Friday, July 27, 2007
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Fundamentals:
Trade activity was light in corn pits today as prices managed to sustain just a slight rally, as December futures closed out the day with 3 ½ cent gains. Lacking any fresh news and other markets to follow, the trade lacked a general direction and focused more on consolidation ahead of the weekend. After trading on either side of unchanged levels, Chicago contracts ended the session roughly 2-4 cents in the green. Adding to the day's price action was likely some spreading between the wheat and corn markets. Now that wheat has made historical gains over corn, some in the trade believe that it may be overdue for a correction and are now looking to fade the recent trend that has developed. Furthermore, we likely saw some profit taking by traders that have witnessed substantial profits in the spread over a relatively short period of time. Looking ahead, weather forecasts for the Midwest call for mixed conditions. Dry areas in Nebraska and the northern plains are expected to stay dry yet temps are stated to be non-threatening as the crop nears the conclusion of pollination. A clearer weather outlook will have to wait until Sunday. As for early next week, the market will be anticipating a more accurate weather outlook to appear over the weekend and looks to focus on potential for rain in drier areas in the Midwest. Corn is completing its pollination stage but is still in need of moisture, particularly during the forthcoming week. The USDA's crop progress report should play a key role in next week's trade as well, but such uncertainty will temporarily keep the market at bay until said report is released Monday at 3:00 p.m., CST. It will be hard for corn to carry a significant bullish theme prior to news of the 2007 harvest. Trading for the most part has banked on a significantly large crop. Short-term increases could be seen though, with a severe lack of moisture in the next 7-10 days.
Technicals:
December corn was slightly higher, posting an inside-up day. The high-range close above the pivot point suggests a bullish bias for Monday. Support looks to be this week's lows just above 325. The move higher pushed above the 10-day moving average leaving next resistance to be the 20-day moving average of 343.6. Today's close was also above the downtrend line drawn off the previous swing highs, but doesn't really look like a breakout yet. Directionals have turned near/at oversold conditions to perhaps suggest a change in at least the nearterm trend from down to up.
Recommendations:
7-26-07: Bought 1 Dec Corn at 333.00 - risk a close below 328.00
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
Soybean trade was mixed Friday, as traders are still leery of pushing prices too far in either direction with too many uncertainties remaining concerning several factors that will influence US and global balance sheets alike. In the end, November soybean futures closed out Friday's session with 6 cent losses and sharply lower on the week as well. Overall there was a notable lack of news for the complex to steer prices in one direction or the other and market action was largely in response to positioning by the trade ahead of the weekend. On the weather front there were very little fresh developments. Scattered showers are still forecasts to move through major growing regions and will surely be beneficial to crop as it moves into critical development stages. That said, concerns remain for northern and western sections of major growing areas and forecasts need to be monitored for further deterioration or improvements in those areas, as well as any changes that could impact yield potential as the growing season progresses. So for next week, weather forecasts are likely to set the tone for market action, but we will get another round of weekly export inspection data to help gauge foreign demand. Also participants need to be on the look out for further indications of Brazilian planting intentions, which could have a major impact on the future of global supply availability.
Technicals:
November soybeans were lower on Friday, and for the week. The last four sessions have looked like sideways consolidation after Monday's freefall. Support has been 833, while resistance has been the previous swing low of 855. The lower action today failed to confirm yesterday's reversal (although some give it an extra day before declaring that). Stochastics are trending down, but show an oversold condition. The RSI has been mostly sideways of late, but shows more room to the upside than to the downside.
Recommendations:
Speculative:
7-30-07: Buy 2 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:
As expected, wheat contracts teetered on either side of unchanged levels during the coarse of Friday's session in a bout of consolidation ahead of the weekend, but still managed to settle slightly higher with September Chicago wheat futures closing out the session 2 ¼ cents higher. A lack of any significant news allowed wheat prices to jump around during the course of the day as the pits found a trading range from 5 cents higher to 6 cents lower. The story of the day is that there was no real direction experienced at any of the wheat exchanges today. Traders for the most part are scaling back positions and consolidating, as participants are uncertain of what Monday's news may bring. Wheat contracts did have some significant movement on the week though; September Chicago managed to gain 32 cents on last Friday's settlement and the wheat/corn spread hit all time highs. Most of this gain came from Thursday's temporary limit-up condition based on exceptional export sales for last week. Additional support came from both quality and quantity woes regarding Europe's wheat production. All of which have contributed to speculative buying interest, as the wheat is really where the most bullish fundamentals lie. In the news, Algeria has reportedly purchased 300,000 metric tons of wheat but the nation of origin is unclear. Also reported, in an effort to combat towering grains prices, Argentina millers have agreed to lower flour prices contingent on receiving some kind of subsidy for their work, however both events were largely ignored today. Looking to next week's trade, the market will pay close attention to global weather conditions. Further abandonment and harvest delays in Europe, threatening weather faced by the spring and winter wheat harvests in the U.S., and reports of this past week's export demand, which should drive wheat price movements temporarily. Longer-term fundamentals still remain unchanged with regards to global wheat supply and demand. Tightening stocks are spreading throughout, as weather has been unforgiving to wheat producers this season. The recent supply shocks have caused the demand for U.S. wheat to soar. We see little downside price potential for wheat until actual harvest numbers are presented. The market still has the job of securing more wheat acres around the world, and that is likely going to be the major factor in determining where prices head from here.
Technicals:
December wheat was unchanged on Friday, but sharply higher for the week. The high-range close above the pivot point suggests a bullish bias for Monday. The higher move and closes 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, but have reached an overbought condition.
Recommendations:
7-30-07: Sell 1 Dec Chicago Wheat on a close below $6.57 - but no lower than $6.52
Speculative:
NONE
Livestock:
Live cattle futures were sharply higher on Friday, and were sharply higher for the week with August up about $3 and October up about $2. The bullish optimism of the deferreds (lower cattle inventories, beef export hopes) found additional enthusiasm from today's higher cash cattle prices that were at least a dollar higher than last week. Thus, the nearby August contract was up the most, but some of the deferreds registered new contract highs. The optimism has carried futures to price levels, the $100 mark, that look a bit extended. Beef prices are not supporting current cash prices and that seems to be a legitimate concern amid larger supplies of chicken and pork to compete with beef and amid the high energy prices, weak housing market, extended credit, and lower stock market that are beef demand concerns. Things are not super bearish, but it is difficult to justify prices much higher at this time than the premium already held by futures. Technically things seemed weak yesterday, but those reversals were negated with today's higher action, and the move higher looks like a breakout above this month's consolidation pattern. The breakout suggests an upside objective of about 99.00 for the October contract, which was almost already achieved today.
Feeder cattle futures were higher on Friday and for the week. The August contract was up about $1.50 for the week, closing above $117. The last three years (2004, 2005, & 2006) have seen the annual highs in the Aug-Sep-Oct quarter, peaking out at 118.70, 119.75, and 119.35, respectively, according to the monthly nearby chart. Thus, buying enthusiasm is drying up, especially with the feeder cattle index trading about $4 lower than futures. Cash feeder reports are mostly higher, but higher corn futures are prompting concerns that feeder demand could be tempered. After all, the feeder cattle highs of the last three years came with significantly lower corn prices (235, 209, & 268 for highs in the corresponding months on the monthly chart).
Lean hog futures were sharply higher on Friday, but only slightly higher for the week. The action has been volatile in back and forth action all week. There is optimism of pork exports to China encouraged the buying, but there was also skepticism to keep it in check. The buying found new contract highs, but it also found willing sellers as such prices look attractive to producers. The strong gains today for the most part look like back and fill after yesterday's 400 point freefall. The Oct and Dec hourly charts show a mostly sideways trend, with directionals trending sideways and holding mid-range values that offer no particular bias to move lower or higher. The August contract looks to have made a statement today, falling back down through its 40 and 50-day moving averages. Cash hog prices were lower at the end of the week, helping to fuel a major move to almost even money between the August and October contract. The other noted spread was with the February contract as the sell leg, linked to ideas China would have its production problem fixed by then. December futures are trading about $7 higher than last year's December expiration. That seems like to large a premium considering the larger pork production and expanding chicken production. Pork production for the week was pegged 5.4% higher than last year, which would seem likely to be a bearish factor for traders to start with on Monday.
Milk futures were higher on Friday, and for the week. Futures are still working off of last Friday's reversal bottoms. Directionals on the charts are trending higher to favor the buy side. But traders seem reluctant to blindly buy it higher, and rightly so from these historically high levels. This week's trade for the September and October contracts have been following a rough path along their 100-day moving averages. The volatility has been scary, reducing some of the trade volume. In fact open interest this month has been steady rather than increasing as seems to be the norm from one expiration to the next.
Positions:
7-26-07: Sold 1 December Lean Hog at 68.65 - risk a close above 71.40
Recommendations:
7-30-07: Sell 1 December Live Cattle on a close below 99.15
