Thursday, July 26, 2007
888-452-8751
Fundamentals:
CBOT December corn futures closed out the day with 5 ¾ cent gains after pulling back from earlier highs made. Sales this morning were decent, however, under trade expectations but some late announcements of tender activity on the wire likely added some additional support. Sales this morning for old and new crop combined totaled roughly 793,400 tons, which was a shade under trade expectations. However there were late morning sales announcements of 113,792 tons of corn sold to Japan for 2007-08 and another sale of 120,000 tons of corn to unknown destination, which certainly added some additional speculative buying interest throughout the session. Also, there was a tender of 80,000 tons of US supplies sold to S. Korea overnight that helped contribute to thoughts of robust global demand for US supplies. On the weather front there don't seem to be many changes with the only areas of concern mainly being in the west to far northwestern growing states that are currently seeing rather dry and hot conditions along with declining crop ratings. Elsewhere, rains are still in the forecast for significant portions of major growing regions and will further aid crop development as it rounds out the all important pollination stage of development. Other news was mostly light and some technical positioning factors likely played a role in Thursday's price action. Possible profit taking in long wheat/short corn inter-market spreads may have added some support, but conversely, the may have been some long liquidation on the rally as weather bulls have been soured on the market due to the lack of a major weather threat thus far in the growing season. Overall the market continues to search for direction at the lower end of the current range as the trade tries to assess fair market value. Looking ahead the market will continue to be largely weather driven and if showers that are currently in the forecast don't reach some of the drier areas or then the trade will likely look to keep at least some weather premium in prices. That said, soaking rain events will be hugely beneficial to crop development and yield potential so participant should keep close tabs on any fresh developments.
Technicals:
December corn was higher. The mid-range close near the pivot point offers no direction for Friday. Support looks to be this week's lows just above 325. Resistance today was the 10-day moving average of 337.7 and a downtrend line drawn off the previous swing highs of 341. A move above that would look like a breakout to the upside. Directionals were trending lower but have turned near oversold conditions to suggest that they may give a buy signal.
Recommendations:
7-27-07: Bought 1 Dec Corn at 333.00 - risk a close below 321.00
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
CBOT soybean futures traded on both sides of unchanged levels and eventually the new crop November contracts pulled out 7 ¼ cent gains, however that was well of earlier highs made in the day. The market continues to chop around in technically neutral territory as the trade awaits fresh weather reports. Demand releases this morning were deemed good-to-fair, with crush figures coming in on the high end of expectations and weekly sales well within the range of estimates. Weekly sales of soybeans totaled 316,800 tons, meal sales came in at 87,000 million tons, and soyoil sales were a whopping 33,700 tons. These figures compared with trade expectations of 100-500,000 tons of beans, 40-150,000 tons of meal and 0-10,000 tons of soy oil. Weekly crush figures came in just under trade expectations at 148.7 million bushels to confirm ideas that domestic use remains solid. Meal stocks did come in near the high end of trade expectations at 317,000 short tons and oil stocks were 3.389 billion pounds, well above trade expectations of 3.314 billion. Other news was mostly light and all market themes remain generally in place. However the question remains, did the market do its job of enticing enough South American acreage to satisfy global demand and keep world stocks at reasonably comfortable levels? Looking ahead the trade still must focus on weather forecasts for any changes that could impact yield potential in the US. However, if the US is able to produce a decent crop and indications are that global acreage/production prospects down the road will be sufficient to meet consumption needs then this market may not be able to stay supported at higher levels for much longer.
Technicals:
November soybeans were higher on Thursday, but saw some weakness to post an outside-up day. That formation may attract some technical buying Friday, especially with Stochastics showing an oversold condition and likely to offer a buy signal if there is follow-through to the upside. The close was at the upward sloping trendline drawn off the April and May swing lows, suggesting support there. Support should be today's low of 833.25, and then the 100-day moving average of 825.3. Resistance is the previous swing low of 855.
Recommendations:
Speculative:
7-27-07: 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:
Wheat contracts traded sharply higher today amid weekly export levels reaching an 11-year high. Opening trade was friendlier than expected and contracts at all exchanges quickly found new highs. The September Chicago contract even traded limit up for a short time during the course of Thursday's session. Solid weekly sales figures and more tender activity on the wires ahead of the session, along with global production woes continues to fuel speculative buying interest that has pushed the market to fresh highs. Weekly sales figures over 2.0 million metric tons was the most likely the feature support prices today and late announcements of purchases of 100,000 metric tons of U.S. wheat on behalf of Algeria and fresh tenders from Taiwan and South Korea likely added to the bullish tone of the trade. Past midday however, the trade was quick to retreat from historic highs as profit taking was likely, and limited gains on the day. Nearby contracts were more active today than those deferred, indicative of actual business being done on behalf of producers, as the market attempts to entice cash supplies out of producers' hands and increase future production interest. The forecast for U.S. winter wheat areas calls for excessive temperatures and a lack of moisture through the early weekend. We expect harvest progress to be at least par with average to the credit to such favorable weather. As for U.S. spring wheat areas,
temperatures have cooled considerably and showers have recently passed through. From this point forward, weather may play a lesser role in determining how the spring wheat crop matures. The Wheat Quality Council tour concluded today and a preliminary yield was estimated at 37.3 bushels per acre, down from USDA's latest estimate of 39.1. We expect at least marginal damage to be done though to areas of Montana and the Dakotas and close attention will be paid to weather facing the spring wheat harvest. Continued rainfall in major wheat production areas in Europe are expected through the weekend. The fuel behind the recent rally in U.S. wheat has been European weather and tremendous exports. The lack of such news, on either front, will likely spur profit taking and consolidation. Conversely, additional reductions in global production forecasts and continued strong export sales will stimulate the market until better estimates of the U.S. spring and winter wheat crops are made.
Technicals:
December wheat was higher on Thursday, posting a new contract high and highest close for this contract. The high-range close above the pivot point suggests a bullish bias. The higher move and third close above 650 suggests a breakout to the upside of the recent sideways consolidation pattern. Support is the previous resistance in the 650 area. 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:
7-27-07: Sell 1 Dec Chicago Wheat on a close below $6.47 - but no lower than $6.42
Speculative:
NONE
Livestock:
Live cattle futures closed narrowly mixed on Thursday, but saw wide ranging days that included new contract highs for the October through April contracts. The close was mid range on the daily charts, not looking like much more than mixed consolidation. However, the hourly and 30 minute charts look bearish with contract high reversal tops showing, some being key reversals. The late melt down was largely blamed on the 400 point meltdown seen in the hog pit. Cash fundamentals so far this week are looking mostly bearish. Beef prices have been steady to lower. Cash expectations have changed from higher (due to smaller show lists) to lower (due to the weak beef). Packer demand has been expected to weaken, but they continue to find plenty of cattle, keeping the slaughter pace slightly above last year. The October chart continues to look like it is in a sideways consolidation trend between 96.00 and 98.00, but the hourly and 30 minute charts are concerning with directionals favoring the sell side by trending lower and showing divergence, especially with the very weak stock market offering some demand concerns.
Feeder cattle futures were higher. Reports of higher cash feeder prices, the new contract highs in live cattle, and corn futures backing down from session highs all helped feeder cattle to close higher. Futures backed down from early highs as corn futures went higher, but then also recovered as corn futures fell from its highs. The sensitivity (volatility) may have been enhanced as traders watched just how touchy hog futures were today. The trade still looks like the August contract is marking time, with support being in the 115.00 area and resistance in the 117.00 area.
Lean hog futures were lower on the close. They also opened lower, but the in-between trade was exhausting with lots of inquiries and few answers, running up to post gains of almost the 300 point limit before freefalling to show a triple digit loss for the low. On the way up, funds were noted buyers with trapped sellers helping to accelerate the move higher. On the way down, funds were noted sellers with trapped buyers helping to accelerate the move lower. For the most part, this was a money game as the fundamental news to justify the moves was hard to find. On the way up, hopes of pork exports to China fueled the bullish talk. At the top and the way down, the weak cash fundamentals and the lack of any kind of seasonal decline fueled the bearishness. Cash hog prices were reported to be mostly steady to $1 lower, although the National Direct trend showed a $3.71 lower trend. The contract high reversal tops (key reversal for some contracts) on the charts seem likely to attract additional selling, especially with the directionals trending lower and showing divergence.
Milk futures were sharply lower on Thursday. The volatility continues, with the lower action taking something back from yesterday's gains. Cheese prices were steady. The Sep and Oct closes were just below their 100-day moving averages, suggesting that there is resistance to be above that level. The charts are working on reversal bottoms with directionals trending higher to favor the buy side.
Positions:
7-26-07: Sold 1 December Lean Hog at 68.65 - risk a close above 73.50
Recommendations:
7-27-07: Sell 1 December Live Cattle on a close below 98.50
