Wednesday, June 20, 2007
888-452-8751
Fundamentals:
CBOT Dec corn initially extended its sharp losses incurred Tuesday, but managed to stage a rebound over the course of Wednesday's session as the strongly higher wheat market lent other grain markets spillover support. An unclear weather outlook for key US growing areas also helped hoist corn off its recent lows, but also limited the market's overall upside momentum. The wild ride this market has traveled so far this week has primarily been weather-driven, after rains emerged Tuesday to moisten recently dry growing areas in the Eastern Corn Belt, and further rains formed in 6-10 outlook models. However, the latter precipitation system cannot be counted on, and has already been pared back by some forecasters, which offered key support to the market Wednesday. How those models match up over the balance of the week will be a key determinant for corn price direction going forward, as more rains will equate to more price pressure, and dry and hot weather patterns will be supportive for prices. This whipsawing back and forth in response to weather updates could well extend all the way up to the June 29 USDA acreage and quarterly stocks report, which will provide the market with the latest official take on US production prospects. As a result, were are suggesting traders all for corn prices to forge a wide trading range over the coming days and refrain from trying to pick absolute tops or bottoms. Rather, keep a close eye on developing weather patterns, especially any that reach into July and therefore corn's crucial pollination stage, and bear in mind that corn will struggle to register truly high yields amid sustained bouts of hot and dry conditions. Attention overnight will remain primarily on the weather, but will also likely turn to Thursday's weekly export sales report, which will give a fresh gauge on the state of foreign demand for US corn. Analyst estimates run from 500,000 to 850,000 metric tons.
Technicals:
July Corn finished down 1 3/4 at 394 1/4, 6 1/2 off the high and 4 1/4 up from the low. Declining momentum studies in the neutral zone will tend to reinforce lower price action for July Corn. The close below the 9-day moving average is a negative short-term indicator for trend.
Recommendations:
Speculative:
6-21-07: Sell 1 Dec Corn @ $4.17
6-21-07: Sell 1 Dec Oat @ $2.88
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean futures rebounded from Tuesday's 20 cents-plus cent price break on uncertainty over longer-term weather forecasts and how current weather forecasts will affect drought/field conditions for the crop that is in its early stage of development. Fairly wide ranges were traded Wednesday, with new crop November futures posting an 18 ½ cent range, but ending with only 10 ½ cent gains up on the day after being up 22 cents at one point during the session. Uncertainty over how much and where precipitation will fall for the rest of this week, and what the Mother Nature has on the horizon in the longer-term outlooks, was said to be the reasoning for today's firmer tone of the market. Generally speaking, showers throughout the rest of this week will ease dry conditions in parts of central IL and IN, and OH, but we still have an ongoing drought in the southeast and Delta growing regions, with only limited relief on the way. That being said, current weather doesn't really mean much for the soybean market at such an early stage of development. August is the critical time for soybean reproduction, and that's when the crop really needs beneficial rains that could have a major effect on yields. So to say that weather, at this point in time, has a major impact on yield prospects would be a bit misleading. If we were in a scenario where major soybean producing areas were in a "Dust Bowl" type drought, or continuous and
excessive rains were to wash out fields, then the weather story would have a bit more validity. But in reality the weather story should be more of a factor for corn right now rather than soybeans, and the only real story here is that speculators want to increase exposure on price slides as global supply/demand balances of most grains and oilseeds have become quite tight due to growing demand and only limited production expansion prospects. Nonetheless, participants took Tuesday's price slide as a short covering and speculative buying opportunity, as the trade's bias is to be long a market that has a known year-on-year shortfall in production and falling global stockpiles. Looking ahead, the trade is sure to be firmly focused on weather reports, and we are likely to continue to see volatile price action. Weekly export sales estimates for Thursday run from 100,000-300,000 tons of soybeans for both old and new crop combined. Longer term, any deterioration in crop conditions is likely to continue to underpin values, so participants need to keep a close eye on weather forecast shifts that can affect the "trades' perception" of the crop until we get into more critical growing phases where we'll know that shorter-term weather outlooks will have a great impact on yield potential.
Technicals:
July Soybeans finished up 10 at 839, 13 off the high and 10 1/2 up from the low. November Soybeans closed up 10 1/2 at 874 1/2. This was 11 1/2 up from the low and 11 3/4 off the high. Stochastics trending lower at midrange will tend to reinforce a move lower especially if support levels are taken out for July Soybeans. The close above the 9-day moving average is a positive short-term indicator for trend. It is a mildly bullish indicator that the market closed over the pivot swing number.
Recommendations:
Speculative:
6-21-07: Sell 1 November Soybean @ $8.60 Stop close only - OR - $8.90
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT Dec wheat futures bolted to fresh contract highs Wednesday of $6.31 ½ per bushel after fresh heavy rains further slowed the US winter wheat harvest, Ukrainian officials announced a tight wheat export quota, and Egypt announced its main wheat buying authority had been allotted an addition $350 million with which to acquire ‘commodities' this coming fiscal year. News that Moroccan 2007-08 soft wheat imports will triple due to a domestic drought also offered prices a boost, as did positive technical momentum that drew additional buying interest from the trend-following fund community. The net result was Dec wheat's fourth settlement above the $6.20 level in the past five trading days - its strongest stint in more than a decade. Underlying today's positive tone has been the USDA's recent pronouncement that global wheat inventories will decline to their lowest levels in more than 30 years over this coming marketing year due to a global production shortfall matched with continued rises in demand. Despite the overwhelmingly bullish mood of the market Wednesday, spates of price weakness have to be allowed for going forward as bursts of hedge selling take place and early winter wheat yield reports come through from US farmers. The market is bracing for a poor collective winter wheat crop due to April freezes, but farmers may yet pull a good crop out of the bag as certain farmers in South Central Illinois have reported yields as high as 75 bushels an acre, and most others in that region are generally seeing 60 BPA. Certainly farmers in other parts of the country will report much lower totals, but it is not yet prudent to count on a very low final crop size. Attention overnight will remain primarily on conditions in key global growing areas, but also turn to positioning ahead of Thursday's weekly export sales report, which analyst are expecting to come in around 150,000 to 400,000 metric tons. Considering the period concerned covered a period of sustained wheat price strength, it will be interesting to note how well foreign demand held up last week.
Technicals:
July Wheat finished up 24 at 605, 6 off the high and 18 1/2 up from the low. December Wheat closed up 22 at 623 1/2. This was 17 1/2 up from the low and 8 off the high. Momentum studies trending lower from overbought levels is a bearish indicator and would tend to reinforce lower price action for July Wheat. The market's short-term trend is positive on the close above the 9-day moving average. A positive setup occurred with the close over the 1st swing resistance.
Recommendations:
NONE
Speculative:
NONE
Beef:
BEEF...Continued weakness in the cash market contributed to another round of aggressive selling in live cattle futures, pushing the front month June to a new low for the move. Cash trade in NE was reported at 3.00 to 4.00 lower on the hot beef, we'll see where cash trades in the south later this week. The southern market has been setting the tone for the board. The cattle on feed report is slated for Friday afternoon at 2:00. Of great importance to the market will be the May placement figure. There is a wide discrepancy among the trade regarding the level of placements. Will deferred premiums be justified by the data? The market has not yet established a seasonal low. Keep in mind that placements last May were very light, down 14% from May of 2005. Today's kill was pegged at 127,000 compared to 126,000 last year. Tonight's beef report showed the choice cutout down 1.03 at 143.43. Movement was active at 320 boxes 130 trim.
PORK...Cash hog prices were mostly higher today with most strength in the western interior areas. However, the aggressive slaughter pace is beginning to worry the market. Last week's kill was up 5.5% and this week's kill is running well ahead of both last week and last year. Futures closed lower across the board with the fall contracts weakening relative to the summer months. Fund selling was featured in the back months as the technical picture in the Dec and Feb begins to crumble. The market is beginning to think about the upcoming hog & pig report slated for release on Friday, June 29. Overall, despite high feed costs, the industry likely has not been liquidating large numbers of breeding stock. Today's kill was pegged at 390,000, up from 383,000 last week and well above the year ago actual kill of 379,000. It appears that production, record large production, is going to challenge demand for pork this summer and fall. Tonight's pork cutout was up .19 at 78.89.
Positions:
New Recommendations:
6-21-07: Sell 1 August Live Cattle @ 90.20 stop close only.
6-21-07: Sell 1 August Lean Hog @ 75.50 - risk a close above your entry price.
6-21-07: Sell 1 August Dairy @ 20.50 stop close only.
