Wednesday, July 18, 2007
888-452-8751
Fundamentals:
CBOT Dec corn edged 5 ¾ cents higher Wednesday to close at $3.42 ½ per bushel as the recent spate of long liquidation pressure let up. Rains have recently fallen across the Midwest to alleviate moisture deficit concerns during the ongoing pollination phase. However, both edges of the Corn Belt remain drier than farmers there would like, particularly in western Iowa and Nebraska, so lingering yield potential concerns in those regions offered support to the corn market Wednesday. The latest weather updates see only limited rainfall potential for these dry areas and elsewhere over the coming ten days to two weeks, so unless confirmations of decent rains emerge from there overnight, corn should start to find a solid footing as this week wraps up. In addition to the weather, the trade overnight will focus on Thursday's weekly export sales report, which should reveal the latest on the state of foreign demand for US corn. Analyst estimates for the report run from 900,000 to 1.30 million metric tons, so any reading outside that range stands to have an impact on prices. A strong sales number would obviously be supportive, especially in conjunction with reports of only limited rains in dry corn growing areas on either flank of the Corn Belt. A small sales number, on the other hand, could have the potential to apply fresh pressure to corn prices, particularly if rains remain likely across the Midwest ahead of the weekend. Despite how reactive the corn market has been of late to changing weather forecasts, there is a good change that traders will begin to lose confidence in anything other than immediate-term forecasts given that this time a week ago forecasters were calling for persistent dryness with high temperatures throughout this week. Given that they were so comprehensively wrong about actual conditions in recent days, there is obviously no guarantee that they'll get it right this time around regarding the coming week. So instead, many traders may opt to ratchet down risk exposure to this market and limit overall involvement until we get deeper into - or even past - the pollination phase and can thus get a batter handle on total production prospects. That all said, a close eye will need to be kept on all Corn Belt forecasts as few traders will want to miss out on any potentially serious developments.
Technicals:
No comments today.
Recommendations:
7-19-07: Buy 1 Dec Corn on a close above 348.00
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
CBOT soybean futures staged a mild recovery from the sharp losses witnessed recently that were mainly attributed to significant rain events that moved through major US growing areas. The new crop November contract closed out Wednesday's session with 16 cent gains on the day, despite a lack of fresh news. Thoughts that maybe the recent sell off was slightly overdone spurred some short covering, and we likely saw some profit taking on short positions after the market failed to breech the 50-day moving average Tuesday. That said, the market is still primarily finding its direction via changes and fresh updates in weather forecasts, none of which appear to be too conducive to growing the crop as it enters it most critical stages of developments. Forecasts for sustained hot and dry conditions were behind last week's run up to life-of-contract highs, before the recent emergence of rains throughout the Midwest alleviated concerns that persistent dryness would negatively impact the crop - and knocked bean prices the best part of $1/bushel lower. Current weather forecasts appear to have limited chances for significant precipitation events over the next ten days or so, and temperatures are expected to flare up into the 90's and possibly 100 degree marks. So now the trade must attempt to gauge whether or not this week's rainfall will be adequate enough to sustain the crop while it enters the pod fill stage of development, it's most critical phase of reproduction. And that is a question that only time will answer, but after taking a rather large chunk of weather premium out of prices in the first two trading sessions this week, it seems unwise to press the market too much lower without a favorable forecast on the horizon. Also, portions of the northwestern growing areas remain an area of concern, as they have missed out on major showers and are amid relatively dry conditions and expected to see well above normal temperatures. In the news today, wires reported the Argentine Agricultural Secretariat raised its forecast for their 2006-07 crop to 47.6 million metric tons, up 400,000 tons from previous estimates. The Secretariat also announced that it has raised its expectations for planted area in the new crop year to 5.55 million hectares, which was up 50,000 hectares from previous estimates. Other news out of South America included the Brazilian Real making fresh highs against the dollar, which remains an important factor for Brazilian producers' profitability levels and could potentially impact new crop planting intentions. Overall, it was a very quiet news day with weather and technical factors being the main driver of price action. Looking ahead, we will get another round of weekly sales data Thursday morning, and the trade is expecting old and new crop sales of beans to come in around a combined to total around 250,000-400,000 tons. Meal sales are forecasted at 50,000-150,000 tons and oil sales are expected in the 0-10,000 tons range. For now, we are left watching weather forecasts and attempting to gauge the future of global supply prospects, and these factors remain largely supportive for now. And until we know that future supplies will be adequate enough to avoid any rationing situations down the road, the trade should continue to have a bullish sentiment towards the soybean market.
Technicals:
No comments today.
Recommendations:
Speculative:
7-19-07: Buy 1 Nov Soybean on a close above 888.00
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Wheat prices settled sharply higher Wednesday as the market experienced a much-needed correction after two days of active selling interest. The market has digested the recent moisture accumulation, and is positioned to look for new a direction. The early week sell-offs perhaps shed too much of the weather premium acquired last week, and prices were simply due for this correction as the market looks for true value. Additionally, focus has shifted to a great showing in export demand. Last week's export sales report revealed tremendous demand after sales comprehensively outperformed trade estimates to total 1.183 million metric tons. This week's estimates range from 450,000 to 650,000 metric tons, hinting at another solid performance amid relatively high prices. Wheat futures also found support from news that Syria forced cancellation of nearly 400,000 metric tons of wheat to be exported. While Syria is a not a significantly large exporter, the news does present an indication that global wheat stocks are approaching exceptionally low levels. The news also indicates that the countries involved in the Syrian contracts, namely Iraq, Italy, Turkey, and Egypt, are potentially now looking for coverage. It is interesting to note that Iraq is typically a buyer of U.S. hard red wheat and Egypt is often a buyer of U.S. soft red. Elsewhere, Morocco reported a tender to the sum of 90,000 metric tons of U.S. durum wheat, in addition to 250,000 metric tons of U.S. soft wheat. That deal is set to expire today. Looking to developments on the weather front, rains moved out of the northern plains today and warm temperatures set in. The forecast calls for a lack of moisture and severe heat for the next 7-10 days. Temperatures are expected to reach 100 in Montana and the Dakotas as next week approaches. July is a critical month for spring wheat, as the plant needs moisture to complete heading, and it is yet to be determined how much stress has been endured in the spring wheat belt throughout this summer's extreme dryness and blazing temperatures. There was whispered talk among traders today of an anonymous 10 cargo shipment of U.S. wheat, both hard and soft. While not wanting to perpetuate rumors, this type of talk continues to support the ongoing theme that countries abroad are simply running low on supplies, concerned about production prospects and seeking to secure usage needs. And until southern hemisphere's production totals are known and harvests are complete, the U.S. should be at the forefront of the export game. Export sales are expected to be abundant tomorrow morning and price support should remain strong. Volatility is expected to continue though in the coming weeks amid unsound weather forecasts.
Technicals:
7-19-07: Buy 1 December Chicago Wheat @ 610.00 risk a close below 608.00
Recommendations:
7-17-07: Sold 1 December Chicago Wheat @ $6.28 ½ - took profits @ $6.26 ½ (Profit = $100.00)
Speculative:
NONE
Livestock:
LIVE CATTLE....Live cattle futures closed mixed but mostly higher today led by the most active Oct contract. August closed slightly lower as traders anticipate a steady cash steer market for this week. Cattle futures continue to coat-tail the strength in the hog market. The cattle-on-feed report will be issued Friday afternoon. The trade estimates are on-feed near 100%, placements @ 90% and marketing rate @ 97%. The USDA will also issue a bi-annual cattle inventory report Friday. There's been no cash steer market yet this week. The beef was quoted slightly higher at noon. Today's kill was reported at 124,000, in line with most estimates. The kill has been aggressive this week, running ahead of both last week and last year.
LEAN HOGS...Additional news wire reports discussing the declining pork production in China due to high feed prices and disease problems continues to fuel hopes of major export business down the road. This comes at a good time given that pork export business this year has been lagging last year. Major unwinding of Aug/Oct spreads has lifted the Oct futures dramatically this week. Oct futures posted a fresh contract high today. Futures are extremely over bought after moving sharply higher since last Thursday. Given that the Chinese story will be difficult to monitor and slow in developing, one must look for some kind of downward correction in the near term. Today's kill was pegged at 399,000 compared to 392,000 last year. The dressed pork was lightly tested at noon with hams up 2 to 4 cents while the bellies and loins went untested. Average hog weights are running about even with last year.
Positions:
NONE
Recommendations:
7-19-07: Sell 1 December Live Cattle on a close below 97.50
