Monday, April
09,
2007
888-452-8751
Fundamentals:
Corn futures finished out the session with moderate losses after
trading fairly wide ranges throughout the day. Early action saw May
values push their way up to the 381 ¼ level only to slowly
slide back lower and finish 2 ½ cents lower at 363 ½.
Early buying interest was follow through from the overnight session
after weekend weather reports continue to forecast cool and wet
conditions throughout the Midwest for at least the next six to ten
days, of which may cause further planting delays in key growing
areas. Also, spill over buying interest was seen from the wheat
market that touched limit up levels mainly on freezing weather
conditions that may have potentially hurt the winter crop that is
in the jointing phase of development. In the news, export
inspections came out at 25.5 million bushels, which was under last
weeks figure of 34.8 million and below trade expectation of 35-40.
And this may have induced some selling interest by short-term
players or at least limited buying interest for the time being.
This afternoon the first crop progress report of the season was
released and it was in-line with our expectations, in that "fringe"
areas are seeing planting moving along where as key growing regions
don't quite seem to have an early jump on plantings. Overall, the
pace of the 18-state average is seen running at 3% complete versus
3% last year and 4% on average. Looking forward, weather forecast
will be the main determinant for price direction - and without a
sustained period of drier weather for ideal field prepping and
planting, the better the chance producers will switch to
alternative crops, mainly soybeans, despite the need for a sizeable
production to meet next years record
demand.
Technicals:
May corn was lower on the
close. However, the early action was a gap higher to leave a
potential island bottom. The higher action went up to find
resistance just prior to the 10-day moving average of 388.6, but
then worked its way back down to fill today's and last week's gap.
The higher high and higher low look favorable, but the low-range
close below the pivot point suggests a bearish bias. Stochastics
and the RSI are starting to trend higher from an oversold
condition. Support was the 360 area. Resistance was the 385
area.
Recommendations:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sell December $5.60 Calls @
~$.25
Soybeans:
Fundamental:
CBOT soybean futures witnessed double-digit losses, Monday, mainly on thoughts of a possible growing acreage number ahead. Less than ideal planting conditions for corn and possible damage to winter wheat crops are already bringing about thought of more soybean acres down the road, and this seemed to be the main driver of the weakness witnessed in the soybean arena today. Also keeping additional pressure over the market were new stories such as Brazil's Abiove is raising their export forecast to 26.6 million metric tons, up 300,000 tons from their previous estimate. And on a similar note we may have witnessed some long liquidation on speculation that the USDA may bump up the Brazilian crop forecast in tomorrow's USDA Monthly Supply and Demand Report. Spurring additional weakness by short-term technical players was the breeching of support at the 50-day moving average. In other news export inspections came in at 20.2 million bushels, which was on the higher end of trade expectation of 15-20 million. Overall, the market remains oversupplied and we still have the threat of a growing global carryout via larger than expected South American crops, which will surely compete with the US's export market share going forward. Also if weather doesn't permit timely corn plantings we could also see the USDA's previous acreage forecast grow as producers' switch their intentions back to soybeans. Weather is going to be a key factor in determining soybean values going forward and forecasts should be closely watched on a daily basis.
Technicals:
May soybeans were sharply lower on Monday, posting an outside-down
day. This and the low-range close below the pivot point suggested a
bearish bias for Tuesday. Support was found at the recent lows,
with the lower Bollinger Band looking to offer support at 746. If
traders can mount a "turnaround Tuesday" type trade, then the
sideways trading range would appear to be enforced with support at
740 and resistance at 780. The close was below the uptrend line
drawn off the Oct 06 and Jan 07 lows, which may be a concern if
there is follow-through selling as is favored by the downtrends in
Stochastics and
RSI.
Recommendations:
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sell November $10.40
Call @ ~$.35
Wheat:
Fundamental:
The wheat market touched the high end of exchange-imposed limits
early in the session as cold temperatures over the weekend caused
some concerns over crop conditions. Gains were mainly driven by
Kansas City hard red winter wheat contracts as freeze damage
possibly had the biggest effect on that class of wheat, which is
grown in the states that witnessed some of the coldest temperatures
over the weekend. And, price wise, this was made apparent by the
end of the session as old crop KC May wheat finished with moderate
losses while new crop July finished the day up 6 ¾ cents. In
the news, wires reported that Durum wheat supplies might be cut due
to booming corn demand. Also in the wire headlines, US winter wheat
farmers are fretting over weekend freeze conditions. On a similar
note, after the close we received the USDA crop condition report,
which showed winter wheat crop conditions down 4% in the good to
excellent category from last weeks report. However, overall
conditions are still rated about 74% good-to excellent. That being
said, we will have to wait till next weeks report for further
insights into what type of effect the recent cold snap had on
overall conditions. Also released was spring wheat planting
progress and it showed plantings running about 4% complete versus
3% last year and 7% on average. Export inspection were also out
this morning and came in at 12.8 million bushels, inline with trade
expectations of 10-15 million. Looking ahead, weather forecasts and
crop conditions will be the main drivers of price direction from
here. However the overall crop is still in good condition and we
seem to be in store for a sizeable wheat crop if crop conditions
can hold steady. Also, with the expected rebound in world
production we don't see where the US will be in-line to pick up a
bigger chunk of the world export market. Going forward, pending no
major adverse weather threats, we suspect wheat values are going to
have a tough time pressing higher as global stockpiles are being
replenished.
Technicals:
May wheat closed slightly higher, but this was a weak finish
compared to the early gains. The gap higher open traded above the
40 and 50-day moving averages, and then worked lower to fill the
gap. Support was the 10-day moving average of 443.7. The low-range
close below the pivot point suggests a bearish bias for Tuesday.
Directionals are trending higher to favor the buy
side.
Livestock:
Live
cattle futures were mixed on Monday. Early action of mostly lower
turned to mostly higher late. The losses and gains were not
extreme, limited on each side of unchanged due to a lack of follow
through and mixed ideas. One of the positives was corn turning back
from sharply higher. Other positives were the sharply higher boxed
beef prices, the expectation for smaller show lists this week, and
expectations of May beef features to be supportive. The bears are
looking at high placements, disappointing marketings, weights
falling slower than last year, and a near-term peak in beef and
cattle prices to start a seasonal downtrend sooner rather than
later. As was expected, June futures did find support after filling
Thursday's gap higher action. Directionals are trending higher to
favor the buy side, which may be the direction of default without
any other cash news to say otherwise.
Feeder cattle futures gapped sharply lower on concerns of higher
corn and wheat futures. Triple-digit losses were seen, but on the
close triple-digit gains were registered as corn backed off its
highs. Corn actually closed lower in its late trading. Cash feeder
prices were reported higher, suggesting that feeder demand is
strong to continue to support feeder futures despite the premium
that they hold. The May feeder contract managed its highest close
for the contract, putting it in position to make a test at the
contract high of 113.25. That should be resistance. Support should
be the 110.25 area of recent lows.
Lean hog futures were mixed on the close. April was lower pressured
by its premium to the lean hog index. Cash hog prices were steady
higher, but the futures premium attracted more selling for April.
The lean hog index is projected to be around 62.50, with the
one-day price about 62.65. April futures were about $2.35 higher
than that. Right now packer demand looks strong enough to justify
the April futures premium. If the cash market gives a different
signal, then April futures could fall fast. The other contracts
will likely follow any sharp moves by April, but otherwise could
have minds of their own. June futures posted an inside day, looking
like continued consolidation between resistance at 76.25 (where the
40 and 50-day moving averages sit) and support at 75.25 (of recent
lows).
Milk futures closed sharply higher. June was the big gainer up 23
cents. The market gapped higher on the open and sustained the
higher action, which was above the upper Bollinger Band. The new
highs came with divergence for Stochastics and RSI, which may
attract technical selling. The technicals and the historic high
price looks like a good sell, at least until you look at what milk
futures did in 2004 and try to comprehend the very strong whey and
non-fat dry milk prices.
