Tuesday, July 31, 2007
888-452-8751
Fundamentals:
Corn futures traded on either side of unchanged levels in a lackluster fashion only to see fresh highs in the closing minutes as market on close buying pushed prices firmly into positive territory. December corn futures eventually rounded out the day with 2 ¼ cent gains that seemed more technically driven rather than fundamentally. News wise there was nothing fresh out there to peek traders' interest one way or another so prices meandered on either side of unchanged levels all throughout the majority of the session. Monday's release of lower than anticipated crop condition rating figures managed to spur some small buying interest but that failed to build on itself and turn into anything constructive. Looking to the weather, temperatures are expected to rise over the next few days with limited chances for rain events until this weekend and in the extended outlooks. Monday's crop progress figures indicated the crop is nearly done with its all important pollination phase and most crop areas are in the dough and dent stages of development, so participants are focusing more on chances for moisture to help finish out the crop rather than hot temperatures burning up the crop during its most important developmental phase. So with that being said, moisture supplies are deemed adequate except for in a few areas in northern and northwestern states and those areas are expected to get some moisture relief later this week. Looking ahead, the trades focus will shift to the upcoming USDA report and any fresh insights that it will bring with it. Private forecasters will soon be rolling in with their estimates for the August report and F.C. Stone is expected tomorrow after the close, so participants should be on the look out for those types of releases. Otherwise the trade will concern itself with whether or not moisture events will be adequate and timely while the crop enters its final leg of the growing season. So, with Wednesday being the start of a fresh month we'll have to see if investors will be renewed or not but beyond that, focus will mainly be on yields and overall production totals.
Technicals:
November soybeans were higher on Tuesday, moving on up to find resistance at the 50-day moving average of 863.3. Support should be the 10-day moving average of 855.1. The higher action has turned Stochastics, which looks to start trending up from an oversold condition. The RSI and MACD don't offer anything quite so concrete, holding mid-range values that could support a move in either direction. Some are looking for a rally up to the 895-900 area to put in the right shoulder of a potential head-and-shoulders top (downside objective of 700). The bulls are still expecting the upward trend to continue after having just put in an ABC correction. A 138% retracement of the recent decline gives an upside objective of just below 1000.
Recommendations:
7-26-07: Bought 1 Dec Corn at 333.00 - risk a close below 336.25
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
Soybean complex futures were most exciting thing on the trading floor today, but that was even just as lackluster as the grain market trade was. Prices just ground higher before a short spurt of liquidation ahead of the closing bell, which served to limit daily gains. But that's not to discount the fact that November bean futures nearly posted double digit gains, with November futures ending up 9 ¾ cents, December meal up $2.30 a short ton and soyoil up 43 points on the day. Monday afternoon's crop condition report showed conditions slipping a bit more that the trade had anticipated and this helped the market to finally break out to the upside of recent trading bands, after we have seemingly found decent support at the $8.40 area. That being said, we can attribute the majority of Tuesday's buying interest as a bit of risk premium building. Recent outlooks remain largely unchanged from earlier trends with temperatures looking to rise across the Midwest through week only to get relief in the form of scattered rain events this weekend. Furthermore, extended outlooks are calling for a pick up in precipitation events but fresh outlooks will need to be kept up on to see if those rains will actually be realized. So basically, if showers in the forecasts don't pan out, especially in abnormally dry bean areas, this weekend and in the extended outlooks the trade will look to take the market even higher as August weather is the most important for development. Weather bulls will need to be particularly aware of rain events moving through the Midwest in a timely manner because rains at just the right time can be very beneficial to yield potential during the stages of pod set and pod fill. Looking down the road, the USDA's August report will be highly anticipated by the trade, as new production totals will be released. And in the days leading up to the August 10th report, private forecasters will be releasing their estimates for total production, so the trade will need to digest those releases along with whatever Mother Nature decides to toss at us until then. Beyond that, once the trade has a better handle on US production prospects, focus will shift to South American planting intentions. AgRural was the only private analyst out who has called for a 7% rise in year-on-year planted soybean acreage in Brazil, so we will have to see if other analysts are as optimistic on increasing the planted area for soy to account for a shorter US crop.
Technicals:
November soybeans were higher on Tuesday, moving on up to find resistance at the 50-day moving average of 863.3. Support should be the 10-day moving average of 855.1. The higher action has turned Stochastics, which looks to start trending up from an oversold condition. The RSI and MACD don't offer anything quite so concrete, holding mid-range values that could support a move in either direction. Some are looking for a rally up to the 895-900 area to put in the right shoulder of a potential head-and-shoulders top (downside objective of 700). The bulls are still expecting the upward trend to continue after having just put in an ABC correction. A 138% retracement of the recent decline gives an upside objective of just below 1000.
Recommendations:
Speculative:
7-31-07: Bought 2 Nov Soybean on a close above 858.25 - risk a close under 843.50
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Wheat exchanges across the Midwest shared in moderate losses today amid continued long liquidation and harvest pressure stemming from ongoing activity around the globe. With a shortage of fresh news today, the trade lacked significant direction. Continued liquidation and favorable harvest weather at home and abroad made sure any rallies were short lived though. By midday, the trade lacked any kind of enthusiasm but managed a final blow to close wheat contracts in moderately negative territory. Chicago wheat led the slide with September contracts ending 7 1/2 cents in the red; Kansas City down 3 cents and Minneapolis losing 6 ¼ cents. Weather forecasts call for close to ideal conditions for the U.S. spring wheat harvests, minus the excessive heat. The best chances for showers in the region will be this weekend, lasting through the early part of next week. Such favorable conditions should present some pressure on the trade this week. As for Europe, rain events are likely to continue today and tomorrow in Germany and France. Accumulation is expected to be only marginal; in the .2-.6 range. The region should see a lack of moisture from Thursday through the beginning of next week. The market has been sure to absorb the drier forecast. Wheat harvests are currently underway in chorus throughout the northern hemisphere. Close attention will be paid to weather as it relates to global wheat harvests. European markets are still the focus of nearby price action and if European futures decline, U.S. prices will likely follow. We expect wheat volatility to continue amid uncertain weather forecasts, weekly export numbers, and the USDA crop production report to be released August 10. That being said, focus is set to turn to production prospects in the Southern Hemisphere as we get further into August, but we will first need to get a better assessment of actual yields in areas where harvest is ongoing.
Technicals:
December wheat was lower on Tuesday. The close below mid-range and below the pivot point suggests a bearish bias for Wednesday. The move down didn't find enough support to hold the 650 area, closing at 649. Next support looks to be the 20-day of 635.4. Resistance is 658. Last week's move higher and closes above 650 had suggested a breakout to the upside of the recent sideways consolidation pattern. An uptrend line drawn off the April-June highs suggest resistance above 700. The breakout above the top of the consolidation range suggested a target of 690. Traders may prefer following the uptrend channel in place for the month of July, which suggests support at 641 and resistance at 681 for tomorrow. Directionals appear to have turned, but are not trending solidly lower yet. Stochastics did give a sell signal yesterday.
Recommendations:
NONE
Speculative:
NONE
Livestock:
Live cattle futures were higher on Tuesday, finishing strong to post new contract highs for the October through April contracts. The high-range close suggests follow-through buying for tomorrow. But the futures premium and overbought condition will attract sell pressure. Sellers may stand aside initially, which helps them get a better selling price, but primarily to make sure that they won't be fighting the funds right off the bat. Funds were reported buyers in late trade today. Higher beef prices in this morning's report were supportive as well. Last week's movement of beef was very strong, with domestic movement up 12.3% from last year and export movement up 151% from last year. Exports were 6.9% of total movement. The movement last week came with Choice beef prices down around the "floor" of $139-140. It will be interesting to see if the market can push all the beef it needs to if beef prices are as high as what cattle futures are suggesting. This seems especially difficult with larger pork and poultry production to compete with beef and other demand concerns that reduce consumer's disposable income or willingness to spend, i.e. record high crude oil close, faltering stock market, sluggish housing market, and credit payment concerns.
Feeder cattle futures were higher, posting outside-up days to reach new contract highs for Sep, Oct, and November contracts. There was a fast market at the end of the session as there were plenty of buyers and sellers. The new highs triggered buy stops, but the futures premium and overbought condition encouraged sellers. It seems like higher corn prices should cap futures at lower levels than seen recently. The last three years (2004, 2005, & 2006) saw feeder cattle futures post 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. Corn prices are significantly higher than the last three years (235, 209, & 268 for highs in the corresponding months of the feeder cattle highs).
Lean hog futures were sharply higher on Tuesday, with the Oct and Dec contracts seeing triple digit gains and new contract highs. The buying was attributed to fund buying, short covering, and buy stops once again. The action has been volatile, but the bulls are definitely winning. The fund buying may take a back seat with the start of the new month tomorrow, as this week's action so far may have been end-of-month business. Cash hog prices strayed from the steady calls to a bit higher for some markets. This was supportive. The bulls are saying that demand must be very strong to absorb the large supplies. The bears are saying that that cold storage stocks increased last month reflective of poor demand and that the current large supplies just haven't been able to negate the China talk so far. When that happens, prices could go down fast, which is frequently the case for August. Hog slaughter was pegged at 393,000 head, with the week-to-date being up 4% from last year. Tomorrow's morning IA/MN weight data may be very important to futures direction as it may give some indication of whether supplies are backlogged or very current.
Milk futures were mixed on Tuesday. Cheese and butter prices were steady. Bears were able to cap yesterday's enthusiasm, but bulls really weren't ready to back down too much. There is some optimism from the heat forecast for this week that could hurt Midwest production. There has been some commentary about world prices staying high due to production problems around the globe and to strong demand from the developing nations. Technicals look favorable, with prices trending up from the big reversal bottoms and the directionals trending higher.
Positions:
7-26-07: Sold 1 December Lean Hog at 68.65 - liquidated at 72.90.
Recommendations:
8-01-07: Sell 1 December Live Cattle on a close below 99.62
