Thursday, June 14, 2007
888-452-8751
Fundamentals:
Ongoing dryness concerns plus positive technical momentum kept CBOT corn prices on the offensive Thursday and helped July futures scale their highest level since March 23 of $4.13 ½ per bushel. Strong gains in the wheat market also buoyed corn as buying enthusiasm from that market spilled over into the rest of the agricultural arena. This market looks set to continue probing higher over the near term as long as wheat prices continue to be propelled higher by growing worries about global production capabilities, and the Midwest growing region remains lacking in regular rainfall. The trade's mindset currently is that the higher wheat prices go, the more demand corn will pick up from the feeding sector, which will be becoming increasingly uncomfortable with wheat prices and in short order start looking for feed ration alternatives. Weather-wise, the persistent lack of rains lately in the Midwest has left large areas of the Eastern Corn Belt in real need of moisture-replenishing rains, and continued drought could start to have a lasting impact on overall production totals as we count down the weeks till pollination. That said, the trade will not entirely forget the fact that 90 or so million acres of US farmland are being dedicated to corn production this year - the highest total since the 1940s - so there is a strong change that a rise in profit taking interest will emerge ahead of the weekend. But any pullbacks will likely prove moderate and short lived as traders will remain highly reluctant to establish short positions in corn while such uncertainty shrouds the total production outlook. In the news today, US weekly export sales came in near the upper end of analyst estimates at 586,700 metric tons, which supplemented the overall mood of the market by reminding traders that genuine consumption interest remains intact even during bouts of price strength.
Technicals:
No technical comments today
Recommendations:
Speculative:
6-15-07: Sell 1 Dec Corn @ $4.06 ½ stop close only.
6-15-07: Sell 1 Dec Oat @ $2.87 stop close only.
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean markets closed out the session with moderate gains, with July futures ending up 1 ¾ cents and new crop November up 1 ¼. Thursday's price action was a "Me Too" type rally as it attempted to follow the solid gains witnessed in corn and wheat. And although the move higher was not without any fundamental validity, the market is taking a backseat to the grains for the moment, as weather woes/production threats will have a much bigger effect on supply availability and global balance sheets for wheat, corn and other coarse grains rather than soybeans for the meantime. Actually, soybean news wasn't all that constructive today; with NOPA crush figures just undershooting trade expectations of 144 million bushels, coming in at 143.4 million. Sales figures this morning were only considered fair at 221,700 tons, versus trade guesses of 100,000-250,000 tons. Oil sales, however, were solid at over 20,000 tons, while trade estimates had ranged from 0 to 10,000 tons. Further dampening any real sharp upside moves in the bean market were various wire reports throughout Thursday's session that held a negative tone over the vegetable oil/bio-diesel market in general. Apparently, German rapeseed markets have fallen as biodiesel sales have dropped, and a UN envoy reported that biofuels could lead to a mass hunger and deaths (though we're hopeful he's wrong). In other news, the Indian Monsoon seems to be progressing well and will be beneficial to oilseed crops in that region. Overall, the market still has oversupply woes for the current marketing year, and Monday's USDA report revealed that they expect only moderate year on year declines in global stocks figures in the new crop year. But many market analysts still remain skeptical of this, as only time and economic conditions will be provide the final answer to 2007-08 production prospects. Meanwhile, there are concerns that US drought-stricken areas may expand, as timely rains are not on the horizon in the near-term for the drier regions, and longer-term outlooks remain mixed at best. Overall, the market remain in its role as a follower as we progress through the marketing year, but for now it looks like liquidation in long soy versus short grain spreads may limit upside potential. On the products front, soybean oil and meal futures both gained ground in line with the generally firm bias elsewhere, and look set to continue following the bean's lead going forward.
Technicals:
No technical comments today
Recommendations:
Speculative:
6-15-07: Sell 1 November Soybean @ $8.52 Stop close only.
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Global wheat prices were off the races for yet another session Thursday, seeing fresh life-of-contract highs and bouncing off exchange imposed limits several times throughout the session. July futures on the CBOT ended the day with solid 17-cent gains amid a good volume trade that consisted of large amounts of bull-spread action. Wire reports that the EU is cutting its wheat crop projection by 3.0 million metric tons, and fresh reports that the Ukraine grain output may be cut by around 10.0 million metric tons due to drought conditions, continues to send prices soaring. Every day there has been a fresh report to "feed-the-bull", as they say, and these reports come after Monday's USDA report revealed that world stocks are on 30-year lows. And threats to global production certainly don't seem to be subsiding, so we continue to watch global supporters buy into the market in an attempt to price and secure supplies. Weekly sales figures this morning were over the high end of the expected range, at 413,100 metric tons, and there was more tender activity this morning with Japan procuring another 65,000 tons of US, Canadian, and Australian supplies. Other news during Thursday's trading session had India cutting their wheat sales in an effort to minimize imports, although they continue to sway back on forth on how many imports we may actually see out of them. In Brazil, consumers in the north are seen importing Canadian supplies, as they are experiencing supply constraints. Overall, the market is reacting to the world situation, and not a domestic supply concerns, as we saw US Gulf basis levels drop with the futures rally. But, we are experiencing winter wheat harvest delays due to excessive precipitation in western areas, which also spurred some concerns of crop conditions falling on lodging and disease threats. While buyers have certainly been the predominant players on the market lately, sellers did finally make an appearance late Thursday to ensure the market finished off its highs. One major global agricultural giant was a noted seller of heavy amounts of wheat towards the close - no doubt taking advantage of the prevailing multi-year high futures market to hedge wheat currently being harvest. Over the near term, more such selling can't be ruled out, as the market's technical indicators all suggest prices are well overbought. But by and large, if global weather continues to threaten production prospects and tighten world balance sheets, any spates of price weakness will likely be well supported as traders remain concerned about declining global inventories.
Technicals:
No technical comments today
Recommendations:
NONE
Speculative:
NONE
BEEF....Strong fund buying surfaced today as technical signals brought renewed speculative interest on behalf of fund mangers to the live cattle market. Recent media coverage of possible food price inflation due to higher grain and oil seed prices seem to bring buyers to the party today. Technically, cattle scored an outside day higher close. Now traders will be watching closely for fundamental signals of a bottom in cattle prices. Today's kill was pegged at 126,000 compared to 128,000 last year. Box movement was active at 315 boxes and 147 trim. The choice beef cutout was down 1.47 at 146.11. Talk of food price inflation could bring aggressive booking of beef and help to forge a seasonal low in the beef. Cash cattle traded at 89 cents late on Wednesday in KS but bids surfaced at 90 cents in TX today. Decent volume trade was confirmed at 90 to 90.5 in the southern plains.
PORK....Higher cash hog bids prompted by the sharp jump in wholesale pork prices added to ideas that current seasonal strength in cash and futures will continue. Again, it appears the entire livestock complex witnessed strong speculative buying interest. Open interest in hog futures has been rising this week on the higher prices. Talk of a slow down in pork exports has been countered with a dramatic slow down in pork imports into the U.S. Thus, the net export picture remains supportive. Belly futures appear to have forged a bottom as well. Today's hog slaughter was pegged at 384,000 compared to 378,000 last year. This week's kill is running shy of last week, confirming ideas of fewer numbers on a seasonal basis. Look for additional upside follow through on Friday with good support in the July hogs at 76.10. Tonight's pork cutout was up 1.18 at 78.17. A firm to higher tone was noted on the retail pork cuts. Hams and bellies were not well tested.
Positions:
New Recommendations:
6-15-07: Buy 1 August Live Cattle @ 89.90 - risk a close below 88.80
