Monday, July 02, 2007
888-452-8751
Fundamentals:
CBOT Dec corn put in a subdued showing Monday and hovered on either side of the $3.50 per bushel level amid fairly thin trade throughout. The dust continues to settle from Friday's surprise revelation from the USDA that a whopping 92.88 million acres of US land has been dedicated to corn production this year - and even higher total than the 90.454 million acres the USDA had previously projected, which had been the highest acreage total since the 1940s. Conducive growing weather throughout most of the Midwest also suppressed corn trade, and greatly curbed buy side interest. However, selling interest was also on the light side throughout the day as soybean prices continued to charge higher on the back of Friday's news that US bean acreage was sharply lower in order to make way for greater corn output. The strong tone of the bean market lent corn support because, in due course, these two crops will have to fight it out for acreage for next year's planting season. During the session we received another weekly export inspection figure that totaled 34.2 million bushels which was actually on the highs side of trade expectation of 30-35 million. Looking forward, traders will be keeping a close eye on weather conditions throughout key growing regions, as from here on in the crop will need regular rainfall in order to maximize yield potential during pollination, which takes place over the coming weeks. Attention will also be paid to consumption levels, as corn is expected to draw increased demand from the feed sector, which is expected to veer away from wheat feeding following the recent surge in global wheat values to 11-year highs. Overall activity levels over the near term are expected to remain light given the midweek holiday and the fact that corn prices will likely lack clear direction until we get deeper into the growing season and can maybe get an early handle on how well pollination went in the country's top growing areas. An early indication on the overall state of the crop comes this afternoon in the weekly crop condition report, which traders are expecting to reveal a smallish improvement in the crop's top ratings following the recent rains. About 73% of the crop was deemed to be in good to excellent condition last week. Yield estimating is expected to take on a more prominent role in discussions going forward, but the reality is that no one can get an effective gauge on the likely final yield totals until after harvest. However, that will not stop market watchers from pontificating and estimating to their heart's content. For our part, we think it wise to stick with the USDA's trend line estimate of 150.3 bushels an acre for the foreseeable future - at least until we get through pollination. However, putting yield potential aside, larger crop sizes are seemingly on the horizon after the USDA revealed a larger than expected planted acreage number and this could lead to further downside probes as the market searches for a price level to stimulate demand.
Technicals:
December corn was lower, seeing an outside-down day that maintains a bearish bias. The close below mid range and the pivot point suggests a bearish bias for Monday. Support is today's low of 343.75. Resistance is today's high of 366.5. Directionals are still trending lower to favor the sell side, but are showing an oversold condition with the downward momentum slowing.
Recommendations:
6-29-07: Buy 1 December Corn on a close above $3.58.
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean futures ended the session with double-digit gains again while making fresh life-of-contract highs, as well as contact high closes, in all months except the old crop July contact that is currently in its delivery cycle. By the end of Monday's session November soybeans managed to pull out solid 16 ½ cent gains on the day, but we did see the market pull back near unchanged levels at one point during the trade. In the product trade we saw meal take the lead as the performer of the two products, closing out the session with $6.70 per ton gains, basis the December contract, while soybean oil saw only modest 3 point gains. There wasn't much in the way of fresh market moving news per say, but last Friday's disclosure by the USDA of lower than expected planted acreage continues to add speculative buying interest to the trade. Obviously Friday's that revealed year-on-year declines amounted to 11.441 million less planted and this continues to lend the bullish sentiment to the trade, as lower production prospects look set to tighten US balance sheets considerably in the 2007-08 marketing. In the news Monday, export inspections were out this morning and came in on the weaker side with on 7.176 million bushels inspected for export while the trade was looking for a number with the range of 7-11 million. Other news during the session was relatively light and the trade is now looking to this afternoon crop condition report for fresh insights as to the overall state of the crop. That said, we should be looking at steady to possibly a shade better crop conditions on a nation wide average as most critical growing areas received some beneficial rains last week. In the product trade the meal market was the star performer of the two products and likely found some outright speculative buying interest from Friday's Hogs and Pigs report that unveiled expansion in heard sizes. Also the unwinding of long oil/short meal spreads inter-market spreads likely aided in giving the meal market an added boost. Looking ahead, the longer-term fundamental prospects of the market should continue to lend underlying support, as prices will be the catalyst for encouraging South American producers to pick up the hefty acreage losses that the have been witnessed in the US. Also, technical chart patterns continue to remain friendly and the market still hasn't quite dipped into overbought territory so it would seem that the market may be able to continue its upside momentum for the time being. That said, we can't rule out any spats of profit taking on the horizon, especially if crop condition reports continue to show improvement, however sustained downside movement is likely to remain limited until we get a better handle on actual US production prospects.
Technicals:
November soybeans were sharply higher on Thursday, up the 50 point limit to be restrained just shy of contract highs. The high-range close above the pivot point suggests a bullish bias for Monday, with directionals turning higher to favor the buy side. The extent of the gains would suggest some consolidation as it more cautiously tests the contract high of 896.25. This and the upper Bollinger Band of 888.3 looks like resistance. Support is the day pit low of 875. The trend is up, but needs to move above the previous contract high to prove it.
Recommendations:
7-3-07: Sell 1 Dec Soymeal on a close below 236.50
Speculative:
NONE
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT September soft red winter wheat futures rounded out Monday's trade with 13 ¾ cent losses while KC hard red winter contracts ended down 10 ½ cents and Minneapolis hard red spring wheat futures witnessed 19 ¼ cent losses. Some KC and Minneapolis contracts actually touched limit down levels at one point during the trade, however most selling interest was deemed technical in nature after Friday's key reversal sent quite the bearish signal to the chart following crowd. News for the trade wasn't all that bearish as a slew of tender activity by Egypt, Iraq and Guatemala, indicated that global demand remains fairly brisk. This morning export inspections was also released came in at 22.2 million bushels, which was above the high end of trade estimates of 15-20 million. However, there wasn't really any major news to continue to support such high price levels as the market has done a fairly good job at pricing in threats to global production prospects. Also, it was also noted that French wheat values backed off a bit as we got Monday's session underway. Also, adding to the speculative selling interest was last Friday's revelation that US ending stocks for the 2006-07 marketing year are totaling 456 million bushels, which was quite a bit larger than the 417 million bushels the USDA had written down for old crop balance sheets. This afternoon we will receive an updated crop progress and condition report that will help give the trade fresh insights into the current state of both the US winter and spring wheat crops. Expectations are that reports will show that winter wheat harvest in the Plains growing regions will be severely lagging the average harvest pace and we could also see condition declines for both winter and spring wheat crops, all due to heavy rain events that have plagued some major wheat producing states over the past week. Overall the world picture remains price friendly as global production prospects are questionable and we already have world stocks projected at decade's low levels. Any further threats to world production will continue to underpin values in an effort to ration supplies and encourage expansion in wheat production around the globe. That said, recent prices action has sent quite a few bearish technical signals and we could be in to test some major support areas over the near term.
Technicals:
December wheat was sharply lower, seeing a wide-ranging session that made a new contract high. The outside-down day is a key reversal, which would seem likely to attract technical selling, especially with directionals trending lower and showing divergence. The low-range close below the pivot point suggests a bearish bias for Monday. Technicians will be looking for a lower close on Monday to confirm the reversal pattern. There is the potential for a gap lower open, which with the wide-ranging day gives a downside objective all the way down to 554. Resistance is today's high of 658. Support is the 20-day moving average of 600.1.
Recommendations:
7-3-07: Sell 1 Sept KC Wheat @ $6.10 - risk a close above $6.17
Speculative:
NONE
Beef:
Live cattle futures were lower on Monday, and finished weak for the day session. Trade was relatively quiet, which is likely to be the case for tomorrow's early, noon, holiday day trading session. Cash cattle trade is not likely to be established before the holiday. Beef prices were higher this morning, and last week's report showed strong movement to suggest that there is something to the idea that Choice beef prices below $140 attracts buying to put in bottoms. The market still has a lot of summer to get through before getting to the fall rally, which put futures on the defensive today and may make for a sideways trend and light trading for the summer. There looks to be several layers of resistance in the 91.00 to 92.00 range. The 40, 50, and 100-day moving average and the upper Bollinger Band are all within that range, not to mention the previous swing high of 91.37. Support should be in the upper 80s as long as cash cattle prices have really bottomed.
Feeder cattle futures were steady to slightly lower. August was the exception seeing steeper losses due to the futures premium to the index. August finished weak, but the other contracts finished strong. There wasn't much leadership as corn was mixed and live cattle futures looks to be consolidating. The August feeder cattle chart looks overbought, but there doesn't look like there is a lot of resistance until it makes a test of the contract high of 114.40. Today's surge higher makes for a $6 rally off the mid-June low. Some consolidation here would seem likely, until the fat cattle and feeder cattle cash markets can show some upside price leadership and do some catching up. Feeder traders will continue to watch corn for direction, especially if it were to move back higher for some reason (weather).
Lean hog futures were mostly lower on Monday. The sell pressure came due to the supply expansion as seen in Friday's Hogs and Pigs report and due to the demand concerns as seen by the sharply lower pork cutout and the limit down pork belly futures. July and August led the way down with sizeable losses, but December closed higher, finding most of the buying support on the idea that futures are oversold, pork demand could be better in that time frame amid higher beef/cattle prices, and Canadian imports may not be as large amid their herd reduction. The reversal on the chart may attract some follow-through technical buying. December futures at 61.80 are still above any December average price for the last 10 years. The closest is the last two-years of 61.16 and 61.03. This may make it hard to rally too much higher, but a 50% correction of the recent steep decline would be back to the 64.00 area. Cash hog prices showed considerable variability today, ranging from as much as $3.50 lower to as much as $2 higher in a report I saw. Traders will keep a close watch on hog and pork prices, especially with futures at a big discount.
Milk futures were sharply higher on the day pit close. Follow-through selling had futures down hard, but the market bounced due to higher cheese prices and ideas that the recent weakness had made enough of a correction. The hourly chart had gotten well oversold. The bulls seem to be holding fast amid strong fundamentals that include a positive U.S. and world supply and demand picture that just can't change very fast.
Positions:
NONE
Recommendations:
7-3-07: Buy 1 August Live Cattle @ 89.52 - risk a close below 89.37 and reverse.
7-3-07: Buy 1 August Lean Hog on a close above 70.47
