The Al Kluis Report Weekly Newsletter Sample

Plan to log in to our “Last Thursday Webinar” for members only on Thursday night July 29. We will discuss our long term marketing plan for 2010 and 2011 with specific futures and options strategies. This Webinar will include our recommendations for buying your 2011 inputs including fertilizer and show current ethanol and livestock margins.

Note that our “Last Thursday” webinar series is now members-only. We will send a link and a login password to current subscribers during the week before the July 29 webinar. If you are a new subscriber and haven’t attended a webinar, or are not sure if you’re registered, call our office and we will take care of you.

Wheat prices in Europe and the US rallied to new highs this week as the worst drought in over 100 years has destroyed a large portion of the wheat and barley crops. This drop in production along with a major drop in Canada’s wheat crop has buyers and traders buying wheat futures. The widening of cash basis bids for wheat is clearly a caution sign. We previously suggested getting 50% hedged on the 2010 wheat and placing the hedge out into the December contract. The carrying charge plus basis improvement creates a large return to storage. If global wheat prices move lower next week it will also put pressure on the corn and soybean markets.

“Have the corn and soybean markets topped out?” We heard this question from a lot of callers on Thursday afternoon and into the close today We are watching the July 7 low at $3.67 in September Corn, the $9.98 low in August soybeans, and the $5.73 low in September CBOT wheat. Closing below these important support levels next week would suggest a seasonal top in corn and soybeans. Long term we see good potential for higher prices, but a pullback into the corn and soybean harvest is still likely to occur.

The main factor for the grain market on Sunday night and into the opening on Monday will be the price action in the European Grain Markets. The wheat futures on the Euronext moved sharply higher on record trading volume this week. If the European wheat market is higher it will be difficult to drop CBOT prices. The opposite is also true: If grain futures in Europe are lower, it will send the US grain markets lower as well.

US Crop conditions are expected to show a slight improvement next week. A lot of rain moved throughout many areas of the Corn Belt that needed rain this week. If we did not have the major drought in Russia and Europe--increasing US grain export demand--US markets would likely be moving sharply lower. US grain exports remain very strong with a record amount of new crop soybeans now sold to China for delivery in the fourth quarter of 2010.

In the USDA Crop Progress report released Monday, July 19, the 2010 corn crop was rated at 72% Good/Excellent, down 1% for the previous week. This compares to the rating for this time last year of 71% and the 10-year rating of 65%.

Crop ratings stabilized or improved in the eastern Corn Belt with Illinois up 2%, and Ohio as well as Indiana unchanged for the week. Declines were reported in SD, NE, MO and IA, all reporting 2% declines for the week. It is again impressive this week to compare the maturity of the 2010 corn crop to this same time last year.

An exceptional advantage this year is extremely apparent in the eastern Corn Belt. Multiple states have double-digit improvements in silking compared to last year: Illinois (65% ahead), Indiana (55%), Iowa (39%), Michigan (61%), Minnesota (49%) and Ohio (45%). As a nation, the US corn crop was reported at 65% silked vs. 30% last year and a 5-year average of 47%. 8% of the crop was reported in the dough stage, compared to 7% as the 5-year average.

Seasonally crop ratings decline through the month of July. We would not be surprised to see the ratings decline Monday, especially in the areas with excessive moisture this past week.

In the USDA report as of Monday, July 19, the 2010 soybean crop was rated at 67% Good/Excellent, up from 65% the previous week. This compares to the 10-year average of 60%.

As with corn, crop ratings stabilized or improved in the eastern Corn Belt, with IL and MO reporting 2% improvements this week. Indiana and Ohio as well as Kansas were unchanged for the week. The Western areas reported declines: SD was down 2% and NE down 3%.

The trade was looking for a seasonal decline in the bean rating this past week. The crop is reported to be 60% bloomed, up from 41% the previous week and compared to the 5-year average of 56%.

As with corn, it is impressive to compare the progress of the soybeans compared to where they were the same week last year. IL is 44% ahead of blooming last year; IN is 35% ahead. States in the Western area are actually even or behind last year’s progress as the wet conditions have stunted the growth of these soybeans.

Although the beans in these areas are blooming and setting pods, their size is a growing concern for the producers. It is not unusual to see beans in Northeast SD only a few inches high due to the very wet conditions of June. 18% of the crop was reported to be setting pods, up 10% from the previous week, and compared to 15% as the 5-year average.

We continue to discuss the Former Soviet Union (the “FSU”) along with Europe. Their wheat crops are deteriorating quickly. In fact, a large portion of the FSU has already been declared a disaster. Here in the U.S. we are still a couple weeks away from the onslaught of spring wheat harvest but there looks to be good potential. We’re just keeping our fingers crossed that the quality comes in real good. The winter wheat harvest is on it’s downhill stretch.

Basis: Over the past week to 10 days we have seen local wheat basis levels go right into the tank. Now, we think this will be short-lived as winter wheat harvest wraps up and spring wheat harvest is on the verge of taking off here in South Dakota. Be real careful on commercial storage rates this year as well. There are very big carrying charges in the market today and the commercial elevators will charge you dearly to store your wheat in their space. They want to earn the carry plus the basis level snap we should see 30-60 days from now. We are highly recommending to store as much wheat on your farm in your own bins and sell the carry out to this winter or next spring. You can earn 8-10 cents per bushel by doing this. It more than pays your interest and storage costs in your own bins.

US Exports: Weekly exports this week came in at 309,400 metric tons for old crop. Weekly export sales came in at the bottom end of our expectations of 300-500,000 metric tons. We need to average 260,000 metric tons each week to achieve our yearly export total the USDA has set forth for us. USDA has our yearly exports pegged at 865 million tons for the year.

Crop condition scores for the week came at 82% of the spring wheat rated in the “Good/Excellent” category vs. 73% a week ago. Below are some of the main states that produce our winter wheat crop and where they are rated at for the year.

Harvest Progress: For the week, the U.S. came in at 69% harvested on the winter wheat acres compared to 74% harvested this same time on the 5 year average. Overall, quality seems to be looking really good with the crop having lower protein in general.

Oats continue to be mostly a follower of the wheat market. Fundamentals suggest we should trade sideways. I have been watching the daily oats chart on the September futures and it sure looks like a bull flag is setting up. Resistance to watch is the $2.72 area. If we can take that and close above that number, it should suggest a potential run to close to the $3.00 area.

Harvest got under way over the past 2 weeks. Currently we are 18% harvested vs. 15% on a 5 year average. With harvest underway, we should see some hedge pressure that will limit our rallies in the near term.

Technical Outlook: The above chart is a weekly continuous of the oats. We have a double top showing up at 2.75 area and is going to be a key resistance area here in the near term. RSI and Stochastics are also nearing the overbought area and could warrant a near term set back. Support shows up in the $2.38 area with real close resistance showing up at the 200 Moving Day average at $2.66-$2.67.

This week we recommended an additional 10% cash wheat hedge, moving 2010 wheat sales to 50%. If the wheat market is higher again next week, we will likely increase hedges to 60%. With the current wide basis and the large carry to December we have recommended placing the hedge into the December futures contracts.

1. Cash Corn: Sales are at 100%. The offer to complete cash sales was filled last week when September Corn rallied to the target at $3.88 to complete cash corn sales.

2. New Crop Corn “A” bushels: Your new crop A bushel sales should be at 60%.

· The offer to hedge 10% when December corn rallies to $4.04 was hit last week.

· If you have adequate storage or are in an area where you are not sure of your crop size, then when these price targets are hit, buy the December Corn $3.80 puts to get your price protection in place. That also should have been done on Thursday.

· Buy the $4.00 corn put and sell the $4.90 corn call at 28 cents or less. We recommend this on a minimum 50% of your 2010 crops.

4. Cash soybeans: Sales are now at 100% with August soybean futures rallying up to our price target at $9.60.

· Now place this order for the balance of your A bushels: Hedge another 10% of the A bushels when November Soybeans rally to $9.98.

· Buy the November Soybean $9.40 put and sell the November Soybean $10.40 call at 35 cents or less. We recommend this on a minimum 50% of your 2010 crops.

· If you are not willing or able to do the put/call spread, you may want to buy the November Soybean $9.40 put for 58 cents or less.

· We hit the price target in September Minneapolis wheat to get 50% of the new crop wheat sold this week.

· The next offer to make an additional 10% sale should be to increase sales to a minimum of 60%. Because of the wide basis and the carry we suggest placing the hedges out into the December wheat contract. Have your offer in at $6.49 for December CBOT and KC wheat and at $6.56 in the December MGE wheat futures.

· Another 10% sale should be made when the price targets are hit. Have these offers in place: July 2011 CBOT and KC Wheat at $6.90 and at $6.89 for the September Minneapolis wheat. If these targets are hit then 2011 wheat hedges would be at a minimum 20%.

· 2010 Corn: New crop hedges are at 60% of the A bushels at an average of $4.27 per bushel in the December 2010 Corn futures.

· 2010 Soybeans: New crop hedges are at 90% of the A bushels at an average of $10.84 in the November 2010 Soybean futures.

FUEL: You should have 50% of your fall gasoline and diesel locked in. Wait for our recommendation before buying your fall dryer gas.

We had a lot of questions at a seed conference I spoke at in Missouri this week.

Question #1, from Central Missouri: “I will have less bushels than normal to work with in 2010. Should I get more aggressive in getting my 2011 sold ahead to try and make more money next year?”

My answer: I think the lows made in late June of 2010 are significant long term lows and that corn, soybean, and wheat prices will move higher into 2011. I still anticipate a pull back to the 2010 harvest lows, but expect better 2011 selling opportunities in the spring and summer of 2011. We are making some 10% and 20% 2011 corn and wheat sales and will consider 2011 soybean hedges if November 2011 soybean futures rally to $10.20 or higher.

Question #2, from a customer in Western Illinois: “If I can store my corn into 2011 should I place my corn hedges into the March or May 2011 corn futures?”

My answer: The current spread between December 2010 and the March 2011 corn is 13 cents, and the spread between December 2010 and May 2011 is at 23 cents. Both spreads offer a good return on your storage. Local basis is also a factor. But the big question: “When will you need the cash?” If you can hold off until 2011 to get the cash, then place the hedge into the May 2011 corn contract.

The Wednesday close for September 2010 CBOT Corn was at $3.80 this Wednesday. Corn cash basis bids were 3-5 cents wider this week on a huge increase in farmer sales. The Wednesday close for August soybean futures was at $10.16 with basis at the processors 5-8 cents wider, while export bids going to the west coast improved.

Corn: Long Term

Long-term corn chart: The Weekly Corn chart shows an inside week. Prices dropped back this week on long liquidation and a huge amount of old and new crop hedge pressure. The recent low at $3.67 and the high at $3.91 will be the major price levels that we watch into next week. This chart has resistance at $3.90 and $4.00 and major support at $3.67. A close above last week’s high at $3.98 will project prices up to resistance at $4.14. If global wheat prices keep moving higher, they will pull corn higher as well.

For the week: The nearby corn futures weekly chart shows a 21 cent trading range with prices closing down 24 cents per bushel from last week.

Corn: Old Crop

September 2010 Corn futures dropped lower this week as prices consolidated after the 57-cent three-week rally. The high came in early on Monday with the low on Friday. A bull market needs to be fed new bullish news each day. Unless wheat prices move higher, seasonal odds project lower prices into this fall. The short term cycles I work with project lower prices into the end of next week.

Corn: New Crop

December 2010 Corn futures dropped lower this week on hedge pressure and improved weather forecasts. The corn market was choppy day-to-day this week in the face of higher global wheat prices (which was viewed as bullish) and improving US corn yield potential (which is viewed as bearish). The important short term support level for December Corn is at the July 7 low of $3.78 with resistance at this week’s high at $4.00. In the last five trading sessions, prices have corrected 50% of the 12-day early July rally.

For the week: December 2010 Corn futures show a 20 cent trading range this week. Futures closed down 22¾ cents per bushel from last Friday.

Soybeans: Long term

The long-term soybean weekly chart shows August futures forming an inside week on the chart. This week’s low at $9.98 is important support with resistance at $10.20 and then at $10.40. A close in late July below $10.00 on this weekly chart would confirm a seasonal high in cash soybeans. With cash soybean bids 70 cents over the fall bid for soybeans, holding cash soybeans has a lot of futures and basis risk.

For the week: The weekly chart shows a 28 cent trading range with prices closing down 2 ½ cents from last Friday.

Soybeans: Old Crop

August 2010 soybean futures prices chopped sideways to lower this week. Prices tested support at $10.00 before bouncing back into the close today. China remains an active buyer of old and new crop soybeans. Processing margins have dropped considerably in the last two weeks, so processors have been backing off on bids.

Soybeans: New Crop

November 2010 soybean futures rallied higher this week. Futures tested resistance at last week’s high at $9.92 before chopping lower into the close today. If futures can close over $10.00 look for a test of $10.20, where we will consider additional new crop hedges. The $9.62 low this week is an important support level. A close below $9.62 would project prices back to the $9.00 price level.

For the week: November futures had a 29 cent trading range. Prices closed down 2¼ cents per bushel from last Friday.

Wheat

September Minneapolis wheat rallied up to new highs for 2010. Prices tested resistance at the November 2009 high of $6.40. A close above $6.40 would project prices up to the July 2010 high at $6.83. Wheat futures on all three exchanges are within 30 cents of major resistance. That is why we are encouraging you to have offers in up 25 cents from today’s close to put on more 2010 and 2011 wheat hedges.

For the week: The nearby Minneapolis wheat contract shows a 37 cent trading range with prices closing up 17 cents per bushel for the week.

Wheat and canola moved sharply higher on active buying from China and the drought news out of Europe and Russia. Oats prices dropped back on harvest pressure and profit taking. Global fundamentals are long-term positive for all of these markets.

See the September MGE spring wheat chart for your Canadian spring wheat production analysis. Now, a look at oats and canola:

Oats

September CBOT Oats futures fell lower this week with prices testing support at $2.50. The long term outlook is very positive for oats prices. The $2.50 price level is good support with resistance at $2.76 then at $3.00. With the sales made on the last rally, hold off on any additional sales unless prices hit our price target.

Strategy: On earlier advice, all cash 2009 oats should be sold, and you should have hedges or puts on 40% of the 2010 crop. If September Oats rally up to $3.00 move 2010 hedges up to 60%.

Canola

November Canola futures rallied sharply higher again this week as global oilseed prices moved higher. The market action late this week hints at a possible short term high in the Canola market with prices slipping lower into the close today. The next resistance on the chart is at $480 per ton. The global fundamentals are positive for the canola and all vegetable oil markets as we look ahead into late 2010.

Strategy: You should have all of your cash 2009 Canola sold or get the balance priced early next week. With this rally you should have 40% of your 2010 canola covered with hedges or puts.