Wednesday, June 27, 2007
888-452-8751
Fundamentals:
CBOT Dec corn ground steadily lower Thursday as traders offloaded long exposure to the market ahead of the month end against a backdrop of improving growing conditions. A general push to take on mainly neutral positions ahead of Friday's key USDA acreage and stocks report also generated steady selling interest. Technical factors also played a destructive role Wednesday after Dec prices slipped below recent lows and key moving indicators such as the 200-day moving average to spark a flurry of automatic stop-loss sales. Overall, the bias of the market was clearly negative throughout, and we can't rule out additional softness Thursday in the final session before the report. However, given the extensive volumes that changed hands though today's session (over 121,000 contracts traded in Dec corn alone), it is quite possible that most of the action is now behind us, and that we're in for a fairly subdued, sideways-bound showing Thursday. Tomorrow morning's sales release might have a say in setting the tone of Thursday's trade, as any surprises on that front could well spur a final bit of position tweaking ahead of the report. Analyst estimates for the sales total run from 550,000 to 1.1 million metric tons, so any figure outside that band stands to generate at least some activity. As for Friday's report, analyst estimates for planted acreage average around 90.585 million acres, which is slightly higher than the 90.454 million acres the USDA projected in its March 30 report. The average estimate for quarterly stocks as of June 1 came in around 3.467 billion bushels, although we at Iowa Grain would not be surprised to see inventories even lower than that in the 3.410 billion bushel region.
Looking beyond this week, wet weather forecasts are going to make it difficult for corn to sustain any rallies, especially if weather models keep calling for conditions to be cooler and wetter rather than hot and dry during the crucial period of corn pollination. But the USDA's findings Friday may trump everything else, especially if the corn acreage total is smaller than expected.
Technicals:
December corn was sharply lower, falling through the support of a previous downtrend line drawn off the February-April highs and the lower Bollinger Band in the area of 360. The low-range close below the pivot point suggests a bearish bias, but considering the steep losses, consolidation seems the most likely course of action. Support is the 138% retracement of the June rally, which coincides with the spring low of 354.5. A move below that would seem likely to trigger sell stops, but this market is oversold. Directionals are still trending lower to favor the sell side. Resistance should be the lows of the previous two sessions this week in the 373 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 actually traded fairly wide ranges over the course of Wednesday's session, and although closed the agricultural arena closed decidedly lower soybeans managed to stage a slight rebound in the closing moments. There was no real rhyme or reason for Wednesday's prices action other than pre-report and position squaring around the entire arena which led to Wednesday's losses. There were no outstanding stories out this to contribute to today's price action and all major themes remain in place at the current time. That said, today's price action seemed to be largely fund driven as they seek to take some profits off the table and pare back market exposure ahead of some rather significant numbers on Friday and on month/quarter end book squaring. In other news, S. Korea bought 55,000 tons of soybeans from Brazil for shipment in September. Weekly sales estimates for Thursday are running in the 100-450,000 ton range and estimates for Census Bureau Soybean Crush is running at 150-151 million bushels, with product stock guesses for meal coming in lower than the previous month and higher soybean oil stocks. Trade estimates for Friday's reports see acreage in the range of 66-69 million acres seeded versus USDA's March intentions estimates of 67.14 million and 75.522 million acres seeded in 2006. As for third quarter stock figures estimates are running from 909-1.12 million bushels area, but should be a record third quarter stocks figure. Overall the same market themes remain intact and we remain on the modest side with our expectations of acreage switches on Friday. The trade on the other hand, certainly seems to be favoring less soybean acres and the soybean market has stayed relatively firm compared to corn, regardless we still have to wait it out till Friday before knowing any actual data. Also, we should note that recent Drought Monitor reports continue to show drought areas in the Southeastern growing regions of the Midwest expanding, however it is unclear how much recent shower activity will aide in giving those areas adequate moisture supplies. That said most forecasts appear neutral to on the non-threatening side and this still needs to be monitored throughout July and the more important August timeframe for further insights on crop conditions.
Technicals:
November soybeans were lower on Wednesday. The action continues to look like consolidation after the recent setback. The last three sessions have consolidated between the 50% and 38% retracement of the May-June rally. The trade is still above the 40, 50, and 100-day moving averages to suggest that the long-term trend is up. Directionals are trending down to favor the sell side, but seem to have lost some momentum this week. Resistance looks to be previous support at 847. Support looks to be the lower Bollinger Band and the 40-day moving average in the 826-830 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:
The wheat market traded both sides of unchanged levels in very wide ranges Wednesday, ending with CBOT futures losing some ground while the KCBT and MGE contract ended a bit higher on the day. The market first headed to new life-of-contract-highs on the on-going concerns over tightening global production prospects and a slew of export activity in recent days. However the market eventually sold off as buying interest dried up at contract high prices and the trade turned sellers with the interest of taking profits off the table ahead of month/quarter end and Friday's USDA data releases. There wasn't really any change in the news, Wednesday, after seeing solid amounts of over 100,000 tons of wheat supplies purchased from optional origin sources by Egypt and Japan this morning and news wire reports that India remains undecided on what the total amount of wheat they actually import will be. And this comes on the heels of a drop in US crop condition ratings Monday, over a 2.0 million acre drop in Stats Canada planted acreage estimates, excessive moisture problems in France, and server heat and drought conditions in Eastern Europe all limiting global production prospects. And not to mention, that all this is building up while global stockpiles are projected at 30-year low levels. But regardless, fund participants looked to lighten up market exposure in all markets a bit ahead of Friday's releases that also happen to coincide with the end-of-the-month and quarter. Average trade guesses for all wheat is running at 60.350 million versus the USDA's previous forecast of 60.303 million in March and 57.344 million last year. Spring wheat estimates are running around 13.835 million versus 13.807 million estimated by the USDA in March, and Durum acreage is seen at 1.996 million versus 1.990 million forecasted in March. The average trade guesses for final stocks for the 2006-07 marketing year are running in the 422 million bushel arena versus 417 million estimated by the trade currently and 571 million last year. Tomorrow we will get weekly sales figures and they are expected to be in the 200-500,000 ton range. For overnight the market could be a bit whippy and two-sided and even stay that way until we get through the reports on Friday, but with the longer term picture shaping up the way it has over the past week. There likely isn't much room on the downside unless some major unforeseen turnaround event happens in the world where we can expect to produce an above average crop and pull balance sheets out of what looks to be a rationing situation on the horizon and build stockpiles. That said, we remain friendly to the market over its longer-term prospects and any sharp downward probe is likely to be a minor event that will allow for pricing opportunities and short covering.
Technicals:
December wheat was lower, posting a contract high reversal. Technicians will be looking for a lower close to confirm the potential reversal top. The low-range close below the pivot point suggests a bearish bias. Once again, the higher price levels came with relatively lower values of Stochastics and RSI. This divergence should attract technical selling, especially as these directionals trend down from an oversold condition. A move lower to test the uptrend line drawn off the recent lows should be expected. That support is 614. A bounce from there could prompt ideas of a head-and-shoulder top formation. The potential "head" came with lower open interest which makes such a formation more credible. Resistance looks to be around the left shoulder high of 637.5 and the contract high of 646.5. This area may be worth a sell again.
Recommendations:
NONE
Speculative:
NONE
Beef:
Live cattle futures were mixed at the end of Wednesday's day session. June was down as weak cash fundamentals and concerns of deliveries prompted longs to sell out. The other contracts were higher, seemingly divorcing themselves from June and the current cash market. The premium held by these contracts limited the gains. Bear spreading was noted, selling June buying August or October. August was the upside leader, but that may change as the rolling of longs from August to October will get started early next month. Yesterday's comments questioned what it would take to get the bulls to step forward. Well, a sharply lower corn futures market amid talk about Friday's Acreage report was supportive. Choice beef prices were lower yet today, but the losses are shrinking. Retailers over the last year and a half have take advantage of prices at this level to be more active buyers. That probably should be expected again since live cattle futures suggest that these will be the lowest prices for this year and next year. This sure looks like the makings of a bottom, but delayed marketing's often make for a bearish backlog at this time of year, suggesting that an extended bottom is possible. However, I wouldn't be surprised if a rally got started with today's reversal action. The outside-up day is a technical reversal that could easily attract more buying tomorrow, especially if there are things to offer support (i.e. lower corn prices again, beef prices steady to higher).
Feeder cattle futures were higher, posting strong gains that did see triple-digit gains at times. The early action was lower, so the strong finish put an outside-up day that looks friendly to continue the two-week uptrend. Directionals are trending higher to favor the buy side, but today's action found resistance at last week's highs of 108.85 for the August contract and below the 100-day moving average of 109.18. The buying was attributed to the reversal bottoms put in place by the live cattle contracts and by the sharply lower corn futures. Cash feeder prices were generally weak, but feeder demand may very well improve with the more favorable action by futures.
Lean hog futures were mixed at the end of Wednesday's day session. The bearish mentality seemed to dominate today's trading, but spread activity supported August which posted a reversal. This may attract some buy support, especially since the chart shows an oversold condition and there will be some interest by shorts to cover ahead of Friday's Acreage report in the morning and Hogs and Pigs report in the afternoon. Cash fundamentals still are weak to offer pressure to futures, despite a relatively large discount. Hog slaughter for today was slightly lower than last year, but the week-to-date is still up about 5%. Today's National Base report showed weights down about 1.5 pounds from last week. Today's IA/MN report showed weights down 0.6 pounds from last week. The lower weights suggest that marketing's are current, and that producers are doing what the market tells them to do (sell now as futures prices suggest prices will be lower in the months ahead). This could lead to a marketing hole, which could be price supportive if pork demand can make the pork cutout rally again. This would likely require pork bellies to rally also. The first step is to see smaller hog slaughter. Traders are likely to wait for Friday's report for at least an initial idea of whether that is possible.
Milk futures were sharply lower. The sell pressure was attributed to profit taking, but that is what was said yesterday and open interest went up. It will be interesting to see what open interest did today when the number is released tomorrow morning. Considering that September was almost limited down, considerable liquidation was likely. Cheese prices were lower to prompt concerns for longs, but that and the chart action could easily have attracted new sellers at these historically high prices. There seems to be considerable media attention about the high cost of milk and cheese, which may help prompt some slight reductions in dairy product usage.
Positions:
6-21-07: Sold 1 August Live Cattle @ 89.92 - liquidated at 88.35 (Profit = 230.00 less commission)
New Recommendations:
6-28-07: Buy 1 August Live Cattle @ 89.57 Stop Close Only.
