Monday, July 23, 2007
888-452-8751
Fundamentals:
CBOT Dec corn closed 8 cents or nearly 2.4% lower Monday at $3.25 ½ per bushel, December's lowest settlement since mid-October 2006. Weather forecasts covering key Midwest growing areas are being viewed as generally non-threatening to the crop's development, prompting more and more traders to consider the crop ‘in the bag' as the crucial pollination phase nears an end. A lower than expected US corn export inspections figure today of 35.728 million bushels also weighed on the market. However, large parts of the Western Corn Belt remain hot and dry, and pollination in that region could well be behind schedule to cast doubts over final yield prospects. Nevertheless, this market's current mindset is devoutly bearish following the recent rains and cooler than expected temperatures, and as long as weather forecasts remain generally in the same vein then corn values will likely stay on the defensive. Technical or chart-driven selling was also noted Monday after Dec futures slumped below the $3.30 level for the first time in nearly nine months. Given the close below there, some follow-through liquidation could well be seen overnight and Tuesday as long as weather updates remain largely unchanged. This afternoon's crop condition update will also likely impact prices, especially if the USDA reports a nationwide improvement in the crop's good to excellent rating versus last week thanks to the recent rains. Should that be the case and bearish weather and technical patterns continue to align, then further losses in the corn price are likely. For Dec futures on the CBOT, the main immediate downside target for chartists will be the $3.20 mark, followed by the $3.13-3.14 area. Below there, the $3.03-3.05 region is another viable goal, but any descent that low will likely prove short-lived given the widening spread between corn and wheat prices that is making corn an increasingly cheap alternative to wheat for the world's feedlot managers. The bottom line for this market is that crop-friendly growing weather is currently steering corn prices lower, but demand looks set to expand as prices fall so overall downside room should prove limited.
Technicals:
December corn was lower, making a now low for the move. The low-range close below the pivot point suggests a bearish bias for Tuesday's trade. Support looks to be 317 of a downtrend line drawn off the late May early July lows and last year's resistance. Resistance looks to be 348.5, the area of an opening but filled gap. Directionals are trending lower to favor the sell side, although they have reached an oversold condition.
Recommendations:
7-24-07: Buy 1 Dec Corn on a close above 333.00
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
CBOT soybean futures experienced heavy losses as we started out a new week, with new crop November soybean futures closing Monday's session with 34 ¼ cents declines. The main reason for the price slide is the lack of threatening weather in the forecasts, which spurred some liquidation by the trade as they look to scale back the weather premium that has been built into prices. Also, near-term demand has become questionable with the run up to plus $9.00 levels amid talk that China is canceling optional origin shipments that were reportedly purchased at the beginning of the month. Weather forecasts remain the primary focus of the trade and for now it doesn't seem as though there is much reason for concern. Near-to-medium term outlooks show chances for showers, although none are considered to be monumental events in much of the major growing regions for the next 10-day period, with the only chances for extreme heat being confined to far northwestern growing areas. And with the crop progressing a bit ahead of schedule, there doesn't appear to be much in the way of adverse weather that could stress the crop or impact yield potential on a nationwide level for the time being. That being said, we will get another round of crop progress and condition reports at 3:00 CST today. The trade is expecting condition ratings to show last week's soaking rain events were fairly beneficial to crop development, and are expecting an improvement in ratings, probably in the area of 1-2% better in the good-to-excellent category. In the news Monday morning, weekly export inspections came in at only 3.4 million bushels while the trade was expecting a figure in the area of 8-13 million bushels. So, it would seem that this week's inspection figure was a bit light, and combined with reports that China may be canceling soy shipments, certainly didn't bode well for participants' near-term demand expectations. In other news, it was reported that AgRural, a Brazilian forecaster, is expected to release their expectations for Brazilian soybean acreage Tuesday for the 2008-09 marketing year. This is a figure that the trade has been attempting to get a handle on for quite some time, after realizing such a substantial year-on-year loss of US acres, and should be highly anticipated by the trade. But the story did go on to report that "no surprises" are expected, as most trade estimates are all ready ranging from about 5-9% expansion in soybean area. Also, it should be noted that the Brazilian Real posted fresh contract highs, which is a factor that doesn't bode well for encouraging expansion of Brazilian acres. Further weighing on the soybean market is the formation of technically bearish chart patterns. The market opened up below trend-line support levels and under the widely watched 50-day moving average which sent a sell signal to the chart-following crowd and likely added some additional pressure to prices during the course of Monday's trade. Looking ahead, the 100-day moving average now sits at $8.23 ¾, and could very well be a technical objective as the market attempts to get its footing after breaking over $1.00 in just seven trading sessions. US weather seems to be the primary driver of prices for now, but without much of a threat on that front, the trade is left watching demand news, which has been good domestically but lax in terms of global consumers seeking US supplies. That being said, the market must still attempt to get a better handle on the actual size of the US crop and acreage expansion prospects for South America in an effort to determine how these figures will shape global balance sheets going forward.
Technicals:
November soybeans were sharply lower on Monday. The low-range close below the pivot point favors a bearish bias for Tuesday. Support today came from an upward sloping trend line drawn off the April and May swing lows, closing just above that trend line. Additional support would be found on a further decline to the 100-day moving average of 823.7. Resistance now looks to be the 50-day moving average of 859.1. Directionals are trending down to favor the sell side. There was talk about today's weakness filling a gap on the day chart, but I saw nothing about the gap left today on the all session chart that implies a downside target of 788.
Recommendations:
Speculative:
7-24-07: Buy 1 Nov Soybean on a close above 874.00
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Wheat contracts across the board settled higher today amid the recurring theme of robust demand and tightening supplies. This marked a clear divergence from the weakening corn and soybean markets on the day, and could well mark the start of a more prolonged bout of trade where wheat drifts along on its own fundamental currents while corn and soybeans grind lower on non-threatening weather outlooks. In the process of today's divergence wheat-corn spreads hit a 30-year high as the Chicago December spread soared, settling at $3.11 ¼ per bushel. The spread settling that high today gives some indication of how solid demand for wheat has been even as weather forecasts dominate other commodities. Offering some extra support to wheat values Monday was the U.S. Export inspections report, which at 19.3 million bushels was higher than the trade estimated range of 13-16 million bushels. To add additional support, showers pushed through Kansas and Oklahoma today to limit some harvest of the winter wheat crop, while temperatures reached 100+ today in parts of Montana and South Dakota. Further damage to the U.S. spring wheat crop remains limited though; as the plant is almost clear of its critical heading stage. Abroad, wheat quality and availability continues to tighten. What is particularly worrisome is the unrelenting decline in the quality of the European winter wheat crop, especially with wet weather still in the offing. European futures prices have soared amid such declines, hitting fresh contract highs today in London and Paris. The constant rains have severely limited the amount of milling wheat available to process domestically, much less export. A private Ag consulting firm has cut production forecasts in Australia as well. The impact of recent weather on U.S. spring wheat will soon be known as the Wheat Quality Council's annual spring wheat tour leaves tonight from Fargo, ND to begin its 3-day odyssey around the northern plains. The organization reportedly expects to see a strong crop, even after such a hot and dry month. Regular precipitation early in the season is expected to have given the crop the moisture needed to sustain yields. Some decline in crop condition is expected nevertheless. For the coming days the trade will remain focused on how well foreign demand holds up in wheat even as corn and bean prices soften. A close eye will also be kept on Eurozone crops following the recent extensive flooding. If the weakness in corn and beans becomes more pronounced, then wheat may have hard time remaining completely immune to softness. But as long as global buyers remain regulars in the tender arena, heavy selling in wheat will remain rare.
Technicals:
December wheat was slightly higher on Monday, continuing a consolidation pattern. The high range close above the pivot point suggests a bullish bias. Psychological resistance is the 650 area. Support today was the 10-day moving average of 630.5. The chart looks to be trending sideways between 610 and 650. A breakout above the top of that range would suggest a target of 690. A breakout below the bottom of that range would suggest a target of 570.
Recommendations:
7-23-07: Sell 1 Dec Chicago Wheat on a close below $6.25 - but no lower than $6.18
Speculative:
NONE
Livestock:
Live cattle futures were higher Monday, with August up triple digits at the end of the day session. The deferred contracts were supposed to be the upside leaders due to Friday's friendly reports that showed light placements and reduced calves and breeding herd numbers. But August found the bulk of the buying. Last week's late steady prices, lower show lists for this week, and the higher Choice beef prices all contributed to an optimistic cash outlook and a buy mentality for August. There was some fund buying by the slower rollers that are pushing for a significant rebound after the recent decline by the early rolling funds that had pressured August futures lower over the last two weeks. The December, February, and April contracts all closed above $99, but found resistance to the psychologically important $100. The lower cattle numbers seem to suggest that a $100-plus price is possible. It will take continued strong demand and expanding exports as hoped.
Feeder cattle futures were sharply higher. The optimistic outlook presented by the higher live cattle futures and the lower feed costs suggested by the lower corn futures prompted the bullish mentality. The August contract did not make a new contract high, but did see its strongest close yet. The other contracts did all manage new contract highs. The strong closes would suggest follow-through buying, although new highs, an overbought condition, and divergence on the charts may attract sellers.
Lean hog futures were higher. The way deferred contracts saw triple digit gains as the mentality seems to be that China pork production problems would lead to increased US pork exports (directly or indirectly) and is a long term factor. The December contract squeaked out a new contract high, but like most of the other contracts looked like consolidation at the recent highs. August saw a good gain, showing a $5 premium to the lean hog index. Cash hog prices were steady to higher for the most part as packers try to attract hog marketing's. Hog owners are taking a slow marketing approach, encouraged to do so by the futures premium. Still packers seem to be finding enough hogs, with hog slaughter for today pegged at 390,000 head, up 2.4% from last year. They are encouraged to do so as pork prices are strong enough to give them profitable margins. A slow steady expansion here in the US and continued large hog/pig imports from Canada point to large supplies this year, which will take very strong demand to justify the strong prices presented by futures.
Milk futures were mixed on Monday at the end of the day session. Friday's reversal bottoms were not met with resounding bullishness today. October closed lower and September closed at its session low, filling its gap-higher open. Futures appear to be consolidating after recent losses, and will now look to direction from the cheese market, which was steady today.
Positions:
NONE
Recommendations:
7-24-07: Sell 1 December Live Cattle on a close below 98.35
7-24-07: Sell 1 December Lean Hog on a close below 68.65
