Tuesday, July 17, 2007
888-452-8751
Fundamentals:
CBOT Dec corn closed out the day 11 ¾ cents lower at $3.36 ¾ per bushel as long liquidation remained the dominant theme of trade. The day's loss brings Dec corn's deficit since Friday's settlement to more than 31 cents, or more than 9% within the past two trading sessions. A change in the weather from hot and dry to wet and warm sparked the recent bail out, and more such trade selling can't be ruled out if additional rains emerge in weather outlook models. The areas of most concern are the Western portion of the Western Corn Belt and the Eastern edge of the Eastern Corn Belt, and both of those regions are forecasted to receive at least some precipitation in the days ahead which will serve to replenished soil moisture levels. How these rains help the crop's overall condition remains to be seen, but the trade seems to think it will at least help offset some of the general condition decline reported after Monday's close. The trade appears interested in little else aside from the weather and crop condition reports at the moment, so those factors will remain at the center of attention over the coming days. Specifically, traders will be interested to see how much rain the crop will receive ahead of the generally warmer and drier spell suggested by some models in the 6-10 day period. By and large, the corn crop is still in the midst of its crucial moisture-intensive pollination phase, so any heat and dry stress during that period could seriously impact final yield totals. Then again, if adequate rainfall soaks crops during this key stage then a hefty production total is almost certain. The market's current mindset seems to be that a large crop is ‘in the bag', so until weather models turn drier, this market will likely struggle stringing together a decent rally, particularly in nearby contracts. While weather-related selling was the main driver behind the recent weakness, technical factors also played a destructive role after Dec futures slipped to their lowest level since early November 2006. This is a notable development as there are very few obvious technical support levels between current lows in the $3.30 region and the $3.00 level. That is not to say the $3/bushel mark is the next port of call, as we have already fallen far in recent days and weather remains the overriding driver of this market, but if this market's fundamentals (weather) and technicals (chart pattern) continue to align in a blatantly bearish manner, then we have to allow for some more downward probes - some of which could be fairly hefty. Look for prices to retain a bearish as long as weather forecasts contain rains for the Midwest.
Technicals:
No comments today.
Recommendations:
7-17-07: Bought back short $5.60 calls @ $.00 ¾
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts / Sold December $5.60 Calls @ ~$.25
Soybeans:
Fundamental:
Tuesday's trade saw some follow through selling from Monday's limit down move in the soybeans with November soybean futures ending down just over 38 cents. Between Friday's highs and Tuesday's lows the market has broken an impressive 95 cents before stalling the slide just above the widely watched 50-day moving average at 853 ½, basis the November contract. And taking the weather premium out of prices seems to be the main driver of the price slide, which has taken the market from overbought territory and down to technically neutral levels. Forecasts changes from last week include increasing shower activity throughout major growing areas across the Corn Belt, which is expected to improve growing conditions for most crop areas accept the extreme northwestern states of Minnesota, western Iowa, and Nebraska. And it would appear that the trade is content that precipitation events elsewhere will possibly more than offset potential condition declines in the aforementioned areas. Moreover, showers will be very beneficial as they front-run possibly threatening temperatures and will aide in recharging soil moistures ahead of the beans most important reproduction phases. So in light of these fresh developments, the trade felt some paring back of any weather premium built into the prices at this time was justified. However we should point out that extended outlooks appear to be somewhat menacing, with possible ridging in north and mid western areas occurring, generally above normal temperatures, along with below normal chances for precipitation in major growing regions. Nonetheless weather bulls were likely forced out of the market, especially after Monday's limit down move, and were probably pleased to sell back into the market when it popped back to near unchanged levels during the course of Tuesday's trade. Looking to the news, wires reported that Brazilian producer selling of cash soybean supplies has virtually been halted as they await higher values, after the two day prices slide in CBOT values. Also reported on the wires, apparently Oil World has lowered their expectations for 2007-08 global soybean output to 224.35 million tons versus previous forecasts of 227.61 million and the USDA current estimate of 222.05 million tons. Elsewhere in Europe, it was reported that their biodiesel production capacity is set to expand roughly 70% in 2007, although there are fears that excess capacity will go unused due to insufficient mandates to further the consumption of biofuels. Looking ahead the market must digest the impact that shower activity will have on US crop conditions the upcoming USDA progress and condition report on Monday. And although extended outlooks appear threatening traders may be soured on putting too much stock into them, as this week was largely expected to be hot and dry and that hasn't quite materialized. So it would see that were in a classic volatile weather market type trade and effects of the weather have even more of a price impact after the large acreage shift that went on this year and is will leave the US with a much smaller crop, growing consumption expectations, and falling carryout supply levels. Moreover, the impact that a smaller US crop will have on global balance sheets remains uncertain with total US production being unknown as well as production expansion capabilities in South America to compensate for losses in the US. For now we have to see if the market can stabilize after breeching some minor moving average levels and have possibly met near-term technical objective at the 50-day moving average, and more importantly the up trend remains in tact, for now at least. But technical factors aside domestic consumption remains fairly brisk and we would like to think that further probes lower will be viewed as pricing opportunities by domestic and global end users.
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:
At the end of an active and volatile day, wheat contracts settled lower at all exchanges. What began as a day in the green, ended slightly lower on profit taking amid another commodity blowout hosted by the CBOT. It seemed as though the market had finally started to separate wheat fundamentals from that of corn and soybeans. Early in the day, contracts nationwide were posting gains as weather forecasts for the northern spring wheat areas turned sour. September Chicago wheat was up as much as 18 cents on news of a 300,000 metric ton order of U.S. soft red wheat on behalf of Egypt's GASC. As the sessions continued, it was a battle between classes as Kansas City and Minneapolis contract prices increased, but lagged behind Chicago based on news of dry and favorable weather for the continued winter wheat harvest in the southern plains, and the lack of any fresh demand for hard wheat. Nearing the close, profit taking commenced and those that were able to simply sold off profitable long positions. In a situation where corn and soybeans are traded to near limit-down conditions, price gains are obviously limited. Aside from the large Egyptian purchase, there was a lack of fresh news to sustain wheat in any particular direction. Today's price settlement is simply the result of money flow and positioning, and based on recent results, end users expecting more of a slide will be hesitant to enter contracts. In the southern hemisphere, dry weather continues in Argentina, further delaying wheat planting. Cold weather in central Argentina may even force some replanting, the wires have reported. Moving forward, the market will continue to focus on nearby waves of weather, particularly the cool, wet forecasts for Mid-West corn and soybean growing areas. Fundamentally, through, nothing has changed with respect to the wheat market. A small number of thunderstorms passed through Montana today but little was done to ease the stress of 90-degree heat. Areas of Montana, northern Idaho and eastern Washington are considered severe drought areas, and have all withstood temperatures of 90+ this week. The forecast for the Montana and the western Dakotas is expected to stay dry and include temperature ranges of 90-100 degrees for the next 5 days. We are in a critical month with respect to the wheat plant. Without significant moisture entering the region in the coming weeks, the market will have to come to terms with a further decline in crop condition. Overall, weather forecasts will be the continuing driver of the grains markets, and wheat may have a hard time escaping the downward pull from the corn and soybean markets if forecasts continue to call for rains across Midwest fields. However, nearby threatening weather for spring wheat growing areas and recent exports should reveal continued demand, and limit further significant losses.
Technicals:
No comments today.
Recommendations:
7-16-07: Sold 1 December Chicago Wheat @ $6.28 ½ - took profits @ $6.20 ½ (Profit = $400.00)
Speculative:
NONE
Livestock:
LIVE CATTLE....Live cattle futures seemed to coat-tail the strength in lean hog futures today, at one point trading sharply higher. However, most contracts fell well off their session highs into the close. Feeders continued to climb higher, taking their cue from sharply lower corn futures. It's interesting to note that both fats and feeders remain well below last Thursday's spike high when hog futures went limit up for the first time off the Chinese export story. Today's cattle slaughter came in at 126,000, in line with most estimates but well above the year ago kill of 121,000. The choice beef cutout was up .61 at noon. The talk today indicated that show list numbers were about even with last week which is a bit of a bullish surprise to the trade. We we're expecting a pull back today and obviously did not see that type of action. However, we're still going with the idea that prices may pull back in the near term.
LEAN HOGS...Talk that China may indeed NEED to import pork from the world market sent another shutter through the hog futures trade today. If true, this would be just what the doctor ordered given the fact that U.S. pork export business has been slowing this year as production continues to edge higher. Futures closed strong with the most active Oct limit up. Look for a correction in the spreads on Wed with the Oct likely losing both to the August and to the Dec and Feb. Funds appeared to be the dominate buyers today. The cash hog market is not keeping up with the futures action, quoted today from 1.00 higher to 50 lower. The pork was lightly tested but taking a firm tone at noon. Today's hog slaughter was large, pegged at 394,000, slightly higher than most estimates. The trade is taking the possibility of major export business with China rather serious. Set backs off the highs are going to be well supported by the trade. Cash hogs are called mixed for Wed.
Positions:
NONE
Recommendations:
7-17-07: Sell 1 December Live Cattle on a close below 97.10
