Friday, April 13,
2007
888-452-8751
Fundamentals:
CBOT May corn futures built on Thursday's somewhat positive close
and managed to pull out some decent gains for the day. May futures
finished the day up 10¼ at $3.69 per bushel, while new crop
corn ended up 7¾ at $3.95 a bushel. As far as news goes,
there wasn't much to talk about other that the weather forecasts.
However, there was some wire banter that alluded to how the
biofuels industry is changing the face of world agricultural. But,
as previously mentioned, weather is the main focus of the market,
and now that the fund liquidation phase is apparently coming to an
end the supportive forecasts are seemingly having a bigger impact
on price direction. Much talk has centered of late on the inability
of fieldwork to be done in key growing areas due to the lingering
cold and wet weather. While there has certainly been some delays in
plantings so far, the real crunch time lies in the next two to
three weeks when a majority of producers in the core corn growing
areas traditionally become their most active. Currently, the
weather outlook for that crucial period is calling for additional
rains, which if materialize could seriously slow planting progress
further and make a truly largely production total increasingly
difficult to achieve. However, if those rains hold off and drier,
warmer conditions persist instead, then corn planting will no doubt
begin in earnest. As a result, active traders and producers alike
will stay glued to weather forecasts for the slightest hint on how
things will pan out. While focus of late has rightly been on
planting conditions, it is important not to forget that this
market's impressive price performance for the past several months
has been demand-led, and that strong consumer demand remains
intact. The latest evidence of this came in the form of Thursday's
impressive export sales total (1.325 million metric tons), and in
the wake of wheat's recent price rally to more than $1 a bushel
above the price of corn, wheat's appeal versus corn as a feeding
component will have diminished. Trade on Sunday night has the
potential to be very jittery indeed, especially if weather
forecasters paint differing pictures regarding likely planting
conditions over the coming weeks. The thing to keep in mind
throughout is, regardless of the ultimate size of the
US corn crop, overall demand will remain very
strong.
Technicals:
May corn was higher,
finishing near the session highs. The high-range close above the
pivot point suggests a bullish bias for Monday. There is the
potential for a gap higher open that would project an upside
objective of 390.5. Resistance looks like it should be felt at the
20-day moving average of 380.5. Support looks to be the newly
formed uptrend line drawn off the recent lows, which for Monday is
350. Stochastics and the RSI are showing an uptrend to favor the
buy side.
Recommendations:
Speculative:
4-11-07: Bought 1 July Corn @ $3.75 - Reverse
and go short on a close under $3.69 ¼ stop close only.
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sell December $5.60 Calls @
~$.25
Soybeans:
Fundamental:
Soybeans parted ways with the
grains Friday and headed lower on fund and trade selling while corn
and wheat scored gains. However, while speculative players clearly
favored the grains arena Friday, they kept their contempt for the
beans in check given that US soybean production stands to fall this
coming spring the more corn plantings occur. As a result, CBOT May
futures managed to hold at recent lows and above established
technical support throughout the session only modestly lower on the
day. Looking forward, the beans will likely remain overlooked in
favor of the grains, but heavy selling interest is also expected to
prove scarce while the weather and planting outlook for corn
plantings remains so uncertain. In addition to the weather, the
trade will also paying close attention to current bean demand
levels for signs of the greater production emerging from South
American eating into the US export share. Some insight into the
quality of US demand for both beans and products will be attained
in Monday's National Oilseed Processors Association's monthly
soybean crush report. Estimates are running from 143 to 144.8
million bushels for Monday's report, which would mark a notable
increase from last month's 130.779 million bushels. NOPA soyoil
stocks in March are expected to decline by 24 million pounds to
2.748 billion pounds from the 2.772 billion reported in February.
Estimates ranged from as low as 2.684 billion pounds to as high as
2.834 billion pounds. Going forward, weather forecasts will remain
the main driver of this market over the near term, and the
direction of soybean values depends greatly on the planting pace of
corn, and obviously how the growing season evolves. On a side note,
the bean market's technical chart pattern has seen nearby May and
July contracts flirting with support at the widely watched 100-day
moving average. Given with the current glut of supplies in both the
US and South America, and the possibility of growing soybean acres
this coming season, bean futures may well become vulnerable to a
technically-inspired push lower in due course if the market's
fundamental supply/demand makeup deteriorates. On the product
front, May soymeal futures continued their recent bleed, and
secured their lowest close since mid-January. Bean oil prices,
meanwhile, remained well supported by both spread trade positioning
and the firmer posture of the crude oil market which settled above
$63 a barrel Friday.
Technicals:
May soybeans were relatively unchanged on Thursday, seeing an
inside-down day with a trading range just about as wide as
yesterday. Support held again at the 100-day moving average of
732.5, helping to get a bounce back up to mid range. The close
almost to the pivot point suggests a mostly neutral bias for
Monday. Resistance looks to be setting up at 746. Stochastics and
the RSI are trending down to favor the sell side, but Stochastics
has fallen to an oversold condition that may warrant caution to the
short. The hourly chart shows directionals with a slight uptrend,
but prices have been stair stepping lower this month with a strong
downtrend that would suggest resistance at 745 and support at
726.
Recommendations:
Speculative:
NONE
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sell November $10.40
Call @ ~$.35
Wheat:
Fundamental:
Wheat was the star performer of the US agricultural markets Friday
as concerns over what effect the recent cold snap had on the
current winter wheat crop sparked a round of short covering and
momentum-based buying that steered prices higher through the day.
CBOT May futures vaulted to six-week highs of $4.85 per bushel,
Kansas City May wheat hit one-month high of $5.01, while
Minneapolis May wheat spiked to $5.24 a bushel - its highest level
since Late February. All three markets were mainly lifted by fund
interest rather than any surge in consumer buying, and so it
remains unclear as to how long the current bout of strength will
last. However, there have been signs lately of strengthening basis
quotes, and the latest export sales figure released Thursday (over
690,000 metric tons) suggests demand remains sturdy. Recent focus,
however, has been on the supply side of the equation, especially
after the recent freezing weather reportedly damaged portions of
the current winter wheat crop. There is no real consensus on the
likely extent of the damage, but in the wake of last week's USDA
crop condition rating cut to 64% good to excellent (from 71% the
week before), the market is bracing for an additional rating drop
this coming Monday. However, even the USDA will have no real way of
knowing the exact degree of damage caused by the freeze by now as
it is still early days and there are a huge amount of fields to be
surveyed. As a result, the market looks set to remain in a jittery
mood for the coming days and is likely to remain prone to the odd
spurt of panic short covering as rumors continue to swirl around
the trading floors. For our part, which think the winter wheat crop
is capable of withstanding some pretty cold temperatures, and are
not convinced that any more than a small portion of the crop was at
a vulnerable stage when the freeze occurred. Nevertheless, we will
be monitoring developments there closely for any fresh updates, and
will remain cautious about selling aggressively in this market
until a clearer picture develops regarding
production.
Technicals:
May wheat was sharply higher, running into resistance at the
100-day moving average of 481.2. The close was below this but was
well within the upper range and above the pivot point to give a
bullish bias for Monday. Support should be the 40 and 50-day moving
averages in the 467 area. Directionals are trending higher to favor
the buy side. Despite the recent strong gains, the action is still
well below the downtrend lines drawn off the highs of the last six
months.
Recommendations:
Speculative:
4-16-07: Buy 1 July KC Wheat @ $4.83 - Reverse and go short on a close under $4.80 1/4
Livestock:
Live
cattle futures were mixed on Friday, but lower for the week. April
was lower due to cash cattle trade that slipped from over $100
early in the week to only 97.50 by Friday. Futures seemed to react
to ideas that the cattle and beef markets were topping, without
much evidence of that initially. The weak futures almost made it
self fulfilling. Cattle owners sold out for less than expected,
encouraged to do so by the futures discount and perhaps due to the
idea that they may not get anything better if next week's Cattle on
Feed report is bearish. One idea was that the larger placements in
March would be revealed next week, suggesting that cattle owners
should take what they can get and move cattle. Prices are well
above year ago even though slaughter and beef production are
slightly higher. So selling at these prices seems prudent, even
though the higher wholesale prices suggest a packer breakeven pay
price of about $104. Beef prices were lower suggesting that a top
might be in place, but with all the talk of a talk it would seem
likely to keep retailers from buying in wait for lower prices. They
may be able to do that now, but if they need to buy beef for early
May features (first of the month, Cinco de Mayo, and Mother's Day)
beef prices could easily pop back higher. Another tidbit that may
start making the commentary talk is the higher gasoline prices. I
filled up this morning for $2.95 per gallon in Wisconsin (Chicago
is well over $3), which would seem to squeeze disposable income
again. High gas prices previously never really impacted beef demand
to any extent that was expected. The bounces in the deferred live
cattle futures were attributed to short covering more than anything
fundamental. Next Friday the USDA will release its Cattle on Feed
report. I have seen some estimates that suggest there is the
potential for a bearish report. Placement estimates I have seen so
far are only single digit increases as opposed to the double digit
ones implied by the high March feeder auction receipts.
Feeder cattle futures were mixed on Friday, but also sharply lower
for the week. The front three contracts posted losses as cash
feeder prices were lower to trigger ideas that feeder demand was
softening or the feeder supply may be growing. Higher corn futures
and talk of wheat and hay pastures hurt by last week's freeze is
what largely prompted the bearish mentality. May futures were able
to hold ground at the 40-day moving average, which was right above
some technical objectives, prompting some short covering. Futures
are below the feeder index, which also prompted some short
covering.
Lean hog futures were higher on the close. The further along this
market gets to the late April fieldwork and planting the more
encourage the bulls are becoming about cash hog prices making a
strong rally. Packer demand is holding strong, with the negotiated
price slightly higher than the formula price that go into the lean
hog index. How fast prices go up will depend on how much of a
seasonal decline there is in hog numbers. This week's hog slaughter
was up 1.8% from last year, which is a bit larger than expected
based on the Hogs and Pigs report (and the light Monday number
following Easter). Weights are not down that much, with pork
production up 1.7% from last year. If numbers continue to run
larger than expected, then it would seem that futures hold too much
of a premium.
Milk futures were sharply higher. The higher corn futures and the
likelihood of higher forage costs amid a smaller hay crop because
of last week's freeze prompted ideas that milk production would be
lower than previously expected, perhaps even below last year if
dairy cow slaughter remains large to suggest decline milk cow
numbers. New contract highs were the norm. These prices are
historically strong, but the demand side of this market,
particularly whey and nonfat dry milk, are justifying the futures
premium with the bulls hoping for something like 2004.
Positions:
Speculative:
4-11-07: Sold 1 June Live Cattle @ 95.40 - Liquidate @ 93.75 stop close only
4-12-07: Sold 1 August Feeder Cattle @ 110.35 - Liquidate @ 111.20 Stop close only
Recommendations:
4-16-07: Sell 1 June Lean Hog @ 76.15 Stop close only
