Private job estimates over night come in a little under expectations and modestly below last month’s Payroll numbers. Rumors that the Fed will be there to provide easing if necessary, but there does seem to be some divided opinions in the FOMC. However, there are members who are willing to do some more innovative things to help the economy. US grain crops are still a concern with both corn and soybean yields coming more in question. Gold and Silver have priced in some significant uncertainty, but we do not think the news will be there to support.
Archive | August, 2011
Cotton: Negative Outside Forces and Market Consolidation
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The cotton market inched higher in quiet trade yesterday. Outside market forces were quite strong, but the market does not appear to be overly influenced by them at the present time. A more positive tilt for many commodity markets has been seen in recent days, with active buying by fund traders, but this does not appear to be the case for cotton. A surge higher in soybeans and the stock market didn’t provide much support either. Traders still see a smaller US crop than what was reported in last USDA report, but they also see struggling demand and a lack of interest in US cotton. Export sales started out on a strong pace this year, but the have been weakened by major cancellations in recent weeks. Indian textile industry officials believe their 2011/12 cotton crop could come in near 35.5 million bales, which would be a record high. Last year’s production totaled 32.5 million bales. India is expected to be a major exporter of at least 7 million bales this season. The surge in production stems from strong prices of the past year. The weekly Crop Progress report showed that 30% of the cotton crop was rated good/excellent as of Sunday, compared to 31% last week and 60% last year. The 10 year average for this time of year is 54%. This is still the worst-rated crop on record. The previous low was 34% in 1998. The Texas crop improved slightly to 14% good/excellent, up 1% from last week, while Georgia’s conditions fell 7% to just 26% good to excellent versus a 10-year average of 51%. The North Carolina crop is rated 44% good to excellent with 25% bolls opening. In South Carolina the report showed 29% bolls open as of Sunday. This may minimize the impact of heavy rains from the weekend storms, especially if we see sunny weather ahead.
TODAY’S GUIDANCE: The outside market forces are slightly negative today. December cotton will need a close above 106.22 in order for us to expect some further upside action. For now, the market is in a consolidation. Ideas of a poor US crop ahead of the September production update may help provide some underlying support.
TODAY’S MARKET IDEAS: December cotton support is at 102.97 and 101.10, with resistance at 106.22. A close through resistance would leaves 111.77 as an upside target.
Sugar: Facing World Production Surplus and Charts Signaling Top
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The technical action for sugar is weak, and the market is still under the negative technical influence of the key reversal from August 24th. The reversal was confirmed with a weekly closing price reversal from a contract high and lower close last week. A very positive influence from outside market forces failed to support the market yesterday, despite fears of increased demand from China ahead. As of October 1st Brazil will to cut the blend of ethanol in gasoline to 20% from the current 25% due to the disappointing cane harvest. This may allow more of the cane crop to be crushed for sugar. Thailand is considering cutting the portion of their production to be set aside for domestic consumption by 100,000 tonnes, which will allow for more exports. Thailand’s production hit a record high 9.6 million tonnes last year, which was a significant jump from the “normal” levels of 7.0-7.5 million of recent years, Traders see the
possibility of a record 10 million tonnes in production this year. With a lack of domestic tightness, setting aside 2.5 million for domestic consumption will leave at least 7.5 million tonnes for export, which would be far and away a new record high. March sugar closed slightly lower on the session yesterday with an inside trading session. With a weaker US dollar and a surge in the stock market, bulls were disappointed with the close. While there is more and more talk that China will be an aggressive importer in the year ahead, traders also see a world production surplus. The weekend COT report showed a large spec net long position, but the buying trend from fund traders was seen as a short-term positive force. The Ukrainian beet harvest is underway, and traders see white sugar production near 2.2 million tonnes, compared with 1.55 million last year.
TODAY’S GUIDANCE: While the Chinese demand is an appealing story, the market still faces a significant world production surplus for the coming season, and the charts are signaling that a major top may be in place.
TODAY’S MARKET IDEAS: March sugar resistance is at 29.25 and 29.57, with 27.37 and 26.46 as next key support levels. A resumption of the downtrend would leave 25.85 (50% of May to August rally) as next key target.
Nothing Decisive from Jackson Hole; Positive Economic Tone To Start
Energy markets had a volatile period last week, but looking for a corrective period unless the economic outlook improves. Grains remain strong as demand concerns are overshadowed by new private survey showing corn crop below USDA estimates.
SOYBEANS: Weather Mixed to Positive; Lower Yield than August USDA?
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NEAR-TERM MARKET FUNDAMENTALS: The market saw an impressive upside break-out on Friday and with a positive tilt to outside markets, more buying emerged overnight to support sharply higher trade and a move to the highest level since June for nearby futures. Traders see dryness concerns for central Illinois and southern Minnesota as short-term supply factors which might be causing declining yield estimates from traders. Traders see another 1-2% decline in crop ratings for tonight’s weekly update. The rally overnight was especially impressive given the crop tour results from Friday afternoon. In the annual Pro Farmer crop tour, the average soybean yield estimate came in at 41.8 bu/acre as compared with the USDA estimate from the August report at 41.4. If we plug in this yield estimate and leave all the other numbers unchanged, ending stocks come in at 185 million bushels with a stocks/usage of 5.9%. This is up from the USDA August estimate of 155 million bushels. The tour did note that good rains would be necessary to support the higher yields and this is certainly in question. Rain events look active in the next ten days in the northern Corn Belt and in the southern sections of the Corn Belt and the northern delta but limited rains for the central part of the Midwest could keep crops in dry areas under stress. A sharp set-back in corn production this year might spark better demand for meal and December meal matched the March 31st contract high on Friday and surged to new contract highs this morning. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net long 129,790 contracts for soybeans, an increase of 50,535 contracts in just one week. Commodity Index traders held a net long position of 164,046 contracts, up 3,470. The aggressive buying trend from fund traders is seen as a positive short-term force. For Meal, Non-Commercial traders were net long 32,442 contracts, an increase of 15,087 contracts for the week. Non-Commercial and Nonreportable combined traders held a net long position of 49,500 contracts, up 22,737 contracts for the week. For oil, Non-Commercial traders were net long 9,792 contracts, an increase of 11,597 contracts for the week. The shift from a net short to net long position is seen as positive. After some choppy and lower trade early, November soybeans saw a major technical break-out to the upside on Friday and moved sharply higher on the day. Talk that yield could slip below the August USDA report helped to support the solid recovery and rally to higher on the day.
TODAY’S GUIDANCE: The weather is mixed to slightly positive and traders see even lower yield than the USDA in August as a serious threat. Bullish outside market forces and a return of aggressive fund trader buying in grains is also seen as a supportive force. Trend-following funds increased their net long position by nearly 50,000 contracts to 94,835 for the week ending August 23rd.
TODAY’S MARKET IDEAS: Buying support for November soybeans moves up to 1421 1/2 and 1409 1/2, with 1458 and 1498 as next upside objectives.
CORN: Demand Remains Weak but Yield Forecasts Continue Decline
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December corn is up as much as 10.3% in just seven trading sessions with the surge higher to new contract highs overnight. This marks 6 of 7 days of new contract highs. Supply issues continue to support the uptrend and fund traders have returned as active buyers. Open interest inched up to the highest level since June. In the annual Pro Farmer crop tour, the average corn yield estimate came in at just 147.9 bu/acre as compared with the USDA estimate from the August report at 153. If we plug in this yield estimate and leave all the other numbers unchanged, ending stocks come in at just 238 million bushels with a stocks/usage of 2.1%; both record lows. Keep in mind; this does not have any adjustments in harvested acres and many traders believe there will be losses of 400,000 to up to 1 million acres lost to flooding on key rivers and too much rain into planting season. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net long 317,415 contracts, an increase of 6,161 contracts for the week. Commodity Index traders held a net long position of 351,218 contracts, up 4,696 for the week. The buying trend of the funds is seen as a short-term positive force. December corn closed sharply higher on the session Friday with fund traders noted as aggressive buyers. Fears of declining yield and some better export news helped support the run higher and weakness in the US dollar also was supportive. Private exporters reported a sale of 365,760 tonnes of US corn to unknown destination. Of the total, 234,840 tonnes are for the 2011/12 season and the rest for the 2012/13 season. Traders are expecting another decline in crop conditions ratings of 1-2% for this afternoon’s update from 57% posted last week. This would suggest 55-56% rated good to excellent as compared with 62% on July 31st which is about the time of the USDA crop production survey. Global economic concerns persist but the positive reaction for equity markets after the Fed Reserve Chairman speech Friday helped support.
TODAY’S GUIDANCE: Demand news remains weak but yield forecast continue to decline. There are still plenty of supply issues which might support. Traders will be watching the denting numbers for the weekly update this afternoon as there are increased concerns that the crop will mature and close the growing season quicker than normal due to July heat. The market typically does not “wait and review” so we would believe the market is still in a position to remain in a steady uptrend ahead as the rationing process is more difficult with declining yield.
TODAY’S MARKET IDEAS: December corn support comes in at 766 and 761 3/4, with 799 and 820 as next targets. Don’t rule out an eventual move to 868 for nearby futures.
GDP Revised Lower; Surprise Shanghai Copper Stocks Decline
Markets will be looking at Bernanke’s speech this morning.
Hogs: It Is Difficult to Get Too Negative
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The collapse in pork cut-out values is helping to drive cash markets down quickly and the outlook for increasing supply ahead is helping to cast a negative tone on futures. The discounts may help to provide some underlying support but traders see the relatively high price as a significant obstacle to absorb the rising supply. The lack of excessive heat has allowed weights to recover quickly and trade supply psychology is negative. Monthly exports are reported about six weeks after the fact so it will be several more weeks before knowing July exports. China rumors of more aggressive imports began in July. October hogs closed slightly higher on the session yesterday with quiet trade. December and February hogs were moderately higher as the negative cash news was less of an influence. Talk of a short-term oversold condition of the market and ideas that cash bellies might stabilize soon helped to support. Cash hogs traded steady to $1.00 lower yesterday but the discount of futures to cash helped to support. Cash is called $1.00 lower for today and the steep drop in pork might cause packers to pull back even further. The sharp set-back in pork product prices late Wednesday helped to limit the advance. Pork cutout values, released after the close yesterday, came in at $102.11, down $1.93 from Wednesday and down from $106.93 the previous week. This is the lowest it has been since July 26th, when it was $101.31. Loins were higher but ribs and especially bellies were sharply lower. Bellies were down $7.21 to $119.43 as compared with $147.74 earlier last week. The CME Lean Hog Index as of August 23rd came in at 102.14, down $1.03 from the previous session and down from 106.49 the week before. The estimated hog slaughter came in at 413,000 head yesterday. This brings the total for the week so far to 1.662 million head, up from 1.650 million last week at this time and up from 1.642 million a year ago.
TODAY’S GUIDANCE: The weakness in pork and the steep downtrend in cash have the longs nervous despite the stiff discount of futures to the cash. This could spark another round of long liquidation selling soon. Given the importance of pork to the China economy and inflation, we would not be surprised to see active buying by China on further weakness. In addition, lower pigs per litter this summer might show up as smaller than expected slaughter into the first quarter. Poultry production is also on the decline. As a result, it is difficult to get too negative.
TODAY’S MARKET IDEAS: The next good support for February hogs is at 85.07, but the charts still look negative and we can not rule out a continuation of the recent downtrend to 84.05. October hog support is 86.75 and then 84.95. Look for choppy to lower trade just ahead.
Cattle: Yesterday’s Reversal Could Attract Increased Technical Buying
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The market seems to have absorbed the weaker cash market news this week and traders may begin to consider supply and demand forces for September and beyond. Supply is likely to gradually decline into early next year but the hefty upfront supply of feedlot cattle has traders expecting larger production. Weights are still high and demand factors remain negative. Consumer sentiment readings are low and pork supply is clearly on the rise. This has traders questioning the ability of market to absorb near-term supply with current high beef prices. October cattle closed slightly higher on the session yesterday after first seeing prices erode to the lowest level since June 16th. With cash cattle down to $112.50-$113.00 this week and fears that beef prices might slide next week, sellers turned a bit more active with further weakness in gold and the US stock market early yesterday. However, the selling slowed as gold and then grains recovered from early lows. Higher trade in hogs and the outlook for a continued decline in poultry production into the 4th quarter were also seen as factors to provide some support to help the market recover from the early losses. Weekly U.S. beef export sales for the week ending August 18th came in at 15,600 metric tonnes, compared with the prior 4-week average of 15,775. Cumulative sales for 2011 have reached 610,300 metric tonnes, up 36.0% from last year’s pace. The estimated cattle slaughter came in at 129,000 head yesterday. This brings the total for the week so far to 510,000 head, unchanged from last week at this time but down from 517,000 a year ago. Boxed beef cutout values were up 53 cents at mid-session yesterday and closed 17 cents higher at $187.79. This was up from $186.60 the prior week. This is the highest it has been since April 20th, when it was trading at $188.89. Average dressed steer weights for the week ending August 13th came in at 846 pounds, unchanged from 846 the previous week but still up from 840 pounds last year. It is still surprising that weights have remained much higher than last year for much of the year despite high corn prices.
TODAY’S GUIDANCE: April cattle pushed down to the lowest level since July 1st and closed higher on the day. The reversal could attract increased technical buying. Beef supply will tighten considerably into early 2012.
TODAY’S MARKET IDEAS: October cattle resistance is at 114.85, with support at 111.35. Ideally, a break to 121.42 for April cattle looks like a good buying opportunity but the turn up yesterday could be a sign of a near-term low. Longer-term, April may test 130.
WHEAT: Wheat is Still a Follower of Corn; For Now
by Terry Roggensack on August 29, 2011
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NEAR-TERM MARKET FUNDAMENTALS: The overnight rally pushed the market to the highest level since June 14th as talk that lower corn production will force increased wheat feeding this year helped to support. The weaker US dollar is also seen as supportive but export news has been a bit negative as a surge in Black Sea exports this year will force other key world exporters to export less. Improving weather in Australia and Argentina are seen as negative supply forces. Spillover buying support from higher grain prices and talk that even Russia selling prices are at least seeing higher and higher prices helped to support. European milling wheat futures jumped 1.9% overnight. After choppy and lower trade early on Friday, fund buyers turned active in a wide spectrum of commodity markets and wheat was no exception. The market followed other grain and commodity markets lower early in the session with fears of a long liquidation selling trend for commodities but outside forces turned up to support. Kansas City wheat found support early from talk that the advancing La Nina condition could keep the plains drought in tact with a two-week outlook of hot weather for the southern plains helping to support. There are some rains for winter wheat areas in the forecast for the next ten days which might support better planting conditions in some areas. Strength in other grains and a surge up in Minneapolis wheat helped drive the market to new highs for the move. Algeria bought 300,000 tonnes of durum wheat. December Minneapolis wheat is up nearly 50 cents from Thursday’s lows to Friday’s highs. Morocco is tendering for up to 300,000 tonnes of US hard wheat and Jordon is in the market for 20,000 tonnes. Bangladesh is tendering for 50,000 tonnes of wheat and South Korea is tendering to buy 53,170 tonnes of US wheat. The Commitments of Traders reports as of August 23rd showed Non-Commercial traders were net short 17,298 contracts, a decrease of 6,026 contracts for the week and the short-covering trend is seen as positive. Non-Commercial and Nonreportable combined traders held a net short position of 39,745 contracts, a decrease of 5,460 contracts for the week. Commodity Index traders held a net long position of 205,196 contracts, up 2,163.
TODAY’S GUIDANCE: Chicago wheat may have limited upside potential from a supply perspective ahead but the tightening supply of hard wheat could be a significant factor. Traders also see the southern plains drought as a serious threat for next year’s crop. Wheat is still a follower of corn for now.
TODAY’S MARKET IDEAS: The next key resistance for December Kansas City wheat is at 914 1/2 with support at 877 1/2. December Chicago wheat next key resistance is up at 812 3/4, with 785 1/2 and 771 3/4 as support.