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THE ALLENDALE ADVISORY REPORT
Prepared by Allendale, Inc.
Commodity Wrap-Up For August 15, 1997
What a week for commodities! Monday started lower based on a good weather forecast. Tuesday, USDA released a very bullish corn forecast and a bearish bean and wheat forecast. Grains reacted with a limit up move in corn which lent support to the beans and wheat. Soybeans also were supported, but found support based on ideas that a shipping firm had committed more beans out of the lakes than they had inventory on hand. With no beans available, traders suspect this shipping firm will take delivery of futures which is causing short positions (who have the obligation to deliver physical beans) to buy back their positions. ALDL sold into the corn, bean and wheat rally based on research we conducted following the report. On Wednesday, traders were calling for another limit up move in corn. The corn opened higher, checked the previous high at 276, and then failed due to a lack of follow through buying and continued improvement in the weather. Beans and wheat failed to hold support and closed weak. On Thursday, export sales were bearish with cancellations of corn and beans. The market however only sold off a little and then rallied based on concern that the rains would not help the crop and that the soybean squeeze would continue into expiration. Friday morning greeted traders with ideal rains in most of IL and IN. As a result, the corn took out support. Beans continued to trade the squeeze concern and wheat found support on good demand and from potential damage due to rains in the spring wheat belt. But by the close, all grains sold off. For the week, December corn closed up 5.5 cents, November beans down 26.0 and December wheat down 14.25 cents.
Are You Sure It Is A 9.276 Billion Bushel Crop?
Individuals from the World Outlook Board were talking about releasing a 9.7 billion bushel crop. During the lock up, we were told there was talk of leaving the corn number unchanged. But with the conditions falling out of bed, they lowered it to 9.2! Could the crop be even smaller? One commercial believes we never really gave the 1997 corn crop the true potential of besting the record crop of 1994. One USDA official and a prominent commercial did say their own personal opinion is the August corn crop estimate will be the smallest number USDA will release this year. How can beans great if corn is toast?
What Do You Think?
A caller from Crawford Co. IL found one field at 22 bu./acre, 118 on another and 135 in the third field. Another from WC IA is saying 50 bu. less than normal. We want you to call us. But first, go out and check your fields. Once caller from S IN said he thought he had 125 bu. versus 160 normal. Now that he checked his fields he is estimating 150. Because the stand is so good in most locations, we urge you to use the formula and check the field as we conduct the 1997 survey. Our 7-year track record for surveys is for USDA to come within about 1.4% of our corn survey.
Markets
December corn technically put in a double top this week after it moved sharply higher on high volume and then failed at previous highs. The chart now projects to the 255 gap. Fundamentally, we found 4 times USDA issued similar production reports with similar stocks. These years had patterns that suggested a 4-day rally to 280 followed by a 40-day sell off to 230. The double top was at 276, pretty close to the 280 similar year study and projects lower which is consistent with the pattern of similar years. November beans could move to 575/550 if 605 fails to hold, or if it holds, look for a test of 630 resistance. The bean report (if you can believe it) was very bearish and studies are consistent with the technical picture projecting to 550/575. Wheat is breaking out to the downside and is consistent with the overwhelming bearish USDA report that raised the world stocks of wheat. We are short all grains and suggest that producers be aggressively sold for now, then look to re-own closer to harvest.
August 15, 1997 Bill Biedermann
Allendale, Inc.
4506 Prime Parkway, McHenry, Illinois
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