Friday, June 22, 2007
888-452-8751
Fundamentals:
Fresh rains throughout recently dry parts of the Eastern Corn Belt spurred widespread long liquidation and short selling in corn Friday that knocked CBOT Dec corn futures ‘limit down' twice during the session ahead of the $3.81 ½ per bushel close - its lowest since June 6. The passing of July options expiry also weighed on the market Friday. Today's slide pretty much eradicates corn's gains between June 12 and June 18, when concerns about sustained dryness throughout key US growing regions lifted corn prices to their highest levels since late February, and brings the market back to where it resided for the months of April and May. While the $3.80 region marks a substantial retreat from the $4.30 highs scored just four trading days ago, we would not be surprised to see prices lose a bit more ground still if rains in the Midwest persist and convince many market watchers that soil moisture levels have been fully replenished following the dry spell during late May/early June. Indeed, from a technical or chart perspective the $3.70 a bushel area looks set to be a viable downside target for many chart-tracking speculators who tend to add to sell side volumes the longer downside momentum remains intact. However, normal rules may not apply next week given the proximity of the key USDA acreage and quarterly stocks report (due June 29), and the fact that the end of next week also marks the end of the second calendar quarter of 2007. Many hedge funds reallocate positions at the end of every quarter and take profits on over-performing assets in order to beef up exposure in lagging markets. If such maneuverings occur in these markets, they could accentuate price movements across the agricultural arena in the days ahead and make price action even more volatile that it already is. Still, while these near term developments are a very effective distraction for the market for now, corn's longer-term issues remain largely unchanged: global consumption continues to rise while production expansions are only limited. As a result, we advise market watchers to view any sharp breaks in the market as potential buying opportunities, especially in deferred corn contracts where attentions in due course will necessarily turn to next year's production requirements. In the news today, cattle placements came in above the trade's estimates, which should bode well for corn feed demand for the coming months.
Technicals:
No comments today.
Recommendations:
Speculative:
We will wait for Monday to make fresh recommendations following the weekend weather.
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
Soybean futures ended the week with substantial losses despite starting out by arching to contract highs. Rains that recharged soil moisture levels in key growing areas spurred most of the sell off, although technical factors also played a destructive role by ushering in follow-through sales as prices declined. The market had been teetering around overbought technical signals for quite some time now and technically as of the end of this week we've seen nearly a 50% retracement from mid-April lows made at the $7.52 area. Option expiration today for the July contracts also contributed to the weakness as prices gravitated towards the $8.00 strike that had just over 9,000 contracts in both the calls and puts. Overall, the big picture hasn't changed too much, but the weather patterns over the past week did give the crop some needed moisture in its early stages of development, and eased concerns of expansion of on-going drought conditions in the southeast and Delta. However we must keep in mind that the most critical time for precipitation will be in August, when the soybean plant reaches the pod fill stages, but moisture along the way certainly does help. On the world front, global stockpiles are set to fall in 2007-08, mainly on declining US acreage/production prospects, but the early expectations are that we did pick up a few more acres over the course of the planting season and could see a slight upward revision to acreage figures come the end-of-the-month Acreage report, so these types of thoughts combined with the bearish technical signals further fueled Friday's sell-off. Looking to next week, we could see a slight improvement in crop conditions after the recent spat of showers that moved through the Corn Belt this week. However, any significant changes to Sunday night's weather models could certainly have a greater impact on where prices move from here. We continue to see a glut of soybean supplies around the globe, and we can expect that next week's Quarterly Grain Stocks will reflect record stocks through the third quarter of the marketing year in the US.
Technicals:
No comments today.
Recommendations:
Speculative:
NONE
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT Dec wheat closed 15 ½ cents lower Friday at $6.12 ½ a bushel as end of week profit taking coupled with spillover sales from the heavy corn and soybean markets trimmed wheat's recent gains. Rains in the Ukraine, plus the prospect of a pick up in the pace of the US winter wheat harvest over the coming days also lent on wheat values. More downward probes look likely early next week if US harvest weather looks set to be favorable, so allow Dec wheat prices plenty of room to the downside if speculative players pick up the pace of profit taking. Furthermore, given how wheat has comprehensively outperformed corn and the soybeans in recent weeks, we must allow for the possibility that some hedge fund managers will trim wheat positions before the end of the month, with the intention of reallocating funds to other under-performing arenas. This could increase sell-side volumes in wheat over the coming days and could certainly make for very choppy trading conditions. However, regardless of price direction next week, the wheat market continues to face the prospect of its lowest global ending stocks total in 30 years due to global production shortfalls and steadily rising demand. Also, while the US harvest will continue to crank up, the market is still unsure as to what to expect quality-wise from the winter wheat crop, as large parts of those growing areas were affected by a severe frost in April and heavy rains since that potentially damaged the crop. Early yield reports vary widely so far, so it will still be some time before we can get a decent handle on what to expect in terms of a final production total. Kansas wheat farmers, for instance, are reporting yields from 5 to 40 bushels an acre. As a result, while wheat values could be in for a bumpy ride over the near term, its overall downside room should prove pretty limited. Also, while more profit taking is almost certain next week, heavy short selling is deemed unlikely ahead of next week's USDA update on quarterly stocks and acreage totals.
Technicals:
No comments today.
Recommendations:
NONE
Speculative:
NONE
Beef:
BEEF...Live cattle futures trade continued to reflect the weak underlying fundamentals of lower live and wholesale beef prices. This week's mostly $3.00 lower live trade does not help to provide any evidence of a seasonal low. We are working down toward the levels of last year's summer lows and traders will be watching closely for clues for a cash bottom. Feeder cattle futures ended modestly higher on the back of sharply lower corn prices. Today's cattle on feed data will be looked at as negative. Cattle on feed were reported at 101%of last year, placements at 113 and marketing's at 97% of a year ago. Today' slaughter was 126,000 vs. 120,000 a year ago. Weekly slaughter was 631,000 vs. 620,000 the same week last year.
PORK...Sharply lower prices were seen across all contracts as traders ignore near term cash strength and look down the road to the end of the current seasonal live and product price advance. Fund selling was noted as July and August futures fell below recent support levels. Today's cold storage data was a bit negative as frozen pork belly inventories were reported at 57.235 million pounds, at the high end of the range of estimates. Also, frozen ham inventories were reported higher than expectations at 96.9 million pounds. Today's hog slaughter was reported at 379,000 head vs. 342,000 the same day last year. Weekly slaughter was 1,930,000 against 1,820,000 a year ago.
Positions:
6-21-07: Sold 1 August Live Cattle @ 89.92 - risk a close above 90.60
6-21-07: Sell 1 August Dairy @ 20.50 - held position based upon mid-day updates. Risking close over 21.16
New Recommendations:
None
