Wednesday, July 11, 2007
888-452-8751
Fundamentals:
CBOT Dec corn meandered on both sides of unchanged Wednesday as traders looked to emerging weather forecasts covering Midwest growing regions for direction ahead of Thursday's USDA report. By and large, the market seems to be bracing for a bearishly-tinged report from the USDA in the wake of the June 29 Quarterly Stocks and Acreage report that revealed a much higher than expected corn planted acreage figure. However, as weather will play a critical role in determining the exact size of the final crop, weather outlooks for the rest of the month of July have taken on high importance, and remain this market's main driving force. Recent forecasting models have conflicted in rainfall expectations, so traders have lacked conviction in pushing the market either higher or lower in recent sessions.
Rainfall is required throughout the region as the crop is into its moisture-dependent pollination stage, so any shortage of moisture or extreme heat stress could negatively impact crop development. Current outlooks generally call for cooler temperatures, but are not in agreement in terms of rainfall estimates. As a result, while the broad near-term outlook is not all that threatening to the crop, the extended weather forecasts are uncertain as to the extent of heat ridging and availability of soil moisture supplies, especially in the northwestern and eastern sections of the Corn Belt, during this critical reproduction phase, so until rains do actually fall on a majority of the Corn Belt, heavy selling pressure is not expected. In addition to eyeing the weather, the trade is preparing for Thursday's reports.
With regards to the supply and demand release, traders are expecting corn inventories for old and new crop balance sheets to increase slightly as a result of the historically high planted acreage figure. With regard to weekly exports, the trade is estimating sales to come in around 700,000 to 900,000 metric tons, versus 1.9 million tons the prior week. In today's news, a newswire reported that corn was pollinating earlier than usual this year, which could pave the way to a "bumper crop." Agronomists from Illinois and Iowa said corn crop yields had upside potential, but agreed that because of varied planting dates the pollination phase for the entire crop would spread across several weeks. Focus overnight will likely be on last-minute pre-report positioning. Once the report is out, however, unless it contains major surprises, weather outlooks will likely resume their position in the drivers' seat.
Technicals:
December corn was lower, seeing some consolidation. Support was the 4-day moving average of 353.5. As wrote about yesterday, the 4-day moving average crossed up through the 10-day, which could attract buying from some technicians. Directionals have turned higher, with Stochastics giving a buy signal yesterday. Resistance looks sparse until all the way up to 374, which would be the 38% retracement of the recent decline. Recommendations:
None
Speculative:
7-10-07: Bought 1 December Corn @ 348.00 - reverse on a close below 350.50
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean futures saw a relatively tight trading range today that teetered on either side of unchanged levels. However we did see both new life-of-contract highs prices and closes during Wednesday's session and the market did end in positive territory with the November contract closing out the day with 2 ¼ cent gains. Speculative led buying interest continues to buoy prices in the days leading into the USDA's World Agricultural Supply and Demand Estimates report, which is largely expected to paint a broadly bullish fundamental picture for the medium to longer term. Moreover, uncertainty surrounding the latest weather forecasts is at least limiting selling interest especially with nation wide crop condition ratings declining last Monday.
With the USDA report to be released Thursday morning the trade seemed unwilling to push the market too far in either direction and was content to allow prices to waver on either side of unchanged levels during the session. But taking into account the fairly bullish sentiment of the trade mainly on concerns and uncertainties surrounding the fate of production prospects, both domestically and around the globe, it has given validation to the rally of late. And Thursday's report should give us the USDA's fresh take on both old and new crop balance sheets, however without any surprises the market may find it tough to hover at such high levels, especially if weather forecasts come into better agreement and call for a potentially less threatening weather pattern to emerge.
And conversely if weather forecasts do remain uncertain or call for heat ridging and only slight chances for rain events, then that could certainly take center stage and negate any fresh revelations from the USDA albeit bullish or bearish. That said, trade estimates for 2006-07 carryouts are ranging from 570-610 million bushels, and 2007-08 estimates range from 176-270 million bushels.
Also to be released Thursday is the weekly export sales report and trade estimates for that are running in the range of 150-250,000 tons of beans, 75-125,000 tons of soy meal and 0-10,000 tons of soy oil. In the news today, reportedly the Brazilian government still has not come to a consensus on the extension of farm debt renegotiations, which could potentially affect Brazilian soy producer's ability to expand acreage for their 2007-08 marketing year.
And with that said the Brazilian real saw fresh contract highs versus the US dollar, which has also been a factor in supporting the market action of late. With global soybean trade being conducted in US dollars and those values weakening, it equates to less buying power for the Brazilian farmer which could also sour producers on both planting soy in general and increasing planted area for soybeans which will be desperately needed in the coming year after the sharp drop in US acreage in 2007.
Thursday morning will mark another milestone report for the trade, as we will receive the USDA's fresh take on balance sheets after releasing their sharply lower planted acreage forecasts back on June 29th. However if there are no surprises we could very well run into a buy-the-rumor and sell-the-fact type market action, pending updated weather forecasts.
Technicals:
November soybeans were higher on Wednesday, posting another new contract high. Support of the upward sloping trendline (previous resistance) is 907.5. Directionals are still trending higher to favor the buy side, but are overbought levels that could attract selling given such a signal. The trend is up, with targets based on the fall-winter rally suggesting a 940 objective from another 38% move or a 990 objective from another 240 point move from the spring low of 750.
Recommendations:
7-12-07: Sell 1 November Soybean on a close below 914.00
Speculative:
NONE
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT soybean futures saw a relatively tight trading range today that teetered on either side of unchanged levels. However we did see both new life-of-contract highs prices and closes during Wednesday's session and the market did end in positive territory with the November contract closing out the day with 2 ¼ cent gains. Speculative led buying interest continues to buoy prices in the days leading into the USDA's World Agricultural Supply and Demand Estimates report, which is largely expected to paint a broadly bullish fundamental picture for the medium to longer term.
Moreover, uncertainty surrounding the latest weather forecasts is at least limiting selling interest especially with nation wide crop condition ratings declining last Monday. With the USDA report to be released Thursday morning the trade seemed unwilling to push the market too far in either direction and was content to allow prices to waver on either side of unchanged levels during the session.
But taking into account the fairly bullish sentiment of the trade mainly on concerns and uncertainties surrounding the fate of production prospects, both domestically and around the globe, it has given validation to the rally of late. And Thursday's report should give us the USDA's fresh take on both old and new crop balance sheets, however without any surprises the market may find it tough to hover at such high levels, especially if weather forecasts come into better agreement and call for a potentially less threatening weather pattern to emerge.
Technicals:
December wheat was sharply higher, closing at its highest level for the live of the 2007 contract (matching the June 26 close). This still looks like consolidation between the aspirations of the technical bear that is touting the late June key reversal and the technical bull that is touting a correction before another move higher. Directionals are not showing a consistent trend, and hold mid-range values that could support a move either way. Resistance is the contract high of 658 and the upper Bollinger Band of 639.5.
Support today was again around the short term moving averages in the 618 area. Until the reversal top is negated there will be downside targets of say the 50% retracement of 574.5 and/or the filling of the 557.75-561.25 gap.
Recommendations:
7-11-07: Sell 1 December Chicago Wheat on a close below 611 (but no less than 605)
Speculative:
NONE
Livestock:
Live cattle futures were higher at the end of Wednesday's day trading. August led the way into the close due to firm cash fundamentals. The gains were mostly slow and methodical as the futures premium and overbought condition attracted sellers. The August lost a lot of those gains in the closing minutes, evidence of there being plenty of sellers at these prices. The buying was largely attributed to reports of limited cash cattle trade at $90. These prices were reported as not much better than last week's late sales.
But such prices are much better than the early week sales of last week around about $86 for the comparable markets. Dressed prices were up as much as $7. Such numbers combined with forecasts for smaller quarter-to-quarter increases in production and with hopes of increased exports make it easy to understand why there are willing buyers at these higher price levels. The buying may also be attributed to bullish ideas for next Friday's (the 20th of July) Cattle on Feed and Cattle inventory report.
The National Feeder receipts for June were down sharply suggesting light placements in the Cattle on Feed report for a bullish outlook later this year. Beef cow slaughter so far this year is down about 15% from last year, suggesting that there isn't much herd rebuilding going on as would be expected with the strong profit margins being seen by cow-calf producers.
Feeder cattle futures were higher on the close of the day session. Support was threefold. Live cattle futures were higher, corn futures were lower, and cash feeder prices were higher reflecting strong demand. Today's August close was just shy of last Friday's highest close, but it still looks like consolidation following Monday's contract high and reversal action. Bears that liked the idea of selling Monday's reversal likely have buy stops above the contract high of 115.32.
Thus, there should be resistance at that level. Support seems to be found on moves below 114.00, not having seen a close below that since making a new contract high. It looks like cash feeder prices may be able to support futures without having to make a significant correction. That seems pretty amazing considering the steepness of the rally. Open interest has been climbing for the last month, reflecting a strong bull market. Some of the optimism can be attributed to the fact that prices still are not as high as seen the last few years and that next week's Cattle inventory report won't show much herd rebuilding.
Lean hog futures were widely mixed, not much different than at mid session. July finished lower, pressured by lower cash hog prices. The lean hog index is projected for Tuesday to be 71.41, with a one-day price going into it of only about $71.00. Most of the July action is liquidation before its expiration next Monday. Cash prices could easily go up or down to make July futures move.
The wire commentary was talking about a cash bottom for the near term. August futures are trading slightly higher than July to suggest only a slight recovery from the recent cash price weakness. The other contracts posted gains. This was described as short covering, but there seems to be new buying interest beyond the August contract. Bears spreads may continue working if soybean meal futures continues to make new contract highs. Meal is a significant portion of feed costs and that could prompt herd liquidation that would pressure the nearby market, while creating a more bullish scenario for the deferreds.
Milk futures were sharply lower. Lower cheese prices prompted selling in the August and September contracts. This spilled over to October, but November and December are already trading $2.00/cwt below the August and September contracts to allow those latter contracts to trade steady. New contract highs in soybean meal prices may have helped support these deferred contracts.
Despite the large losses, the Aug and Sep contracts were still within the previous trading range for this month. It is a wide range, with September showing a low of 18.15 to a high of 19.66. Today's close of 19.00 is roughly in the middle. Further consolidation within that range seems likely ahead of next Wednesday's Milk Production report and next Friday's Cold Storage and Cattle inventory report.
Positions:
NONE
Recommendations:
7-12-07: Sell 1 December Live Cattle on a close below 97.00
