Friday, June 15, 2007
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Fundamentals:
CBOT July corn popped to its highest level since March 23 of $4.23 ½ per bushel Friday, while Dec corn hit its highest price since February 26 of $4.25 a bushel, on strong trader buying and speculative interest spurred by forecasts for more dryness across key US growing areas. Large portions of the Eastern Corn Belt remain dry and could do with some decent moisture to advance their development.
However, current weather models call for only very light precipitation levels, which will not be enough to change the cautious mood of this market. The trade is of course aware that more than 90 million acres of US farmland have been dedicated to corn production in the US this year - the highest acreage total since World War II - but is also mindful of the strong and rising demand story that acquired the hefty acreage number in the first place. As a result, anything less than ideal growing conditions will continue to be treated as supportive for prices until soaking rains do eventually arrive.
Other data or news seems to be taking a back seat for now. And even news that independent industry analyst's Informa Economics lifted its acreage estimates for US corn production this year to 90.724 million acres, from 90.6 million previously, was largely ignored as focus remained on the weather. This fixation on the dry conditions will extend into next week, and there is a strong chance that if rains remain absent in outlook models Dec corn prices in particular could gain some serious ground. Already Dec corn futures are within touching distance of their previous contract high of $4.29 ½ a bushel, scaled on February 22, so technical traders will be closely monitoring this market in addition to fundamentally-focused players.
Meanwhile, the US farmer is quite happy to limit his selling activity to see how high these prices can go. So be prepared for some fireworks early next week if the weather outlook remains dry for the Eastern part of the Midwest. The $4.30 a bushel level is an obvious immediate target for Dec futures, but it's tricky to pinpoint any likely targets beyond given that we'll be in uncharted waters. If sellers remain scarce, a stretch for $4.50 can't be ruled out.
Technicals:
No technical comments today
Recommendations:
Speculative:
6-18-07: Sell 1 Dec Corn @ $4.15 ½ stop close only.
6-18-07: Sell 1 Dec Oat @ $2.88 3/47 stop close only.
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
The soybean complex was the star performer making fresh life-of-contract highs with old crop July bean futures closing out the day up 19 3/4 along with new crop November. The products were substantial gainers as well with July soyoil ending up 74 points and July soybean mean closing out Friday's session up $4.60. Weather forecasts, currency fluctuations between the dollar and Brazilian real, corrections in long grains and short oilseed inter-market spreads were all catalysts for the late week rally seen in the soybean market Friday.
Weather forecasts can be assumed to be the main culprit behind the rally as they do have marginal amounts of moisture moving through northwestern areas early next week as they make their way eastward. However, any moisture forecasts for eastern areas won't be enough to relieve any severe moisture deficits out in the Eastern Corn Belt, and with relative dryness forecast in the six-ten day forecasts, drought areas may be set to expand in the coming weeks.
News wise there wasn't much to speak of, but going back to ongoing themes that we have been watching, the Brazilian real headed higher against weaker dollar values and we still need to see those relationships allow for the Brazilian producer, especially the smaller operations, to remain at profitable levels if we are to see acreage expansions make up for year-on-year losses that the US has already projected.
That said, Informa a widely watched market forecaster, released their projections for US soybean acreage revisions for the upcoming quarterly stocks report and they have pegged US soy acreage to total 68.77 million acres, which would be up 1.63 million from the USDA previous March planting intentions estimate. And just for reference using that acreage figure and the USDA's trend-line yield forecast of 41.5 bushels per acre that would put the US crop somewhere in the neighborhood of 2.854 billion bushels, which would ease the steep drop in carryout levels that the USDA has already projected by roughly 110 million bushels, that is if you assume demand figures are unchanged. Nonetheless, it currently seems that the crop is being grown in less than ideal conditions in some major growing regions of the country, due to weather woes, so it is still a bit early to stray any yield forecasts too far from trend-line in either direction.
A recovery in global vegetable oil prices aided in the soybean oil rally, while soybean meal markets managed to find some buying interest on short liquidation as poultry figures and feed consumption could possibly be picking up. Part of Friday's price action was likely some short covering/position squaring ahead of the weekend, and also a correction in the long grain versus short soybean type spreads as they have seen some strong gains over the past week. Looking forward, US weather forecasts are set to remain in the driver seat and if forecasts continue to call for a lack of moisture then we can surely expect more speculative buying interest underpin values.
Also, the market is going to be focusing on the upcoming stocks and acreage reports coming up at month end so traders need to be aware of trade ideas on what those figures may end up being. That said the technical trend of the market continues to favor upside momentum although continues to flirt with overbought conditions.
Technicals:
No technical comments today
Recommendations:
Speculative:
6-18-07: Sell 1 November Soybean @ $8.60 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 took a breather Friday from their recent scorching performance as traders moved to take profits on recent strong price movement. July futures on the CBOT ended flat at $6.06 ½ a bushel, while Kansas City July wheat closed 3 ¾ cents lower at $5.96 ¼ a bushel. Concerns that persistent drought in key growing areas around the world will slash global wheat output this coming year has been behind wheat's recent price surge, which has seen July wheat on the CBOT scramble from around the $5.16 a bushel area at the beginning of June to a peak of $6.18 ½ Thursday - a more than $1 rise in just 9 trading sessions. This red hot performance was exacerbated some by heavy bursts of short covering, which added fuel to the rise through the past week and kept potential sellers firmly pinned to the sidelines.
Some hedge selling pressure emerged at the highs Thursday, and was again a sporadic feature during Friday's session. This was supplemented by end-of-week profit taking and selling based on reports of dry weather in the US Plains that may allow for the delayed US harvest t pick up pace. Also, news that Egypt had cancelled a tender to buy 55,000-60,000 metric tons of wheat due to the high prevailing price also weighed on wheat somewhat over the course of Friday's session. But by and large its unlikely holders of wheat will have any urgency to sell any time soon, given that global production prospects remain modest at best.
Indeed, the USDA recently pointed out that global stocks of wheat will come in at 30 year lows this year given the current production outlook, so overall selling interest looks set to remain skimpy going forward. Still, more hedge selling is to be expected which may allow the market to catch its breath for a while and push mainly sideways until a clearer picture develops regarding the crop's total production outlook.
Technicals:
No technical comments today
Recommendations:
NONE
Speculative:
NONE
MARKET COMMENTS
BEEF....There was no cash steer trade today as the plains saw active trade on Thursday at 90 to 90.5 cents in the south. The beef was lower at noon yet live cattle futures closed higher across the board with the exception of the front month June contract. Talk of lower placements and high feed costs seem to be propping up the back end of the live cattle board while weighing on feeder futures. Technically it was an impressive week of trade with a possible low established on Thursday. The next cattle on feed report is scheduled for Friday, June 22. The beef was quoted down .86 at noon on Friday. Friday's kill was reported at 126,000 and 77,000 on Saturday. The weekly kill came in at an aggressive 711,000, above the previous week and unchanged from the year ago kill of 708,000.
PORK....After an impressive week of upside gains hog futures seem to run out of gas on light profit taking. The board spun back toward unchanged into the closing bell. Cash hog prices were higher on Friday and they're expected to be higher early next week which should provide further evidence of continued seasonal strength. Sharply higher pork cutout values this week seemed to demonstrate the strong seasonal demand for pork at this time of year. The pork cutout value reached its highest levels since June of last year. The pork reached its highs last year on June 23 at 82.48. Friday's hog slaughter came in at 375,000 and 30,000 on Saturday. The weekly kill came in at 1.924 million head, up from 1.903 on the previous week and up 5.5% from last year. Look for the slaughter pace to edge lower over the next few weeks. The latest CME lean hog index was calculated at 72.79, up .39.
Positions:
New Recommendations:
6-18-07: Buy 1 August Live Cattle @ 90.20 - risk a close below 88.00
