Thursday, July 19, 2007
888-452-8751
Fundamentals:
CBOT Dec corn settled 6 ¼ cents lower Thursday at $3.36 ¼ per bushel - its lowest close since November 1, 2006 after overnight rains soaked large parts of the Midwest growing regions to further diminish concerns about dryness stress on the crop during its current critical developmental phase. However, while a generally negative bias prevailed all day, the lack of widespread rains in medium term forecasts limited overall selling pressure in corn and actually helped the market close out the day well off early lows. The firmer posture of the soybean market also aided corn as traders focused on the dry spell expected to prevail during the crucial pod-fill stage of bean development - and grew concerned that any soybean production shortfall would intensify any acreage battle between corn and soybeans come planting next year. Another somewhat supportive factor for corn Thursday was the fact that the CBOT Dec wheat/Dec corn spread stretched to its highest level in over 33 years of over $3 a bushel as wheat prices continued to surge on strong global demand appetites. Traders keeping track of the spread opted to sell wheat and buy corn once the $3 mark was breached on the grounds that any feeding substitution that could take place away from wheat and into corn would hasten at $3 or above as the economics of extensive wheat feeding became decidedly unappealing. So a number of factors limited the selling pressure on corn Thursday, and should also fend off aggressive sellers again Friday as the week wraps up. However, it remains to be seen how much buying interest corn can attract over the near term with production prospects remaining fairly decent through much of the Midwest. Certainly corn demand has not let up by any means, as evidenced by this morning's 1.168 million metric ton export sales report. But with nearly 93 million acres of US farmland being dedicated to corn production this year - the highest level since the 1940s - it is difficult not to focus on the potentially hefty production total looming on the horizon. Indeed, should weather conditions remain generally non-threatening; it's unlikely this market will be able to sustain any meaningful rallies until we get past the harvest of the current crop. At that point the market's focus will likely return to corn's still very bright long-term demand prospects, but until then the current fixation on growing conditions for this year's crop will remain this market's primary driver. In short, a spate of generally sideways-bound trade looks likely over the near to medium term as the market accommodates a large production total over the near term against a backdrop of solid demand.
Technicals:
December corn was lower, seeing an outside down day and a close below mid-range to give a bearish bias for Friday's trade. Tuesday's low of 331.5 held as support today. Resistance looks to be 348.5. Directionals are trending lower, although the RSI recently has been more choppy and sideways.
Recommendations:
7-21-07: 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 closed out Thursday's session with some moderate gains after a choppy session that traded fairly wide ranges on either side of unchanged. The market opened weaker, in line with losses overnight, but the day's lows were set early during the session as there was little in the way of follow through selling interest. The market then proceeded to grind higher throughout the day, eventually settling the November soybean contract up 5 ½ cents at $8.82. There actually isn't much fresh news or changing fundamental themes to really speak of, and today's price action seemed to be a function of the market lacking follow through selling interest, combined with weather outlooks and solid sales numbers that aided in lifting prices after the initial weaker opening. Sales this morning came in on the high end of trade expectations, with old and new crop combined totals of 345,900 tons. Product sales were fairly decent as well, with meal sales totaling 144,500 tons and soy oil at 4,700 tons. Looking to the weather forecasts, they haven't changed much from yesterday with outlooks still calling for a drying period and climbing temperatures through next week. Also, forecasters see only limited chances for showers next week, which are expected to mainly fall in eastern areas. Furthermore, drought conditions in northwestern growing regions may be set to worsen with hot temperatures expected and little to no chances for precipitation being forecasted at the present time. Major market themes remain the same, with the trade attempting to get a handle on the US crop size as well as ensure prices remain high enough to entice South American producers to increase planted acreage and ease the strain that a small US crop will have on global supply availability. The fact that US weather isn't exactly perfect, and that US/Brazilian Real currency movements are in many ways hampering expansion plans in South America, should remain broadly supportive features of this market and limit any aggressive selling seen over the coming days. But, if growing conditions look set to improve for the beans during August, and sizeable acreage expansion looks likely in Brazil, then the beans may struggle to return toward recent highs.
Technicals:
November soybeans were higher on Thursday, posting an outside up-day. The strong, high-range close favors a bullish bias for Friday. This week's support is coming from an upward sloping trend line drawn off the previous swing lows. Directionals are trending down to favor the sell side. But have lost momentum and are holding mid-range values that could favor a move in either direction. The 940 objective of the long-term uptrend was reached, now seeing some retracement and consolidation.
Recommendations:
Speculative:
7-20-07: 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:
It was a choppy, turbulent day as wheat contracts experienced trading on both sides, finally settling mostly lower. The September and December contracts in Kansas City were the only contracts managing to settle just slightly higher. The market actually started out with a positive bias. News of U .S. wheat export sales and additional overnight tenders, as well as forthcoming hot and dry weather in the northern plains, had wheat prices up to 15 cents higher in Chicago, with other exchanges just slightly behind. When flirting with such historically high prices though, profit taking proved irresistible for many traders and proved to be a key theme in trading from midday forward. Additionally, as corn prices slid today, the corn-wheat spreads hit 33-year highs to set the liquidation wheel in motion. Periodic sell-offs in wheat are only natural while such a premium to corn is exists, and will likely remain a recurring feature going forward. Supplementing this profit taking were bursts of hedge pressure, and combined this selling pushed the Chicago and Minneapolis contracts to settle in the red; down 7 ¼ and 5 ¾ cents respectively in the Dec contracts. Kansas City Dec wheat was able to score a 1 cent gain on the back of this morning's export sales report revealing the high demand for hard red winter wheat. The market is expected to remain choppy Friday as further profit taking and end-of-week book squaring will be prevalent in tomorrow's trade, and as for short-term direction, the market will need a batch of fresh and significant news to be directed either way. While short-run volatility will persist, the long-term fundamentals are still intact. When the world consumes more wheat than it produces, the market will have to ration use. As of late, importers have not been afraid to purchase wheat at recent lofty prices for fear that values may rise higher still. In the news today, the EU's grain management committee granted import licenses on 13,602 metric tons of wheat, further highlighting the scarcity of world wheat stocks. Elsewhere, the weather forecast for U.S. spring wheat growing areas remains dry, with temperatures well above normal in the 90-100 degree range. This has been a persistent condition in northern plains, as much of the area is considered abnormally dry or in a severe drought, with no moisture on the horizon. Regardless of how hardy wheat is, yield can only decrease while exposed to such weather, especially while the plant is in its heading and filling stage. So the large spring wheat crop expected is far from in the bag, and its growing conditions must continue to be monitored closely to see if an already tight supply/demand story becomes even more precarious.
Technicals:
December wheat was lower, but did see higher ground to test the 650 area. This is psychological resistance. Support today was in the 630 area. The chart looks to be trending sideways between 610 and 650, which would be viewed as consolidation of the recent surge higher. A breakout on the top of that range would suggest a target of 690. A breakout to the bottom of that range would suggest a target of 570.
Recommendations:
7-20-07: Buy 1 December Chicago Wheat @ 610.00 risk a close below 608.00
Speculative:
NONE
Livestock:
Live cattle futures were lower Thursday. The losses were attributed to concerns about steady/lower cash cattle prices. Lower beef prices that already had packer margins in the red were a big part of today's bearish mentality. The low-range close suggests a bearish bias for tomorrow too. But follow through to the downside may be about as tough as follow through to the upside was today, due to tomorrow's important Cattle and Cattle on Feed reports keeping some traders on the sidelines or evening positions.
Feeder cattle futures were slightly higher, not sure whether to move higher in response to firm cash feeder prices and the lower corn futures or to move lower in response to the weak live cattle futures. Feeder cattle futures finished weak, but that wasn't hard to do in the very tight trading range. Trade tomorrow may also be restricted and narrowly mixed as traders step aside or even their positions ahead of the cattle reports.
Lean hog futures were lower, but did finish up off their highs above mid-range. The late buying may have been some longs trying to keep reversal tops being put in place, but they are there, and would seem likely to attract further sell pressure. That formation is easy to sell when the charts show an overbought condition, when futures have just made a steep $7 rally this month to a new contract high, and when futures hold a premium to the cash hog market, especially for the time frame of seasonal weakness. The bullish mentality is based largely on pork exports, specifically pork exports to China. That is an attractive possibility, but there are reasons that make that look a bit far fetched as well. Futures may be a bit choppy over the next few sessions. Tomorrow's Cold Storage may lend some insight.
Milk futures were sharply lower. Milk production a bit larger than expected and lower cheese prices had the sellers in control. The fourth quarter contracts had their lowest closes since April, keeping the recent downtrend alive on moves below their 100-day moving averages.
Positions:
NONE
Recommendations:
7-20-07: Sell 1 December Live Cattle on a close below 97.50
