Wednesday, July 25, 2007
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Fundamentals:
CBOT December corn futures closed out the day with modest ½ cent gains after a two-side trade that didn't leave much in the way of clear direction. There was a notable lack of news Tuesday, and weather remain the primary driver of the market, but with non-threatening forecasts on the horizon and the trade was content to let prices more-or-less meander sideways. On the weather front, forecasts continue to call for any stressful temperatures to be confined to northwestern sections of the belt and this is a cause for pollinating corn in those areas. However most other major growing areas actually appear to be in relatively good shape and the thought is that good yield potential in those states will likely limit any potential yield declines in western and far northwestern areas that are experiencing less than ideal weather conditions. Forecasts on the horizon are calling for some spotty chances for rain activity over the next ten-day period, however they aren't considered to be soaking events. Furthermore, forecasts are also calling for more-or-less non threatening temperatures through most major growing regions, which should limit the need for significant rains events throughout the Midwest. Although news was pretty light today, it was noted an Israeli consortium, after tendering for 56,000 of South American or US supplies, ended up purchasing US corn to the sum of 90,000 tons. Also they cited higher shipping cost out of the US, and then went on to say we should expect more US sales to Israel in the coming weeks. Also on the demand front, there was no confirmation of a South Korea tender for 110,000 tons of optional origin supplies. For now the trade is attempting to gauge whether or not the $1.00 price slide, from highs mad back in June, was enough to account what is expected to be a larger production figure in upcoming USDA reports. The crop has more-or-less gotten through the bulk of the all important pollination phase with fairly decent growing conditions and current forecasts seems to have little in the way of threatening weather outlooks over the near-term. That being said, demand still needs to be watched releases still need to be monitored and on Thursday we will get another round of weekly export sales activity to help gauge foreign demand for US corn supplies. Trade estimates for tomorrows sales figures are running at 900,000 thousand-1.3 million tons for old and new crop sales combined. An impressive figure could very well spur some speculative buying interest by bargain hunters, but it would be nice to see a pick up in cash basis levels before the market can really correct from the steep price slide since July.
Technicals:
December corn was barely higher, seeing a tight trading range. The action was an inside day, suggesting consolidation. The finish was weak, but so was yesterday's, seeing a low-range close below the pivot point to suggest a bearish bias for Thursday's trade. Support looks to be 317 of a downtrend line drawn off the late May early July lows and last year's resistance seen earlier on the chart. 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:
7-26-07: 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:
Soybean futures closed with some losses today after opening higher in an attempt to extend Tuesday's gains. Consolidation and liquidation of the market have been ongoing themes leading into Tuesday's session and with selling interest showing up in the wheat market there were little signs of buying interest emerging in the soybean market. Weather forecasts are still in the driver seat of the market for now, however with a lack of threatening forecasts over the near-term the trade ended up being a two-sided directionless one. Last weeks rain events allowed for the recharging of moisture supplies throughout major growing regions and future forecasts have several chances for at least some precipitation to move the Corn Belt in the next ten days. More importantly adversely hot temperatures are forecasted to be confined to mainly northwestern sections of the belt with more moderate and seasonable temperatures forecasted elsewhere. However, we should also point out, that the crop will need consistent rain events during the coarse if the pod fill stage of development if we are to reach optimal yield potential, so forecasts should be monitored closely for any dry spells in the coming weeks. There was virtually no news for the complex today, but we do have a couple of report releases Thursday morning that will give the trade a better handle on the current state of demand for US supplies. The Census Bureau will release their forecast for June oilseed crushings, and trade estimates are running from 148-150 million bushels crushed, with oil stock estimates at 3.3-3.337 billion pounds, and meal stocks are estimated at 300-330,000 metric short tons. Weekly sales will also be released and the trade is estimating weekly soybean sales for old and new crop combined at 300-500,000 tons, meal sales at 75-125,000 tons and oil sales at 0-10,000 tons. For tonight we should be in for a subdued trade as there is little fresh information to go on and hopefully Thursdays demand number releases will give some better indications on whether further downside probes are warranted or if the market can find some support and attempt to recover from the substantial price slide during the middle of the month. That said, the future of US yield prospects and global inventories in 2008 remains in question so we can‘t rule out any price swings to the upside down the road.
Technicals:
November soybeans were lower on Wednesday, posting an inside day that looks like more consolidation that was expected. The low-range close below the pivot point suggests a bearish bias for Thursday. The close was below the recent support of the upward sloping trend line drawn off the April and May swing lows. Support should now be the 100-day moving average of 824.6. Support the last couple of sessions has been around 840, while resistance has been triggered just below the 4-day moving average that currently sits at 850.2. Directionals are trending lower to favor the sell side. The gap left Monday on the all session chart implies a downside target of 788.
Recommendations:
Speculative:
7-26-07: Buy 1 Nov Soybean on a close above 854.00
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Consolidation and profit taking took hold of the wheat pits Wednesday after reaching near record highs in Tuesday's session. However, after opening sharply lower, Chicago wheat slowly inched their way back to breaking even. But from midday forward though, the trade was uninspired by the lack of any fresh news and contracts at all exchanges headed lower. Looking to the weather forecasts, threatening temperatures remain in the forecast for spring wheat growing areas, however drier weather out east should allow for the wrap up in US harvest activity. Internationally, the woes continue for European wheat producers as German production is expected to be sub par relative to last year. Rains are expected to continue through the end of the week in the wheat producing regions of Western Europe, further reducing the quality and quantity of their crop. Wheat available for export is becoming harder to find and such supply problems elsewhere in the world are fueling the U.S. export market. Thursday will mark another release of weekly export sales data and trade estimates are looking for another strong week of sales in the 950,000 to 1.3 million tons, which would indicate that recent high prices have done little to ration distribution. As world stocks decline and the U.S. continues to see a solid export pace, despite such higher prices, and should continue until the trade gets a better understanding of northern hemisphere production. Also, the Wheat Quality Council tour concludes tomorrow in Fargo, ND and will give the market a preliminary analysis of U.S. winter wheat yields. Looking ahead, the market should continue to find support on downside probes until the trade can get a solid handle on global supply availability and 2008-09 production prospects.
Technicals:
December wheat was lower on Wednesday, posting an inside Dow day that looks like consolidation following Tuesday move to new contract highs. Yesterday's move looked like a breakout to the upside of the recent sideways consolidation pattern, but didn't find the follow through, suggesting that perhaps the sideways pattern is still viable. The new support held, with the close still above the previous resistance in the 650 area. This suggests that the upside breakout scenario is still favored. An uptrend line drawn off the April-June highs suggests resistance in the 700 area. The breakout above the top of the consolidation range suggests a target of 690. Directionals are trending very slowly higher and are approaching an overbought condition.
Recommendations:
7-26-07: Sell 1 Dec Chicago Wheat on a close below $6.42 - but no lower than $6.37
Speculative:
NONE
Livestock:
Live cattle futures were lower Wednesday. The October close was about mid range for the day session. The weakness was attributed to lower beef prices and concerns that the futures premium may not be justified. Today's action fell within the range of the action seen so far this week. There was no feature and things were described as quiet to suggest the market will be content to march sideways, marking time until something develops to give direction. For the October contract, a move below 96.17 or a move above 97.60 would likely trigger stops to accelerate the move.
Feeder cattle futures were lower. The bearishness was attributed to an overbought situation on the charts, to ideas of a needed correction from the recent rally to contract and historical highs, and to concerns about higher feed costs hurting feeder demand (brought on by the higher corn futures). The trade still looks like consolidation, with support for the August contract being in the 115.00 area and resistance in the 117.00 area.
Lean hog futures were mixed. Spreading was reportedly an important feature, especially some bear spreading on the close that pressured August but supported October. The fundamentals looked generally weak to me based on the concern prompted by the Tyson announcement to cut back slaughter. They evidently haven't started today as the daily total was estimated at 395,000 head, with the weekly total up 2.9% from last year. This is larger than expected. The National Base report showed weights down a pound from last week so marketings are current, but interestingly last week's IA/MN weight report showed weights up 2 pounds from last year. The milder weather and lower corn prices are evidently helping producers to output more pork. It will be interesting to see how pork prices react over the next month. Supplies look to be larger than last year, but there seems to be significant export hopes that may prove supportive.
Milk futures were sharply higher on Wednesday. The volatility continues, with September up 60 points. Higher cheese prices provided fundamental support and last Friday's reversal bottom provided technical support. The close was strong, finishing above the 100-day moving average after 4 closes below. The charts were oversold and now have the directionals trending higher to favor the buy side.
Positions:
NONE
Recommendations:
7-26-07: Sell 1 December Live Cattle on a close below 98.50
7-26-07: Sell 1 December Lean Hog on a close below 68.65
