, continued poor exports and end of month position squaring could be bearish. But El Nino fear anticipation of China buying next year keeps fund and speculative buying in control.

Dinosaur Club

A group of university, livestock, grain, USDA, and brokerage economist, as well as the Senior economist from the Federal Reserve got together this week to discuss where prices are headed. Here's a recap:

1. The Asian economy is in crisis. Their “currency crisis” could be one reason exports are so poor and do not expect quick fix. In fact, bean exports which have been very impressive could likely take off and might not meet the final objective. To check this, Joe assembled the following data:

Corn					Beans
Japan		Down 43%		Japan		Down 	30%
Korea		Down 81%		Netherlands	Up 	 6%
Taiwan		Down 50%		Taiwan		Down 	17%
Mexico		Down 54%		Mexico		Down 	40%
Egypt		Down 67%		China		Up 	15%
Columbia	Down 68%		Indonesia	Up 	31%
					Korea		Up 	10%
Total Known &
Unknown		Down 51%				Up 	31%

Wheat
Japan		Down 15%
Korea		Down 34%
Mexico		Down 79%
Pakistan	Down 20%
Total Known &
Unknown		  Up 12%
 

Countries listed based on volume bought last marketing year, descending from largest buyer which is posted first in each column. There are also non- economical, or social issues that are affecting Ag. For example, the livestock industry is faced with an ethical question on contract operations versus independent (soon could be the same scenario for the grain farmer) and environmental pressure is preventing expansion of livestock facilities (waste) and grain operation (chemical). These noneconomical pressures are actually forcing some to expand in other countries where these issues do not exist. Ultimately, this is hurting Ag's ability to respond to the world market and meet the future demand for food.

However, the technological advances in waste management, seed advances in yield improvement, hybrid “pest control” and advances in environmentally friendly “wrapped” chemicals all add to the strength of the U.S. ag economy.

2. Grain Outlooks: Corn is overbought and suspect to a sell off towards 280 to 250 (275/265 were the most common numbers mentioned). Then look for 317 to 350 next spring. Based on next summers weather, 105 yield = 400 cash corn, 130 yield = 250/275 and 138 yield = 220/250. Beans have a huge supply. The top is in for the near term unless exports remain good for a few weeks in which case look for 730. Otherwise, expect 650. Meal has topped and look for 190. Oil will be the leader this year 2600 to 2235. Wheat is plentiful in the world and will trade down to price levels relative to corn so that the industry will feed it. Thus if is 275/250, wheat is 350. If corn goes to 325/350 then wheat hits 450.

3. Why the market could likely break near term: a) the Asiatic crisis; b) USDA will raise the crop; c) near record open interest is heavily owned by specs; d) there is a storage and transportation problem in the U.S.; e) corn exports are poor; f) heavy delivery is likely forcing specs out; g) do not expect China to buy grain until this spring.

4. Why the corn market is so bullish into next summer: Fear. If the U.S. has a yield loss similar to 1983 and 88, production will be 6.9 to 7.8 crop versus domestic use alone of 7.5 bil bu. Thus until the crop is “known” there is risk and the market will remain above 250.

5. Why they do not think corn will hit 5.00 if there is a shortage: The industry has learned how to ration. Beef will quit corn right away, pork at 400, poultry will keep buying. There is a lot more competitive feed grains this year world wide and in the U.S. versus 1995/96.

6. Livestock outlook: Cattle have been pounded by female slaughter which is now coming to an end. Without the females in the mix, fed slaughter will not be able to meet demand. Look for DB to hit 115 by early 1998. Look for hogs to bottom 40/42, top in June 98 at 48/49 and fall back to 40/42 by October '98. If grains ration, cattle in the mid 50's and hogs in the low 30's.

Summary

Expect a wild year in corn. Near- term fundamentals suggest a sell-off, but long-term look to get long. Own everything by March/April and hold until you can see if there is a crop. Buy beef and pork aggressively near term, trade pork either side long term.

October 24, 1997 Bill Biedermann

Allendale, Inc.

4506 Prime Parkway, McHenry, Illinois

Financial Commentary

THE ALLENDALE ADVISORY REPORT | ASTRO-TREND | SPRING OUTLOOK
COMMODITY FUTURES FORECAST WEEKLY REPORT
THE OPTION ADVISOR
COMMITMENT OF TRADERS ANALYSIS-CURRENCY CONTRACTS
MYERS ON FUTURES | NIKKO MARKET COMMENTS | NIKKO MARKET COMMENTS
SORTING IT ALL OUT | INTEREST RATE WATCH | FINANCING AND THE “NEW” CANADA
U.S. TREASURY BOND TECHNICAL ANALYSIS
ITALY: WILL MARKET OPTIMISM BE REWARDED
SEEING THROUGH THE ILLUSIONS IN STRUCTURED FINANCE
EL NINO OUTLOOK | THE REAPER MARKET COMMENTS | WEEKLY OUTLOOK
YOU SHOULD BE FULLY INVESTED FOR THE NOVEMBER-DECEMBER-JANUARY RALLY

Consensus National Futures and Financial On Line Index

Copyright 1997, by Consensus Inc.  All American and Pan American rights Reserved. editor@consensus-inc.com

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