Friday, June 22, 2007
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Fundamentals:
CBOT Dec corn extended its recent weakness Monday and settled 7 ½ cents lower as more rains across the Midwest further alleviated dryness concerns as the crop approaches pollination. Technical factors also weighed on the market after Friday's turn lower to below the 50-day moving average (around $3.83/bushel) for the first time since late May. Dec futures spent the entire session below that indicator Monday in a $3.73-3.81 ½ per bushel channel, and more meandering below the $3.80 area but above immediate support in place around $3.70 looks likely near term. The market's mood at the present time seems to equate any forecasts for rains as a negative for corn, so any additional precipitation across the Midwest will likely keep corn prices on the defensive over the coming days. However, most traders are unlikely to seek to push the market too far in any direction ahead of Friday's report, so overall volumes are expected to lighten up as the week wears on. That said, traders are clearly in a liquidation mood at the present time so we will be looking out for additional declines in corn open interest over the coming days following the near 30,000-lot drop on Friday. In the news today, the USDA reported that corn inspected for export totaled 29.174 million bushels for the week ended June 21, under analyst expectations. For this afternoon, the market seems to be expecting this afternoon's corn crop condition rating to hold steady or to show a slight increase, so any major deviation from that consensus will likely generate a price response.
Technicals:
December corn was lower on Monday, making a new low for the month of June and falling through the uptrend support line drawn off the May lows. A 138% retracement of the June rally would be all the way back down to the recent low of 354.5. Directionals are trending lower to favor the sell side. Both Stochastics and the RSI are approaching an oversold condition. A previous downtrend line drawn off the February-April highs suggests support near the lower Bollinger Band of 362.5. Resistance should be the 40 and 50 moving averages in the 383-384 area.
Recommendations:
6-26-07: Buy 1 December Corn on a close above $3.85.
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
The soybean complex was clearly the star performer of the agricultural arena in Monday's trade, with November soybean contracts ending the day 7 ¾ cents higher despite weekend rains and non-threatening longer-term weather outlooks. The market seems to be running out of fresh news to talk about, and we may be in for a bit of a lull ahead of Friday's USDA Quarterly Stocks and Acreage report. Today's price action seemed to have more to do with participants willing to be invested in soybeans over corn this early in the growing season, as we know year-on-year soybean production will be lower due to acreage declines. Furthermore, bio-diesel now has the attention of the global investment community, more so than ethanol, and this has investors looking to the oilseed arena for investment opportunities on the next potential wave of alternative fuel production. The only real outstanding news today was a stout export inspection figure of 15.6 million bushels, while the trade was only expecting a number somewhere in the 5-10 million bushel area. And although this wasn't wildly bullish, it did aide in giving the market a more positive tone to start the week. As previously stated, the market may be in for a bit of a lull while we await some figures a slew of releases this week. This afternoon we will get another update on early crop conditions, which are expected to be unchanged to slightly improved from last week's figures based on recent weather patterns. Tuesday we will get a Stats Canada acreage update, and analysts are looking for anywhere from 13.8-15.1 million acres of canola seeded, which compares with April forecasts of 14.831 million. And Friday will be the major USDA report, which will fine-tune acreage figures and give us a better handle on how actual soybean use has been to date. This report could give us some good indications as to whether we are going to be in for a breather from what has been a longer term up trend, or if near-term oversupply issues will continue to be ignored while the world keeps its eye on the bigger picture of soybeans potentially loosing acreage on a global scale down the road. For now the market seems to be sending out more-or-less neutral technical chart signals while we await fresh fundamentals inputs, or new developments of threatening weather patterns. However in the days leading up to the USDA's Quarterly Stocks and Acreage report, we may test support at the 100-day moving average at $8.15 in the November contract as the market searches for a more definite direction.
Technicals:
November soybeans were higher on Monday, seeing an inside-up day in the lower half of Friday's sharply lower session. The action looks like consolidation after the recent steep setback. The consolidation is around the 50% retracement of the May-June rally (829) and the action is still above the 40, 50, and 100-day moving averages to suggest that the long-term uptrend is still in force. Directionals are trending down to favor the sell side. Resistance looks to be previous support at 847. Support look to be the lower Bollinger Band and the 40-day moving average in the 825 area.
Recommendations:
Speculative:
6-26-07: Buy 1 November Soybean on a close above 8.48.
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT Dec wheat put in a mixed performance Monday and traded both sides of unchanged before settling 2 ¼ cents higher. The ongoing US winter wheat harvest generated bursts of selling pressure Monday that limited upside room. However, the prospect of global wheat inventories declining to their lowest levels in thirty years (according to a recent USDA projection) kept overall selling pressure in check. CBOT Dec wheat put in a mixed performance Monday and traded both sides of unchanged before settling 2 ¼ cents higher. The ongoing US winter wheat harvest generated bursts of selling pressure Monday that limited upside room. However, the prospect of global wheat inventories declining to their lowest levels in thirty years (according to a recent USDA projection) kept overall selling pressure in check.
Technicals:
December wheat was slightly higher, seeing both sides of unchanged. Today's action looks like continued consolidation following the impressive May-June rally. Another move up could be the right shoulder of a head-and-shoulder top. That would suggest resistance between 629 and 637, which may be the area of sell targets as directionals are basically overbought. Stochastics show a sell signal. RSI is starting to trend lower from an oversold condition and is showing divergence. Support looks to be the 6.00 area, with last week's low being 598.5. If inclined to sell for this potential topping formation, shoot for 630 or better. Or put a scale-up sell there, selling the 4-day as it looks to cross down through the 10-day of 615, which is a sell signal to some technicians. The initial objective would be the 580 area of a 38% retracement. A protective stop would seem prudent above the contract high.
Recommendations:
6-26-07: Sell 1 September Chicago Wheat @ $6.13 - risk a close above $$6.16
Speculative:
NONE
Beef:
Live cattle futures were lower at the end of Monday's day session. June and August continued to find pressure from weak cash fundamentals. Cash prices last week averaged about $86.50, compared to about $89 the previous week and about $82-83 last year. Showlists are reportedly lower than last week, which may prompt some ideas of steady prices this week, especially if beef prices can show some stability. This moring's beef report showed values that suggest a packer breakeven pay price of less than $86.00. This would imply that cash cattle prices should be lower, unless beef prices would take an unexpected jump higher. Without any strong beef features coming up until Labor Day, beef buyers and packers look to keep buying very reserved, especially if cattle slaughter runs high as was seen in today's numbers. The "cattle on fade" crowd and general bulls tried the buy side, and had things going their way for a while, but closed weak to suggest a bearish bias for Tuesday. This was the lowest close for the August contract since early February. The futures premium looked attractive to sellers. It also looks attractive to cattle owners, which helps explain smaller showlists. Futures are telling cattle owners to defer marketings, which usually makes for a bearish backlog in the July/August time frame. It seems too early to get very excited about the bullish longer-term fundamentals of a lack of expansion and increased beef exports.
Feeder cattle futures were higher, able to hold the gains despite live cattle futures slipping lower. Corn futures found renewed pressure, helping to sustain feeder cattle optimism. The Oklahoma City auction was reporting steady prices. The high-range close would suggest a bullish bias for Tuesday. Resistance has been the 100-day moving average, which is slowly trending up and currently holding a value of 109.03. The 38% retracement of the decline off the contract high is 108.86. The 20-day moving average is 108.87, suggesting that there are multiple levels of resistance here that may attract some technical selling for another leg lower.
Lean hog futures were higher at the end of Monday's day session. Although the bulls apparently won the day, it seems to me that the bears let them (short covering) rather than any significant optimism. The sell side continues to focus on the concerns of larger-than-expected hog numbers. Hog slaughter was up significantly (+15%) from last year to suggest that a bearish mentality may rule the day tomorrow. The lean hog index is climbing higher and holds about a $3.50 premium to the futures. This could attract some buying, but not a lot as expectations are for weak cash prices next week as packer demand softens in the midst of the reduced slaughter schedules around the July Fourth holiday. There still could be a late summer rally if the pork cutout value can lead the way amid July Fourth and BLT demand. The norm is for cash hog prices to proceed lower through Labor Day, finding a temporary bounce associated with buying for National Pork Month features before establishing annual lows in the November-December time frame. Futures have a $14 discount already built in, which seems neither excessive nor too small.
Milk futures were sharply higher. Cheese, nonfat dry milk, and butter prices were all steady today. Buying of milk futures was prompted by tighter American cheese stocks. This market is looking for reasons to buy and discounting any reasons that surface to sell. July milk futures reached a new all time high, topping out today at 22.50. The buying interest has posted new record highs in open interest for a bulk of this month's trading action.
Positions:
6-21-07: Sold 1 August Live Cattle @ 89.92 - risk a close above 90.05
6-21-07: Sold 1 August Dairy @ 20.50 - liquidated at 21.26 on midday recommendations.
New Recommendations:
None
