Friday, July 13, 2007
888-452-8751
Fundamentals:
CBOT Dec corn closed out the day with its highest close in 11 trading days as rains remained scarce in near to medium term weather forecasts covering the Corn Belt. Most of the buying interest was short covering by traders who had previously pressured the market in the run up to Thursday's USDA supply and demand report but now grew increasingly concerned about the US crop's ability to maximize yields amid the forecasted hot and dry conditions. Some long accumulation by speculators also featured, although volumes from that contingent were fairly light. Thursday's USDA release revealed higher 2006-07 and 2007-08 corn carryout levels due to slightly slower export demand in recent weeks and a sharp year-on-year rise in US corn plantings to 92.888 million acres - the highest planted acreage total since World War II. However, the market had largely been bracing for such a stocks build anyway, and so when the news was released most market participants quickly returned their focus to current and near-future growing conditions to see whether estimated production totals would likely be attained. The latest weather models seem to call for generally hot and dry conditions for most of the next two weeks, which for the corn crop is quite worrying given that it is in the midst of a crucial moisture-intensive developmental stage. There are also calls for a potential ‘ridge' to form across the Corn Belt that could lock in a hot and dry system for even longer periods by forcing other weather patterns to detour around the Midwest. It remains to be seen what will actually take place, but traders appear keen to play it safe for now by at least reducing short exposure. Look for next week's trade to take its cues from Sunday night's weather updates once they emerge. Also on Monday, the USDA will release another export inspections report (estimates are running at around 35-40 million bushels) and another weekly crop conditions update. The trade seems to be expecting the good to excellent rating of the crop to hold flat or maybe decline by around 1-2 percentage points in the crop conditions report due after Monday's close.
Technicals:
No comments today.
Recommendations:
None
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean futures closed out yet another session with life-of-contract high closes, which gave the market the highest weekly close since July of 2004. Weather remains the primary driver of this market, with threatening weather outlooks on the horizon having spurred a speculative buying spree that boosted open interest back to near record levels. November soybean futures closed out the day with 7 ¼ cent gains after a two-sided session. The beans initially headed lower as speculators looked to take some profits on long positions off the table ahead of the weekend. However, with weather outlooks continuing to hold a threatening tone, weather market speculators reemerged on the buy side to buoy prices and bid the market up to contract high levels during the closing moments of trade. There wasn't much in the way of fresh news, and the market continues to rely on changes in the weather forecast for any hints at near-term price direction. Looking ahead, any changes to extended forecasts over the weekend are likely to set the tone for Sunday night trade and into Monday morning. On Monday we will get a monthly NOPA crush figure for June, weekly export inspections, and crop progress and condition numbers. The trade estimates for NOPA crush is running in the 136.4 million bushel area, expecting an export inspection figure somewhere in the neighborhood of 10-15 million bushels, and a decline of 1-2% in crop condition ratings in the good-to-excellent category for the week.
Overall, the big picture remains intact, with the trade paying close attention to weather forecasts in the US as we try to get a handle on yield prospects and economic developments in South America, which could affect acreage expansion prospects in that region. In all, unless US weather becomes cooperative, or we know that prices have done the job of enticing substantially more soy acreage in South America, then prices should largely stay underpinned even at the highest levels witnessed in over 3-years.
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:
Wheat prices varied in settlement, as consolidation was the theme of the day in the futures arena. The market, having mostly digested the USDA's report, saw a lack of news today to give it fresh direction. Expiring July contracts forced traders to simply get out of their positions, inducing Chicago and Minneapolis July contracts to settle slightly higher while the Kansas City July contract settled down 12 1/2 cents. Following other staple commodities, those in the market generally avoided involvement prior to the weekend amid volatile weather reports. The market is currently well underpinned by sturdy international demand, but is having trouble pushing higher. Weather forecasts have been presenting potentially threatening conditions but neither the bulls nor the bears have chosen to take a stand going into the weekend as deferred contracts remain largely unchanged. Rains again traveled through HRWW areas in Southern Oklahoma and North-Central Texas, further delaying the already-behind winter wheat harvest. South America shares problematic weather as reportedly, Argentine wheat producers have experienced a lag in their seeding due to extreme dryness. The general theme of the market is simple and unchanged though; extreme thriving demand amid tightening production. In its report released Thursday, the USDA revealed that globally, all-wheat stocks are higher than its June estimate but decreasing from 2006- 2007. At current consumption rates, there simply will not be enough wheat to go around. The market therefore still has the job of triggering farmers to plant additional acres of wheat for years to come as long as demand continues on its current trend. Additionally, we are at a critical point yield determination, and the weather forecast seems to be less than favorable thus far. Even a small decrease in yield could send prices to new contract highs. For now, weather in the weeks ahead plays the star role in determining short-run prices. Forecasts for next week's potentially dangerous heat and lack of moisture will be more understood by the end of the weekend. The market will be very sensitive to the forthcoming weather and more will be known about next week's trade with a more confident weather report, but prepare for volatility.
Technicals:
No comments today.
Recommendations:
7-16-07: Sell 1 December Chicago Wheat on a close below 620 (but no less than 613)
Speculative:
NONE
Livestock:
LIVE CATTLE....A somewhat subdued session today as the market consolidates recent sharp price advances. Boxed beef prices moderately lower at noon after mostly higher prices all week. Futures price advances toward the 99.00 price level on December and February futures this week have attracted moderate commercial hedge interest. Early afternoon reports indicate a continued standoff in the cash market with packers bidding 88.- 90. cents and feedlots holding out so far for 92. Northern sales earlier this week at mostly $90.00 where in line with last week's late southern markets. Today's slaughter was estimated 122,000 and estimated slaughter for the week was 672,000. This compares with actual slaughter of 694,000 for the same week last year. The cash trade later today will probably dictate Monday's opening price trends. The late weakness in futures may hold cash markets steady with last weeks top prices.
Feeder cattle futures where modestly lower as corn futures strengthened on forecasts of hot and dry weather for the next couple of weeks.
LEAN HOGS...The lean hog futures market took a bit of a breather today after Thursday's volatile price action. News wire reports seemed to support thoughts of Chinese interest in US pork for export. This would seem to be plausible as recent disease issues in China are thought to have impeded production there and high feed costs may make it economically possible to import pork versus importing high priced soybeans to crush for meal. Today's slaughter was estimated at 389,000 and estimated slaughter for the week was 1,945,000. This compares to actual slaughter of 1,943,000 last year. With lean hog index prices just under $71.00, next weeks cash trends and further confirmation of export interest will be important in determining if this week's futures price advance can be sustained. Early cash calls for Monday are .50 higher.
Positions:
NONE
Recommendations:
7-16-07: Sell 1 December Live Cattle on a close below 97.00
