Wednesday, August 08, 2007
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Fundamentals:
CBOT Dec corn snaked along within a $3.41-3.51 per bushel channel Wednesday amid lackluster conditions as traders proved content to allow prices to tick sideways in the absence of fresh fundamental or market moving news. The weather remains an important factor for the crop, and recent rains across central and northern Midwestern states will certainly have aided in crop development in those regions. However, the status of the crop in the remaining areas of the Corn Belt remains uncertain as hot and dry conditions have prevailed in many regions, so a decent handle on the overall quality of the nation's crop will not be known for some time. As a result, few traders are expected to seek to push the market too far in any direction for the time being, at least until we get deeper into harvest and more readings are available on ear weight and yields. While a majority of this market's focus remains on production, the consumption side of the story continues to play out with consistent strength. An Israeli consortium seeking 100,000 metric tons of corn was the latest foreign purchaser interested in US corn in recent days, and more insight into the quality of interest in US supplies will be available Thursday in the weekly export sales report. Analyst estimates for old crop corn run from 200,000 to 350,000 tons, while for new crop corn estimates run from 250,000 to 450,000 tons. Aside from outright interest in corn, the trade remains aware of corn's relationship with wheat after the wheat/corn spread shot to fresh highs in excess of $3.60 a bushel lately to heighten corn's appeal even further as an alternative to multi-year high priced wheat. So while production and demand remain the primary factors occupying traders currently, special attention needs to be paid to corn's relationship with wheat and other coarse grains over the coming weeks as harvest picks up pace and the market potentially carves out its seasonal lows.
Speculative Positions:
8-9-07: Sold 1 December Corn @ $3.48 ¾ - risk a close above $3.55 ½.
Hedge Positions:
3-9-07: Bought December $4.00 Puts $.25 3/4
Soybeans:
Fundamental:
Soybean futures saw another day of speculative selling interest that eventually led the market to witness 11 ¼ cent losses, basis the November contract. Despite some slightly friendly demand news the market headed lower as the trade has weather outlooks - and their expected impacts on yield and production potential - fresh on their minds. With attention on the weather forecasts, it seems that two tropical storms forming in the Gulf region are improving the chances that southern Midwest and Delta growing areas may see some much needed moisture to boost crop prospects. That being said, it is yet to be known whether or not these storms will make landfall, or if their tracks will allow for some relief to the drier areas, so we have to see how these events play out and we can be sure the trade will be closely monitoring them in the coming days. The soybean crop is in a critical stage of development, but crops in southern states may be a bit ahead as far as maturation goes, so we must remain skeptical of how beneficial possible rains could be for early-planted crops. Shifting focus to the news today, the market yet again shrugged off some slightly positive demand news as any rally attempts were met with more speculative selling interest. It was announced this morning that China purchased 120,000 tons of US beans for the 2007-08 marketing year. Furthermore, we heard reports that some Argentine soyoil business was shifted to US origin and that soaring freight rates are keeping US prices largely competitive with other major exporters. Looking at South America, it was interesting to note that the Brazilian Real has been on quite a slide lately, improving the profitability of Brazilian soy farmers. This is another factor that has been watched by the trade, as better profitability may mean that Brazilian producers may increase acreage enough to ease the stress the lost US acreage this year may have on world balance sheets. Overall, the market seems completely entrenched in the supply side of the balance sheet equation and will continue to remain so as we bring the growing season to a close. Yield potential is a big factor and although early August weather has been less than ideal we are certainly seeing improving conditions for the crop as it nears completion. Weather should continue to be the main driver of prices, and if forecasts trend wetter in the southern Midwest and Delta growing regions, then we could be in to test support levels that aren't that far beyond closing prices. Thursday we will another export sales release to judge foreign demand for US beans and the trade is looking for old and new crop sales combined somewhere in the 250,000-500,000 tons area. Meal sales are estimated at 75,000-200,000 tons and oil sales are estimated at 15,000-40,000 tons.
Speculative Positions:
8-04-07: Sold 1 November Soybean @ $8.66 - risk a close above $8.73 ½.
Hedge Positions:
3-9-07: Bought November Soybean $7.80 Put / Sold November $10.40 Call @ ~$.35
Wheat:
Fundamental:
Wheat contracts reported modest losses Wednesday after striking new contract highs early in the session. Price action followed that of overnight trade early, but post-midday profit taking weighed on prices fairly heavily into the close. After opening slightly lower, December Chicago wheat managed its way to 7.14 ½ a bushel, a new contract high. Without news of fresh U.S. exports through the day though, traders chose to take and run with the money. Losses in Minneapolis, Kansas City, and Chicago were roughly at par with one another, ranging from 7-14 cents. The USDA will release its weekly export sales report tomorrow morning. The trade is expecting a figure somewhere in the range of 400,000-600,000 tons, significantly lower than last week's total. In this marketing year thus far though, wheat exports have done well exceeding such estimates. Last week's sales were reported at 890,000 tons. In other news, initial tests of this year's spring wheat crop are reportedly showing reduced protein levels relative to last year's crop, but increased weights relative to the 2006 batch. Overall, the report states that spring wheat crop is good, and the aforementioned analysis only tested 59 samples. Weather forecasts call for limited precipitation and fair temperatures in U.S. spring wheat areas. Harvest should continue to roll at a good pace through this weekend, with the next chance for any harvest delays coming next week. Volatility ahead must be emphasized, for without the wires pumping out news of crop production cuts and global wheat tenders, a correction will be due.
Recommendations:
8-16-07: Sell 1 December Chicago Wheat on a close below $6.96 - but no less than $6.89.
Speculative:
NONE
The cattle market closed higher on continuation form yesterday, small technical buying and everyone a bit friendly on the floor this morning. The market technically went right up to some resistance levels we look at so look for the market to top out here over the next couple of days. Cattle on Feed estimates are on feed at 96.1%, marketed at 102.6% and placed at 86.9%. Fundamentals are ok and thus the market has broken and on a small correction up, so the market is vulnerable to declines and should be sold on this rally. Some cattle (1000-2000) traded in TX yesterday at 90-90.50 with early bids at 88 and offers at 93. Show lists out Monday had TX down 5400, KS down 2400 and NE down 1000. OK City feeder auction was steady to $1 lower Monday. The Oct cattle chart and the Dec corn chart look very similar, thus, we believe we could see Oct to going down to 90-91 some say 88 after the current bounce is completed. The talk on the floor is they're plenty of cattle around and now the packer is starting to back away from the kill. The feeling on the floor has changed and the bears feel they are in control. Cash trade was lower last week as producers race to the door to get cattle sold because they been very bullish and don't want to miss out and realizing that they have plenty of cattle around them. Feeders were higher on corn breaking during the day, good paper buying and cattle rallying Our long term opinion is that cattle are going over a dollar (105-110) again and feeders above 120 (130-140), but that is now looking like this coming spring. Everyone continues to tell me how bad the product is, but looking at the weekly reports product is moving. Demand is average in our opinion. There were no cattle deliveries against the August contract yesterday with a date of 7/13/07.
Hogs:
The hog market closed lower on good commission house selling, stops and technical and fundamental selling. News circled the floor that the Chinese deal for US pork fell through. If this is true and do to the hogs coming to town over the next couple of months look out for a lot lower prices this fall. June pork exports out yesterday were poor at 67,390 tons down 6.5% from last year. Year to date exports are at 450,145 down 3.5% from last year, while Mexico is down 31%, Japan up 9% and China up 74% on the year. The bear spreads will work for a while, as the front end got ahead of its self on the China news. The cash market coming back to reality and mixed cutout values have also capped the market along with overbought technicals. Packers are bought through the weekend with some buying already for Monday - Tuesday with cash at 51 down $1 from the day before. The market is still trying to figure out if China is going to take any US pork and how much, as talk today is a no go. Our long term opinion is still the same looking for the market to get between 80- 90 but looking like sometime next year. We will continue to watch this goal to see how the market reacts to the news in the coming month. We are running well over last year's pace (1.3 million) in hog slaughter and the main reason why many were bearish on the rally up.
IA/MN hog weights were 260.5 last week vs. 262.3 the week before and 259.9 last year.
Positions:
None
