Tuesday, July 31, 2007
888-452-8751
Fundamentals:
CBOT Dec corn slumped 6 ¼ cents a bushel Wednesday after evolving weather forecasting models pared back temperature expectations and lifted rainfall chances across key growing areas during the session. Corn prices had been supported overnight after the recent dry and hot stretch, and expectations that such conditions would persist going forward had given corn values a lift in to early dealings Wednesday. However, the early buying interest lacked follow-through and as soon as the early weather updates began to the early buying interest dried up and made way for trader selling that dunked Dec corn quotes fairly sharply within the first hour of the session. Activity levels lightened notably after that initial knee-jerk reaction to the wetter weather outlooks, and a narrow $3.34-3.37 a bushel channel prevailed for the final three-quarters of the session. Looking forward, weather forecasts will remain this market's primary focus, as a shortage of rainfall coupled with high temperatures could still negatively impact final yields.
However, decent rains over the coming weeks could have the opposite effect and help currently dry crops fend off further deterioration as the rest of the growing season unfolds. News reports released over the day were on the light side, although producers in South Dakota are reportedly growing concerned that the sustained hot and dry conditions experienced by the state in recent weeks will negatively impact yields. Earlier this week, the USDA reported that 57% of the state's corn crop was in good-to-excellent condition as of July 29, down 13 percentage points from the previous week, and farmers are worried that further deterioration will be seen if rains don't arrive in decent amounts soon. Aside from the weather, the trade will also remain tuned in to demand statistics for indications of how the current price landscape of $6.50-plus wheat versus $3.40 area corn is impacting consumer interest. A widely-watched indicator of demand is released Thursday morning in the form of the weekly export sales report, and so that figure could well play a role in determining early price action Thursday. Trade estimates for the report are running from 700,000 to 1.15 million metric tons.
Technicals:
December corn was lower, showing an outside-down day. The low-range close above the pivot point suggests a bearish bias for Thursday. The move higher continued the breakout above the downtrend line drawn off the June-July highs, but found resistance on the move above the 20-day moving average of 342.6. Support was found at the 10-day moving average of 333.6. Stochastics are trending higher after recently turning and giving a buy signal. The RSI and MACD show a more sideways trend with mid-range values that could favor a move up or down. The 4-day crossed up through the 10-day this week, which favors the buy side.
Recommendations:
7-26-07: Bought 1 Dec Corn at 333.00 - liquidated at 336.00
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
Soybean traded a fairly wide 19 ½ cent range today, pressing higher in early trade only fall back into the red soon after updated weather forecasts surfaced. The trade is keenly attuned to weather forecast updates and a slight change for the wetter spurred some renewed selling interest. Furthermore, outside markets, crude oil in particular, are experiencing some very whippy trade, so we can't help but wonder if volatility in equity markets and other non-agricultural commodities is spilling into the Ag arena. Turning focus to the weather outlook updates, it would seem that the forecasts don't have much of a clear bias in terms of being either bullish or bearish, and it's a waiting game to see how it will all play out. However any changes, significant or not, are being accounted for by the trade with volatile price swings as we try to gauge the actual crop size. As for the actual forecast, temperatures are expected to remain largely above normal for the upcoming 10-day period or so, and reportedly the best chances for rain events are in the drier sections of northwestern growing regions through the weekend. It should also be noted that the midday changes showed better chances for increased amounts of precipitation, and possibly a larger coverage area that extends slightly farther south. So overall it seems that the areas that are in need of moisture are expected to get them over the next 5-day period or so, but other areas are not expected to see much in the way of chances for a significant rain event, which poses the question -will moisture deficiencies begin to develop elsewhere during the most critical stages of soybean development? And all we can really do is watch and wait to see how it plays out. Other news was mostly light other than an announcement of 165,000 tons of US soybeans sold to unknown destinations for the 2007-08 marketing year. Also, we have another round of weekly export sales out tomorrow morning and estimates are running at 50-400,000 tons of old crop sales and 0-200,000 tons for new crop. Meal sales are expected around the 50-150,000 ton area and oil sales expectations are ranging from 0-20,000 tons.
Technicals:
November soybeans were lower on Wednesday. The higher action early triggered a buy signal for the oversold Stochastics. However, the outside-down day and the low-range close below the pivot point suggest a bearish bias for Thursday's trade. Trade was briefly above the 50-day moving average of 863.6, but proved to be too much resistance. Support is the recent lows just above 833 as prices fell down through the 10-day moving average. It looks as if the 4-day could cross up through the 10-day this week, which is a bullish buy signal. The RSI and MACD hold mid-range values that could support a move in either up or down. 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. A buy strategy here around 845-850 could carry a protective stop of 830, with an initial objective of 890.
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 contracts ended a volatile session with moderate gains despite early price weakness. Wheat prices traded on both sides of unchanged levels in a fairly wide 18-cent range throughout course of Wednesday's session. December Chicago futures rounded out the day with 7 cent gains, while Kansas City and Minneapolis futures followed suit, as KC December wheat ended up 2 ¾ cents and Minneapolis up 4 ¾ cents. Adding to the weaker tone of US futures prices in early trade was the announced confirmation of Egyptian wheat business being done. It was interesting to see Egypt "snubbing" U.S. wheat exporters by opting for 150,000 tons of Russian supplies over cheaper US offers. But it seemed as though the market had a little too much information to digest in one session Wednesday as morning news reports included bullish and bearish factors. The day began with supportive news of higher French wheat prices on behalf of fresh reports to cuts in production by private forecaster Agritel. Reportedly they now see France's soft wheat production at 32.3 million tons, which is supposedly the lowest estimate out there. Elsewhere in the FSU, it was reported that Russia could possibly cut their grain production forecast by as much as 20-50% in Southern and Central districts due to drought. Also, wire reports were released stating Romania has harvested a four-year low wheat production total as their crop size only totaled 3.0 million tons for 2007. In demand news, wires reported that Iraq purchased 1 million metric tons of domestic supplies from local producers and later in the day it was announced that they are tendering for another 50,000 tons of imports. It was interesting to note that after analyzing today's export news, indications were that global wheat prices are at a significant premium to US values. Thursday will bring another round of weekly sales figures to help gauge foreign demand for US wheat and estimates for tomorrow morning's report are fairly wide ranging from 450,000-1.2 million metric tons. On the weather front, U.S. forecasts call for favorable weather to aid in winter and spring wheat harvest efforts. Temperatures have cooled significantly in the northern plains and southern Canadian wheat areas today and are expected to remain cool into next week. Also, participants need to keep in tune with Canadian forecasts, as crops have reportedly been significantly damaged due to the recent hot and dry weather. Looking forward, the market is not expected to take a significant direction until northern hemisphere production is better known, and volatility is sure to linger until such figures are released.
Technicals:
December wheat was higher on Wednesday, bouncing from early lows around support of the 20-day moving average of 638.3. This reversal action with the high-range close above the pivot point suggests a bullish bias for Thursday. Resistance was considered to be 658, not leaving much room for upside trade. Next resistance would be the contract high of 678. An uptrend line drawn off the April-June highs suggests resistance above 700. The breakout above the top of the consolidation range suggested a target of 690. Traders may prefer to follow the uptrend channel in place for the month of July, which suggests support at 645 and resistance around 680 for tomorrow. Stochastics gave a sell signal Monday, but the RSI and MACD are chopping sideways and could support a move in either direction.
Recommendations:
NONE
Speculative:
NONE
Livestock:
Live cattle futures were sharply lower on Wednesday. The August and October contracts saw triple digit losses as bear spreads were a feature. The futures premium and overbought condition was attractive to sellers. As the October and December charts showed reversals, technical selling and long liquidation picked up to accelerate the move lower. The outside-down day is likely to attract follow-through selling tomorrow. Beef prices are moving higher, but they still haven't caught up with where they need to be to justify last week's cash cattle prices. Cash cattle prices could easily be flat the rest of this month, especially if last week's active beef buying limits purchases the rest of the month. There seems to be a lot of factors pointing to the sell side right now, including technical, futures seasonal and fundamental (futures premium to cash).
Feeder cattle futures were lower. The action was following live cattle, but the trade was within this week's previous highs and lows. This looks like consolidation after Monday's new contract highs. Cash feeder prices continue to report higher, which is slowly pulling the feeder cattle index higher, working on closing the premium held by futures. But until that happens more appreciably, feeder cattle futures are likely to feel sell pressure from that premium, especially with its overbought condition. It is also hard to rationalize much higher feeder cattle futures, even though prices have been higher the past few years, because corn prices are so much higher. 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. However, corn prices are significantly higher than the last three years at 235, 209, & 268 for highs in the corresponding months of the feeder cattle highs.
Lean hog futures were lower on Tuesday, sharply so for some contracts. October and December (and February by spillover) found relative support as recent longs offered some support. Despite the recent bullish mentality, the weak fundamentals were in control and precipitated the exodus of weak longs. Pork prices were sharply lower yesterday and look like they could be that way today and should see additional losses based on the supply coming to market. Hog slaughter for today was pegged at 398,000 head, up almost 5% from last year, putting the week-to-date slaughter up 4.2% from last year. There were continued talk about pork to China, but if it doesn't help pork prices soon, lean hog futures could see a pretty significant correction as there isn't much of a seasonal decline built in and cash prices can be hit hard in August.
Positions:
NONE
Recommendations:
8-02-07: Sell 1 December Live Cattle on a close below 99.62
