Monday, July 16, 2007
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Fundamentals:
CBOT Dec corn was locked limit down for most of the entire session as traders who had built up a weather premium in this market on concerns about heat stress last week unwound those positions aggressively once reports emerged overnight that rains would likely fall across key growing areas. Last week, forecasters were calling for a potential ‘ridge' to develop over the Corn Belt to keep conditions throughout most of the corn growing region hot and dry during the crop's most critical moisture-dependent developmental stage. That outlook helped steer corn prices higher towards the tail end of last week as traders grew nervous about the crop's yield capabilities. However, weather models changed over the weekend as that prospective ridge dissipated and in its place a cooler and moister front developed. More losses look likely over the near term should forecasts continue to raise the likelihood of widespread soaking rains. But, medium term outlooks continue to call for hot temperatures alongside less than average precipitation, which would not be favorable conditions for the crop. So, while some follow-though liquidation could well emerge over the near term, an all-out extended assault on the market is unlikely any time soon while 90-plus degree days lie ahead for most of the Midwest. As the weather dominated the tone of trade Monday, the market largely ignored news that export inspections of US corn came in well above analyst estimates at 38.548 million bushels. It remains to be seen what reaction the trade will have to this afternoon's steeper-than-expected deterioration in the corn crop's good to excellent rating (to 64% good to excellent from 70% in that category the week before.) Our guess is it could prompt some traders to have second thoughts about selling this market aggressively lower Tuesday, even if the crop could certainly recuperate somewhat if rains arrive soon.
Technicals:
No comments today.
Recommendations:
7-17-07: Buy back short $5.60 calls @ market.
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
CBOT soybean futures tumbled sharply Monday on near-term weather forecasts that are bringing showers through some drier areas ahead of the soybean crop's crucial pod-fill stage. Bean futures were locked at exchanged imposed limit down levels in 2006-07 and 2007-08 marketing year contracts for most of the second half of the day as traders offloaded long exposure to the market ahead of the rains. The trade shrugged off any and all positive news for the market as it focused on only the near-term weather forecasts even though the extended outlooks do appear a bit threatening. That said, what a difference a weekend makes, as weather forecasts shifted over the past two days leading into Monday's session. The most recent forecasts have rains moving through a significant portion of the Midwest and should limit moisture shortages in all but extremely dry northwestern areas. However, temperatures are expected to heat up in the 90-100 degree range for much of the northern Midwest, especially in some of the drier areas. Furthermore, extended outlooks don't look all that conducive to growing the crop, as heat riding and below normal precipitation looks to be on the horizon in some key growing regions. Nonetheless, the trade was mainly concerned with the near-term moisture events and paring back some of the weather premium that was built into the market of late. In the news, the National Oilseed Processors Association released their June crush figure this morning, which came in on the friendly side at 141.6 million bushels versus trade estimates of only 136.4 million. Weekly export inspections were also out this morning, and totaled 10.3 million bushels, while the trade was expecting a figure in the 10-15 million bushels area. This afternoon's the USDA's crop progress and condition report revealed that the crop's good to excellent rating declined by 3 percentage points to 62% in the top categories over the past week, as dry conditions impacted the crop. While on the surface the decline could be viewed as supportive, in light of the extensive rains expected this week, many traders will no doubt dismiss the rating decline as ‘old news' and stay fixated on restorative rains looming on the horizon. Looking to developments on the South American front, the dollar continued its slide against its major rivals, which is not considered a positive sign for goading Brazilian producers into increasing prospective plantings. So, further developments need to be monitored as the trade attempts to get a handle on expansion prospects in the entire South American continent, as it will be needed to ease the stress that a lower year-on-year US crop will have on global balance sheets. Looking at the big picture, most major market themes remain intact. Domestic usage numbers continue to remain on a firm pace, and the trade continues to be under the impression that both old and new crop carryouts are shrinking and leaving the future of soybean supply availability in question. For tomorrow, we will have to see what changes fresh weather updates will bring in terms of the medium term forecast. Near-term rains will certainly be beneficial for the crop, but for the beans the crucial phase of pod fill still lies two or more weeks away in most areas. As a result, the key issue is whether decent rainfall can be relied upon then or if current forecasts for hot and dry conditions in the 6-10 day period prevail. On the product front, soymeal and soybean oil futures both headed lower in line with the beans, and both markets look set to continue following the beans' lead over the near term.
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 was no exception to today's volatility surrounding cooler and wetter forecasts, even though the weather changes did not have such a direct bearing on the wheat crop. Wheat contracts across the board experienced losses, although they were moderate relative to corn and soybeans where traders shed long positions ahead of forecasted soaking rains. Sell-offs in wheat were not as aggressive today as supporting factors such as robust export demand amid high prices helped to limit losses. Additionally, the potential wet weather in the offing will not as greatly affect wheat-growing areas. The weekend was generally warm and dry, causing stress to spring wheat areas, but also remained dry enough to further the winter wheat harvest. The percentage of winter wheat harvested is up 12 points from last week at 70% complete. The central bullish themes in the market remain the same - strong consumer interest amid only modest production expansion potential. Focus is simply geared to trading nearby weather forecasts. Once the market digests today's wave of moisture, attention will simply be turned to the next day's forecast. Threatening weather is forecast over the northern plains for the next 10 days. Much of the northern wheat growing areas will need additional moisture while in the last days of heading. The next 10 days, however, is forecast to be very dry, with temperatures headed into the 90s. A drop of a 78% good/excellent rating to 76% is indicative the warm-dry trend occurring in the U.S. spring wheat belt. Any lack of moisture this week will sure to decrease ratings further. Internationally, Argentine wheat farmers continue to delay their seeding due to exceptionally dry soil levels. Volatility is expected to continue, as the market today demonstrated that it had no fear with regards to trading to a contracts limit, all due to the forecast for rain. We expect such sharp losses in wheat to trigger additional demand, as buyers who have recently balked at paying high prices still have wheat demand obligations to fulfill.
Technicals:
No comments today.
Recommendations:
7-16-07: Sold 1 December Chicago Wheat @ $6.18 - risk a close above $6.34
Speculative:
NONE
Livestock:
LIVE CATTLE....Last Friday's confirmed steer trade at 90 to 91 cents helped to support today's early futures action. The cash outlook for this week may be about steady. There's talk of some carry over into this week regarding the show list sizes. Demand issues and the boxed beef will have to be watched closely to determine if a low 90's cash steer market can be sustained during the second half of the summer given typical slow demand trends during this time. Today's kill was pegged at 128,000 compared to 125,000 last year. Look for futures to pull back over the next couple of sessions. The choice beef was up .12 at noon.
LEAN HOGS...Lean hog futures were forced to deal with continued uncertainty regarding Chinese trade news and possible pork business down the road. The latest twist focused on some pork shipments which were canceled over the weekend possibly due to trade dispute issues. This comes on the heels of the major rally from late last week, pushing the short spec out, pressing the short hedger while packer margins improved nicely. Today's cash performance was mixed to lower. Futures closed lower. Today's kill was pegged at 368,000 with two plants down for scheduled maintenance. July futures went off the board at 69.20 with the latest CME lean index quoted at 69.45. The USDA reported late last week that May pork exports were down 11% from May of 2006. In the short term, I'd look for more selling pressure in lean hog futures.
Positions:
NONE
Recommendations:
7-17-07: Sell 1 December Live Cattle on a close below 97.10
