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Archive | March, 2011

USDA March 31st Review

by Terry Roggensack on March 31, 2011

SOYBEANS

The USDA reports this morning were considered supportive with the market called 35-45 cents higher on the opening. The USDA pegged March 1st stocks at 1.249 billion bushels which is about 46 million bushels below trade expectations. This is significant as ending stocks are pegged at just 140 million in the last USDA supply/demand report. The range of estimates was from 1.265 to 1.365 billion so the news is quite bullish. March 1st stocks last year totaled 1.27 billion bushels. Soybean planted acreage was pegged at 76.609 million acres as compared with trade expectations at near 76.9 million acres. The range of estimates was 75.0-78.5 million. Last year there were 77.4 million acres planted, and the USDA Outlook Forum last month put the estimate at 78 million. If we plug in the new plantings estimate and use a trendline yield of 43.4 bu/acre, ending stocks for the 2011/12 season come in at just 105 million bushels with a stocks/usage of 3.2% and a record low. An ending stocks level this low would be considered unacceptably low, and we would expect prices to move higher to discourage consumption and to attract some additional acres.

PRICE OUTLOOK: Look for a resumption of the uptrend and a quick run to at least 1465 for November soybeans.

CORN

The USDA reports this morning were considered bullish with the market called 15-30 cents higher on the opening. March 1st corn stocks were pegged at 6.523 billion bushels, which was about 165 million bushels below trade expectations and below the low end of trade guesses. This is extremely bullish for the July corn and suggests that the USDA estimates for the current crop year, which result in an ending stocks/usage ratio at a record low of 5%, are on track or maybe even a bit too high. The average estimate for stocks was around 6.690 billion bushels with a wide range of 6.552 billion to 6.880 billion. The USDA also indicated that producers plan to plant 92.178 million acres this year, up from trade expectations near 91.8 million acres, 88.19 million last year and 92 million from the USDA Outlook Forum last month. Estimates were in a tight range of 91.0-92.6.

PRICE OUTLOOK: The stocks number confirms an extremely tight situation for old crop and a potentially tight situation for new crop, with a “need” for nearly perfect weather to avoid a two-year bull trend. A resumption of the uptrend is likely with 794 1/2 as next upside objective for July corn and 652 3/4 as next upside objective for December corn. If we plug in the new planted acreage estimate and assume a yield of 162.3 vs. 152.8 last year, ending stocks for the coming season are 932 million bushels with a stocks/usage of 6.9%, the third tightest in history.

WHEAT

The USDA reports this morning are considered negative for wheat but the market is called 10-20 higher due to bullish news for the other grains. Traders were looking for spring wheat plantings to come in near 13.7 million acres, virtually unchanged from last year but the USDA came in at 14.4 million acres. The higher spring wheat number pushed total wheat plantings for this year to 58.0 million acres as compared with trade expectations at 57.2 million, up from 53.6 million last year. March 1st wheat stocks came in at 1.425 billion bushels which was higher than trade expectations near 1.4 billion bushels but was in the range of estimates of 1.275 billion to 1.488 billion. Last year March 1st stocks were 1.356 billion

PRICE OUTLOOK: Wheat news was bearish for the reports but the market looks to follow the other grain markets higher over the near-term and the focus of attention will quickly shift to the poor condition of the winter wheat crop and the weather difficulties in the north for getting the spring wheat crop planted. July wheat may be in a position to follow the other grains higher, with upside objectives of 820 3/4 and 851 1/2.

Cattle: In a Steep Uptrend and Likely to Continue

by Terry Roggensack on March 31, 2011

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April cattle is now up as much as 9.3% from the March 16th lows to post new all-time highs. Open interest is also on the rise and funds have been active buyers to pull futures to a premium to the cash market. The surge in the cash market this week, however, leaves April in-line with the cash market and June at a discount. Consumer demand in the US has been less impacted by the higher price than traders have expected and Japanese demand for chilled, ready to eat (and/or stock in retail stores) beef and pork has also been stronger than anticipated. Traders will monitor the weekly export sales news this morning for further clues on demand. April cattle closed sharply higher on the session yesterday and rallied to a new all-time high for the spot contract for cattle with a high of 120.80. Cash cattle from the southern plains traded $6.00-$7.00 higher on the week to $120-$121 with some cattle from Kansas trading as high as $123.00. The market pushed sharply higher on the session early in the day but after a fairly sharp set-back, the market was back up near the highs into the mid-session. News that cash cattle was trading at $120 in Kansas and Texas early in the day helped to support the market with cash moving above most futures contracts and cash trading at a new all-time record high. Nebraska cash traded sharply higher late Tuesday and this helped support the market. The market found additional support into the mid-session on news of higher beef prices. A strong stock market late in the day was also seen as a positive demand factor. News from two of the largest meat companies in the US that Japan has been buying chilled meat since the earthquake helped to provide underlying support. Boxed beef cutout values were up $1.15 at mid-session yesterday and closed 69 cents higher at $188.18. This was up from $188.14 the prior week. The previous high was $189.05 on March 22nd. The estimated cattle slaughter came in at 124,000 head yesterday. This brings the total for the week so far to 376,000 head, up from 372,000 last week at this time and up from 375,000 a year ago.

TODAY’S GUIDANCE: While the market is in an overbought technical condition, open interest continues to push higher and traders do not see evidence that recent high prices will spark higher supply in the future. In fact, the opposite is true for now as cow and non-fed cattle slaughter has been running well above normal for the past year or more and replacement cattle will be difficult to find for feedlots for this spring. This may tighten feedlot supply going foreword. The market is in a steep uptrend and the bull market is likely to remain in tact. The next phase is likely to emerge from the lack of supply of replacement cattle for feedlots.

TODAY’S MARKET IDEAS: June cattle buying support is at 118.10 with 120.80 and 122.45 as next upside targets.

Hogs: Strong Exports but For How Long?

by Terry Roggensack on March 31, 2011

The market was primed for a correction and it came fast and furious yesterday but the market held support and closed back up near the highs of the day. With the lean Hog Index for the two days ending March 28th at 86.12, it was hard for investors to get too excited about buying April hogs near 93.50 or June hogs near 103.50 and once the long liquidation trend started, the break attracted increased selling as longs moved to the sidelines. The positive set-up for the cash market and talk of strong exports are factors to support but the wide basis is a limiting force and this combination could keep the trade volatile over the near-term. April hogs closed just 5 points lower on the session yesterday and up 295 from the lows and June hogs closed just 32 lower on the session and up 267 from the lows. The market drove sharply lower on the day early in the session and June hogs were down as much as the 300 point limit early before a bounce off of the lows. While cash hogs were higher on the day, traders saw weakness in pork cut-out values late Tuesday and the huge premium of futures to the cash market as a reason to spark long liquidation and profit-taking selling. The lack of new buying interest on the early break led to the very steep losses. Cash is expected to be steady today. Weakness in the ham market and ideas that the big premium of futures to the cash market could cause average weights to rise were also seen as negative forces. News from two of the largest meat companies in the US that Japan has been buying chilled meat since the earthquake helped to provide underlying support. Pork cutout values, released after the close yesterday, came in at $94.78, up $1.51 from Tuesday and up from $92.78 the previous week. This is the highest pork trade since August 25th. The ham market recovered and bounced $3.97 to $81.53. The estimated hog slaughter came in at 422,000 head yesterday. This brings the total for the week so far to 1.252 million head, up from 1.243 million last week at this time but down from 1.295 million a year ago.

TODAY’S GUIDANCE: Average weights are already running more than 4 pounds above last year and this may widen further as the strong futures premium might encourage producers to hold off and feed hogs to a higher weight. While export demand is strong, it will take a continued flow of exports to see a strong enough cash rally to have traders add an even higher premium to the cash market. On the other hand, pork cut-out values are strong and the extent of export demand is hard to gauge.

TODAY’S MARKET IDEAS: June hog support comes in at 100.45 and 99.32 with 107.75 as a longer-term upside objective.

Video: Grains Wait On USDA; Key US Numbers Today & Tomorrow

by Dave Hightower on March 31, 2011

Critical day for the grain markets this morning with the USDA Quarterly Grain Stocks and Planting Intentions reports out this morning. EIA reported high crude stocks yesterday. Normally a bearish situation, but large draw down of gasoline stocks offset. Some key US economic numbers today and Non-Farm Payroll numbers tomorrow.

Video: Equities Positive; Grains Await USDA

by Dave Hightower on March 30, 2011

Entering the Wednesday trade on a generally positive note. There are some comments out of Japan regarding their economy and future power sources which seems to be distracting the markets from the nuclear issues. Grain markets will remain volatile ahead, and likely after, tomorrow’s USDA report, which is shaping up to be one of the most important in modern time.

March 31st USDA Preview

by Terry Roggensack on March 29, 2011

Soybeans

Traders see March 1st stocks for soybeans near 1.3 billion bushels, with a range of estimates from 1.265 to 1.365 billion. Our estimate for the report is at 1.305 billion. March exports from the US may be a bit higher than expected due to harvest delays out of Brazil, and this should keep the 2010/11 ending stocks forecast at just 140 million bushels. However, the crush pace in the US is slipping due to weak margins. There is talk of slow meal usage, and the trade is getting concerned that China may not import as many soybeans as the USDA has forecast. March 1st stocks last year totaled 1.27 billion bushels.

Traders see planted acreage near 76.9 million acres, with some estimates as high as 78.5 million and others as low as 75 million. Last year there were 77.4 million acres planted, and the USDA Outlook Forum last month put the estimate at 78 million. If producers plant just 75 million acres, yield is close to the trendline of 43.2 bushels per acre and usage for 2011/12 comes in at 3.34 billion bushels (down from 3.355 billion in 2010/11), ending stocks would come in at just 22 million bushels. If 78 million acres are planted, then under the same yield and usage parameters ending stocks would come in at 150 million bushels. And if plantings come in at the average trade estimate of 76.9 million, ending stocks would come in at just 103 million bushels and would result in a record low stocks/usage ratio of 3.1%. An ending stocks level this low would be considered unacceptably low, and we would expect prices to move higher to discourage consumption and to attract some additional acres. Therefore, if the report comes in at the average trade guess, look for a resumption of the uptrend and a quick run to at least 1465 for November soybeans.

Corn

Traders see March 1st stocks for corn coming in around 6.690 billion, with a wide range of estimates anywhere from 6.552 billion to 6.880 billion. Our estimate is 6.645 billion. This report may confirm whether the tight ending stocks estimate by the USDA (675 million bushels) is accurate or whether the commercial traders’ suspicions of a much larger availably supply is true. The higher than expected ethanol yield and higher than expected weight gains in livestock are reasons to suspect the supply is more ample than what has been forecasted, and that the March 1st stocks number will be at the high end of expectations. One explanation for the extra supply is that last year’s production was actually higher than the current USDA forecast. What makes the commercials suspicious is that the basis isn’t as strong as they would expect it to be in this supposedly “tight” market. They have not had to push up the basis bids too high to get producers to sell corn in the 6.25 to 7.40 range over the past several months. The March 1st corn stocks figure is a strong candidate for being the big surprise in Thursday’s report.

For planted acreage, traders see corn plantings near 91.8 million acres, compared to 88.19 million last year and 92 million from the USDA Outlook Forum last month. Our estimate is 92.3 million acres. Other estimates are in a tight range of 91.0-92.6. If producers plant 91.8 million acres, yield comes in at the trendline of 162.3 bushels/acre and usage comes in at 13.56 billion bushels, ending stocks would come in at just 875 million bushels with a stocks/usage ratio of just 6.5%. This would be the third tightest stocks/usage on record and would leave virtually no room for planting delays or weather difficulties for the coming season. If acreage totals 93 million and other parameters are left the same, ending stocks would come in at 1.055 billion bushels. If 92 acres are planted and yield comes in at last year’s level (152.8 bushels/acre), then ending stocks would be projected at just 99 million bushels.

Like the soybean market, it appears that a neutral USDA report for corn would confirm an extremely tight stocks situation for old crop and a potentially tight situation for new crop, with a “need” for nearly perfect weather to avoid a two-year bull trend. If the numbers come in near the average trade estimates, the corn market could see a resumption of the uptrend with 794 1/2 as next upside objective for July corn and 652 3/4 as next upside objective for December corn.

Wheat

Traders see spring wheat plantings coming in near 13.7 million acres, virtually unchanged from the 13.698 million last year. Total wheat plantings are pegged at 57.2 million, up from 53.6 million last year. Our estimate is 57.0 million acres. The poor start to the crop suggests that this year’s yield will be low, possibly down around 43 bushels per acre. Using a plantings estimate of 57 million acres, an average yield of 43 bu/acre and total usage at 2.345 billion bushels (USDA Outlook Forum estimate), ending stocks for would come in around 651 million bushels for the 2011/12 season, with a stocks/usage ratio of 27.7%. This compares the 2010/11 season’s yield of 46.4 bu/acre, ending stocks at 843 million bushels and a stocks/usage of 34.4%. If average yield slips to 40 bu/acre, then ending stocks could slip to 508 million bushels and the stocks/usage ratio to 21.7%. In the bull market season of 2007, ending stocks were 306 million bushels with a stocks/usage of 13.2%.

March 1st wheat stocks are thought to be near 1.4 billion bushels, up from 1.356 billion bushels last year. Estimates range from 1.275 billion to 1.488 billion. Our estimate is 1.392 billion bushels. Wheat looks to be a follower of the other grain markets in the days following the release of this report. If the other grains see a bullish report, July wheat may be in a position to follow the other grains higher, with upside objectives of 820 3/4 and 851 1/2. A negative report and a resumption of the downtrend would leave 655 as a longer-term downside objective.

Wheat: Current US Weather Forecast Looks Bearish

by Terry Roggensack on March 29, 2011

NEAR-TERM MARKET FUNDAMENTALS: Positioning ahead of key USDA reports and a weak tone to the corn market has helped pull wheat off of the recent highs and back into a recent consolidation. While there is mostly dry weather in the forecast for western Kansas, some rain is possible with several systems moving across the plains in the next ten days which will bring some rains and mostly for the eastern winter wheat belt. However, dryness in China wheat areas and some dry weather concerns for Russia and the Black Sea region might help provide some underlying support. This is offset by positive supply news from India where officials see a harvest in excess of 81.5 million tonnes and there is talk of allowing exports for the first time since 2007. May wheat closed moderately lower on the session yesterday and near the lows of the day. The aggressive selling in corn spilled over to pressure the wheat market. The weekly crop conditions news released late yesterday showed Kansas wheat rated in good to excellent condition at 31% which is up slightly from recent readings but still down from 48.3% as the 5-year average and 70% last year at this time. In Oklahoma, only 21% is rated good to excellent vs. 46% poor to very poor. In Texas, only 11% is rated good with zero excellent. Very poor readings reached 32% and 30% is rated poor. Talk of a dry and sometimes warm outlook for the western growing areas of the winter wheat belt plus higher trade in Europe yesterday helped support a higher opening. However, weakness in corn and other agricultural markets helped spark selling. Iraq bought 300,000 tonnes of wheat with 100,000 from Australia and the rest US wheat. Iraq consumes near 4.5 million tonnes of wheat per year with most of it from imports. India was the lowest bidder on a tender from Bangladesh to buy 50,000 tonnes of wheat. Ideas that too much moisture late last year plus big snow cover melting will increase chances of flooding issues in the northern plains along the red river was seen as a potential supportive force. Russia grain prices have been under pressure recently as there are increased concerns over the potential for more hidden reserves to emerge ahead of the new crop season. Weekly export inspections came in at 29.53 million bushels which was at the high end of expectations. Shipments of 31.2 million bushels are needed each week to reach the USDA projection. Traders see spring wheat plantings near 13.7 million acres from 13.698 million last year and total wheat plantings near 57.2 million from 53.6 million last year. March 1st stocks are thought to be near 1.4 billion bushels from 1.356 billion bushels last year.

TODAY’S GUIDANCE: The current set-up for normal world weather will likely cause both US and world ending stocks to rise. In other words, the wheat market needs help from weather or the short-term downtrend is likely to continue. However, sellers are likely to want to wait and see if weather improves for China and Russia before getting to aggressive at selling and the US crop is still not doing well and there is some, but not much rain in the forecast.

Soybeans: Need Big Planted Acreage to Avoid Tightness

by Terry Roggensack on March 29, 2011

NEAR-TERM MARKET FUNDAMENTALS: Aggravating showers in Brazil and positioning ahead of key USDA reports has helped hold the market in a consolidation for the past several sessions. Brazil continues to struggle to get the bumper and thought to be record size crop out of the ground but the harvest is nearing 60% complete. May soybeans experienced an outside day down yesterday and closed near the lows of the session but losses on the day were about half of the corn market. Weakness in corn helped spark long liquidation across the grain floor. Volume was said to be light. The head of Paraguay’s largest soybean producing group believes the country may produce a record crop of near 8 million tonnes from 7.48 as an early estimate. A continued wet weather forecast in parts of northern Brazil helped to support the market early with talk of declining quality and quantity for the late harvested crop. The wet weather looks to continue for another week or more in northern Brazil and southern Brazil looks wet for the next few days with some hefty rain totals possible which will slow harvest. China soybean futures were up on Monday and again overnight which helped to provide some underlying support. Poor crush margins in the US combined with talk of hefty meal stocks has traders talking about a slowing crushing pace. Positioning ahead of the USDA Planted Acreage and stocks reports for Thursday morning is helping to support with more talk of lower plantings as a factor supporting November soybeans. Weekly export inspections came in at 29.53 million bushels which was the high end of expectations. Shipments of 13.7 million bushels are needed each week to reach the USDA projection. China sold 91,586 tonnes of rapeseed oil from their reserves at auction overnight which was seen as stronger demand than last week as most of the oil offered was moved. Traders see March 1st stocks for soybeans near 1.3 billion bushels for the report on Thursday as compared with 1.27 billion bushels last year. Traders see planted acreage near 76.9 million acres as compared with 77.4 million last year and 78 million from the USDA Outlook Forum estimates from last month. Estimates are as high as 78.5 million and as low as 75 million. If producers plant just 75 million acres and usage comes in at 3.34 billion bushels, down from 3.355 billion this year, ending stocks would come in at just 22 million bushels. At 78 million, ending stocks come in at 150 million bushels using trend yield of 43.2 bu/acre. Ending stocks are projected at a tight 140 million bushels for this season.

TODAY’S GUIDANCE: The market will need to see a higher than expected planted acreage forecast this week in order to avoid an extremely tight outlook into next year. Demand has been slow with a noticeable decline in activity out of China as they continue to fight inflation. Any set-backs in November soybeans look like buying opportunities.

Corn: Concerns the Situation is Just not as Tight as Believed

by Terry Roggensack on March 29, 2011

NEAR-TERM MARKET FUNDAMENTALS: Weak technical action for the second day in a row and massive long liquidation selling from fund traders leaves May corn at the half way point of the March range. The lack of new news on China buying US corn plus news that China is moving state reserve feedwheat onto the market to ease feedgrain tightness helped to pressure. May corn closed sharply lower on the session yesterday and near the lows of the day reaching the lowest level since March 18th. The move under the 50-day moving average helped to spark increased long liquidation selling as stops were activated. A lack of news from China helped spark very heavy selling from fund traders. The market was disappointed with a lack of new export news from China and this helped spark some increase selling. Follow-through selling from the weak technical action from Friday plus continued talk from commercial traders that the cash market does not “act” like there is extreme tightness projected for the end of this marketing year and that the stocks report might show a higher than expected March 1st stocks level helped to pressure. In addition, the COT report on the weekend showed a long liquidation selling trend from trend-following fund traders (non-commercial less index funds) who reduced their net long position by a whopping 28,274 contracts last week to a net long of 227,557 contracts. Cold and wet weather in the forecast for parts of the Midwest is helping to provide some support on ideas of slow fieldwork ahead. There looks to be three rain systems in the next ten days with temperatures running well below normal. News that China would begin selling feedwheat from their reserves this week added to the negative tone yesterday. China sold 108,991 tonnes of feedwheat overnight which was about 36% of the total offered. Weekly export inspections came in at 42.34 million bushels which was above trade expectations. Sales of 42.94 million bushels are needed each week to reach the USDA projection. Traders see March 1st stocks for corn near 6.69 billion bushels for the report on Thursday as compared with 7.694 billion bushels last year. Traders see planted acreage near 91.8 million acres as compared with 88.19 million last year and 92 million from the USDA Outlook Forum estimates from last month. Estimates are in a tight range of just 91.00-92.6. If producers plant 91.5 million acres and usage comes in at 13.56 billion bushels, ending stocks would come in at just 831 million bushels. At 93 million, ending stocks come in at 1.055 billion bushels using trend yield of 162.4 bu/acre. At the same yield of last year with 92 million planted, ending stocks are projected at just 99 million bushels.

TODAY’S GUIDANCE: The market does not act well going into the report with more and more concerns that the situation is just not as tight as believed. Looking at the expected usage of the past quarter, however, it appears that exports and ethanol usage data is strong and livestock numbers are up near 1% from last year and more importantly livestock profitability is up sharply from last year. Unless there is a surprise which would show a larger than expected production from last year, we would expect the data to come in near trade expectations and this would likely cause a resumption of the uptrend.

Video: Early Update – 2011.03.29

by Dave Hightower on March 29, 2011

Kind of a bearish tone in physical commodities. Not a broad-based liquidation fear, but residual fears of economic slowing. US Fed’s Bullard comments in Prague overnight lent support to those concerns. Grains are generally weak leading up to USDA reports. However, our opinion is corn needs to see a large acreage number to continue to the downtrend.

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