Friday, August 03, 2007
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Fundamentals:
CBOT Dec corn endured a choppy trading session Friday and whipped around in $3.38 ½ - 3.46 per bushel channel over the course of the day. Weather forecasters continue to limit the total amount of rainfall and coverage expected over the Midwest over the weekend, which is serving to limit overall selling pressure in the market. In addition, market forecaster Informa released a somewhat less bearish than expected yield and production estimates report. The group was widely expected to project yields well in excess of the USDA's most recent estimates, but actually lowered their figures from their previous release to 153.30 bushels an acre for corn - which would equate to a production total of 13.09 billion bushels. This outlook is substantially above the USDA's estimates, but reveals that a growing number of market watchers are being forced to trim output estimates after the growing season was less than perfect for many parts of the fringes of the Corn Belt. As a result, while this release was somewhat bearish on face value, the fact that the group ceded that yields are likely not going to be stellar across the board actually offered the market some support as the session wore on. Another supportive factor was a further firming in US Gulf corn basis quotes, which reveals that foreign demand for US corn remains brisk. These reports come on the back of a very strong weekly export sales report Thursday, and reinforce the perception that while this market may well be facing a hefty production total, it remains underpinned by a large swell of steady demand. Looking forward, growing weather will remain to most pertinent issue affecting corn prices over the coming days, as farmers remain nervous that a dry and hot spell over the next week or so could negatively impact yields. The trade will also likely start preparing positions for next Friday's USDA report, which will provide the latest official guidance on consumption and output prospects both in the US and globally. Look out for Iowa Grain's pre-report comments for a detailed breakdown of what to expect in the release next week. Overall, there's a growing sense that we may be nearing a bottom for the corn market following the past several weeks of weakness. Growing weather has been largely good in Illinois and other parts of the Central Corn Belt, but has been hot and dry elsewhere to leave overall production shy of many traders' expectations. We will not be able to get a truly good handle on yields for some time yet, but will prices having dropped over $1 from their June higher; we are part of the growing ground that expects the downside to be less roomy than the upside going forward. That said, we certainly can't rule out further short term flush outs of stale longs, especially if decent rains soak large portions of the corn belt over the coming days.
Technicals:
December corn was higher, showing an outside-up day. This suggests support for the buy side, especially with today's close above the 20-day moving average. The move higher continues the breakout above the downtrend line drawn off the June-July highs. Support should be the 10-day moving average of 335.1. Stochastics are trending higher after recently turning and giving a buy signal. The RSI and MACD show a slight uptrend, but at mid-range values could favor a move up or down. The 4-day crossed up through the 10-day this week, which favors the buy side.
Recommendations:
8-6-07: Buy 1 December Corn on a close above $3.47
Speculative:
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
CBOT Nov soybeans gained more than 6 cents Friday as the latest weather forecasts contained only limited rains for key growing areas over the coming days. Informa also lowered its bean yield estimate to 42.7 bushels an acre, to leave its final production estimate at 2.7 billion bushels - some 19 million bushels below its previous projection. Again, the fact that a widely-watched forecaster is prepared to scale back its output expectations on the back of less than ideal growing weather was viewed as slightly bullish, and looks set to remain a supportive factor for the bean price going forward. Focus next week will remain on the growing weather as the bean crop is in need of regular rains throughout the coming weeks in order to maximize yields. Traders again will also be preparing positions ahead of next week's USDA release, which will provide the latest official statistics on supply and demand. In the news Friday, a Brazilian forecaster reported that 79% of the Brazilian bean crop has been sold as of August 3, which is fractionally higher than at this point a year ago. Elsewhere, US Gulf area bean basis quotes were reportedly firmer Friday, revealing continued foreign interest in US beans. On the product front, soymeal futures nosed higher in line with the beans, while beanoil sagged slightly in line with crude oil. Both markets looks set to generally follow soybeans' lead over the coming days.
Technicals:
November soybeans were higher on Friday, and for the week. Today's trade was in line with the rest of the week's trade, maintaining a slight upward trending channel. Once again trade found resistance at the 50-day moving average of 865.0. Support is the 10-day moving average of 848.2. The 4-day crossed up through the 10-day this week, which is a buy signal to some technicians. Stochastics are working on a buy signal as they start to trend higher from an oversold condition. The RSI and MACD hold mid-range values that could support a move in either direction, but look like they are starting to trend slowly higher. 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 was initiated at 850, initially carrying a protective stop of 830 that could probably be raised to this week's low of 840. The initial objective on the spec long is 890.
Recommendations:
Speculative:
7-31-07: Bought 2 Nov Soybean at 858.25 - risk a close under 848.50
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
CBOT Dec wheat closed out Friday's session with a 4 ½ cent gain after fresh concerns about global production prospects kept sellers at bay. Rains in Europe are raising concerns about crop quality there, while this morning the Canadian Wheat Board lowered its wheat output estimates from 21.2 million tons to 20 million tons due to hot and dry weather. Meanwhile, reports emerged that farmers in Brazil's Parana region may lose up to 17% of their wheat crop due to dry weather. Elsewhere, Argentine plantings are reportedly behind schedule due to lingering dryness. Overall, these reports are part of the recurring theme that has underpinned this market for the past several months, which is that global output looks set to come in short of expectations despite continued strong consumption. More such reports, especially any news that the emerging crop in Australia is suffering from dryness, will no doubt lead to even more wheat price strength, so market watchers will need to stay well tuned to the latest producer updates around the world. Looking forward, aside from tracking the latest producer news next week, traders will also be positioning themselves ahead of next Friday's monthly supply and demand report from the USDA. A great deal of uncertainty surrounds the US winter wheat production total, which the USDA has indicated would come in for a revision following heavy rainfall in the Southern Plains ahead of and during harvest. Should that figure be lowered more than the trade is anticipating, then a fresh burst of price strength can be expected that will extend the current Bull Run. In the meantime, however, the trade will need to bide its time and keep close tabs on production progress throughout key areas around the world.
Technicals:
December wheat was higher on Friday, and for the week. Today's close matched the highest close for the life of this contract. Resistance was found as it approached the contract high of 678. Support is the June high of 658, which was previous resistance. An uptrend line drawn off the April-June highs suggests resistance above 700. The breakout above the top of the consolidation range suggests a target of 690. Traders may prefer to follow the uptrend channel in place for the month of July, which suggests support at 650 and resistance around 685 for Monday. Stochastics gave a sell signal Monday and is still holding close to an overbought condition, but the RSI and MACD are chopping sideways and could support a move in either direction.
Recommendations:
8-06-07: Buy 1 December Wheat at $6.58 - risk a close below $6.55 ½.
Speculative:
NONE
Livestock:
Live cattle futures were mixed on the close Friday. August was higher encouraged by the higher cash cattle prices. Cash trade was reportedly active, occurring at $92 to $92.50 for the most part. Such prices were $1 higher than last week's late trade. August futures moved up to keep a premium as the general thinking is that cash prices will increase seasonally as available cattle supplies should hold steady or decline and beef demand picks up for back-to-school and Labor-Day features. Monday will mark first notice day to start the delivery process on the August contract. Cash optimism is high so deliveries are expected to be zero or small. October posted a wide-ranging, outside-down day. The higher ground found more profit takers concerned by Wednesday's contract high reversal from a technical perspective and by South Korea's ban on US beef from a fundamental perspective. Cattle slaughter for the week was pegged 6.7% higher than last year, which seems a bit high for expectations and may help explain why there is talk about beef prices topping for the near term. October futures found support in the 97.50 area, just above the top of the previous consolidation range. Next support would be the bottom of that previous consolidation range in the 96.40 area.
Feeder cattle futures were narrowly mixed. The 2007 contracts were steady to slightly lower. The 2008 contracts were slightly higher. Supportive factors include generally higher cash feeder prices, the higher fat cattle prices, a bullish outlook for 2008 based on smaller cattle/calf inventories, beef export hopes long term, and estimates of a 13 billion corn crop to keep feed costs under control. Bearish factors include technical considerations of reversal tops made this week amid an overbought condition and divergence, corn prices are much higher than the last three years suggesting that perhaps feeder cattle prices can't make it as high this year, and going along with that futures already hold a premium.
Lean hog futures were sharply higher on Friday, seeing triple digit gains for most of the contracts and posting new contract highs for October, December and February. The buying was centered in October, which closed almost up its 300 point limit. Other contracts saw noticeably smaller gains, finding spillover support mostly from spreading. The October benefited from fund buying and short covering, and is the focus of the talk about China buying US pork. The talk is getting a lot more specific, but nobody seems to want to put those specifics in writing or can get them confirmed. Hog slaughter was up 5.6% from year ago, which with higher weights put production up 7.1% from last year. This is way above expectations. But you know things are bullish when this can be spun as evidence that China is in the market. My contention is that pork prices would be seeing more support if they were in the market. Interestingly, the thinking is that if China takes US pork, then it will be in the form of pork carcasses. This should lend support to all pork cuts, yet pork bellies are in a free fall. August pork belly futures had expanded limits today and still found enough sellers to move all the way down. August pork belly futures have fallen $10.50 in three days.
Milk futures were sharply higher, finding follow through buying. The September contract came back and filled its opening gap, but the October chart is showing a gap. Interestingly, today's action for the October filled the late June gap, and considering all the technical resistance in this area it would seem reasonable to expect the market to go down and fill today's gap. Today's dairy product prices show mixed results. Butter production was up 9.3% from last year, but cheese production was down 0.8%, with American types down 4.6% and Italian types up 2.9%. Cheese prices were steady today. Butter prices were lower.
Positions:
NONE
Recommendations:
8-06-07: Sell 1 December Live Cattle on a close below 99.62
