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Cattle: Significant Breaks Appear To Be Buying Opportunities

by Terry Roggensack on May 14, 2012

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Cattle may continue to decline over the near term under the bearish influences of declining equity and financial markets in Europe, but significant breaks would appear to be buying opportunities. The emergence of the pink slime story and another case of mad cow in the US helped to drive the market sharply lower over the past 2 1/2 months, with August futures down as much as 12.5% into the April 27th lows. However, the beef market seems to be stabilizing; the export impact from the mad cow case might turn out to be very small; and the market is entering what is traditionally a strong demand period over the next month.

Weekend beef demand for the last half of May and much of June is usually very strong, and the setback in gasoline prices of the past few weeks could free up disposable income for beef purchases.

With a surge in cash corn values, traders see placements of cattle into feedlots for May and June coming in well below last year’s levels. This will help tighten the supply of market-ready cattle for the late summer and fall. Cow slaughter was very active during the early summer last year as drought began to reach into the southern plains. This summer, excellent pasture and range conditions may help to keep cow slaughter down.

The USDA has projected third quarter beef production to be down 40 million pounds from the second quarter. Production typically increases 100-200 million pounds during that period, and it was up 178 million pounds in 2011. This year’s second quarter decline will be the first since 1996 and only the second of the past 22 years. This may counteract the typical seasonal weakness in cattle prices this summer. Contra-seasonal moves can be violent. Comparable years are 1996 and 2008. In 1996 August cattle bottomed in late April and posted contract highs in August. In 2008 August cattle made a significant low under 92.00 in late April and rallied to 106.15 by June 20.

August 2012 cattle appear to have put in a significant low in late April, with a reversal and spike bottom from an oversold technical condition. The Commitments of Traders reports as of May 1st showed traditional trend-following funds (non-commercials minus index traders) were net long 24,549 contracts. This was down from more than 70,000 contracts in the early spring. A continuation of the long liquidation trend from May 1st could leave the market oversold.

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Wheat: With Good Weather, Can Not Rule Out Another Leg Down Into Harvest

by Terry Roggensack on May 4, 2012

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NEAR-TERM MARKET FUNDAMENTALS: The market seems to be consolidating this weeks losses with a quiet inside trading day yesterday and quiet trade overnight. Outside market forces could come into play this morning if employment news is leaning one way or another. Open interest is higher this week as fund traders seem to be adding on to their hefty net short position. July wheat gave back the early gains yesterday to close near unchanged. July KC wheat held on to gain a few cents on the day and Minneapolis July wheat fell to new lows for the move and to the lowest level since November of 2010. On top of reports from Kansas of good yield potential, traders also view the outlook for more rain in the plains in the next week and a lack of cold weather as a bearish influence. There are still concerns with questionable crop conditions in the Black Sea region but European crops appear to have improved in the past few weeks. The lack of a major weather issue and the outlook for a bumper crop in the US has helped to pressure. Weekly export sales came in at 256,700 metric tonnes for the current marketing year and 454,800 for the next marketing year for a total of 711,500 which was about as expected. As of April 26th, cumulative wheat sales stand at 100.2% of the USDA forecast for 2011/2012 (current) marketing year versus a 5 year average of 96.4%. The USDA may raise exports and feeding usage for the reports on Thursday and slightly tighten the old crop ending stocks. However, traders see the winter wheat crop production report as key and the fast start to the spring wheat crop as another negative force. European milling wheat futures pushed to a two-week low pressured by talk of improving weather in France.

TODAY’S GUIDANCE: The Wheat Quality tour of Kansas had participants expecting a yield near 49 bu/acre and Kansas production near 404 million bushels as compared with 35 and 276.5 million last year. With good weather, we can not rule out another leg down into harvest.

TODAY’S MARKET IDEAS: July KC wheat short-term selling resistance is at the 642 with 619 3/4 as next downside target. July wheat selling resistance is at 628 1/2 with 591 1/2 as next downside target.

Corn: If Weather Stays Good, Can Not Rule Out Another Swing Down

by Terry Roggensack on May 4, 2012

The weather remains a bearish force and has helped to pressure December corn this week. There seems to be plenty of rain in the Midwest forecast for the next ten days and planting progress could slow but soil conditions have improved significantly ahead of the key growing season. A long liquidation selling trend has been noticeable and China buying has occasionally supported strong gains for the old crop May and July contracts and the cash market remains very strong. May corn is near the high end of the range for the calendar year while December corn is near the low end. Since April 13th, open interest is down a whopping 146,000 contracts. May corn closed 8 1/2 cents higher yesterday, July up 3 and December down just 1 1/2 cents with a strong recovery late in the day. The old crop tightness, a very strong cash market and ideas that the USDA will need to raise exports and tighten old crop ending stocks further in next week’s Supply/demand update has helped to support the nearby contracts. Omaha corn is trading 24 cents premium to the July contract as compared with -20 cents as the 3-year average. An excellent weather outlook plus the early plantings has traders inching up their yield projections for the new crop season. Net weekly export sales came in at 1.332 metric tonnes for the current marketing year and 2.14 million for the next marketing year for a total of 3.472 million tonnes. Sales of 321,000 metric tonnes are needed each week to reach the USDA forecast. Traders indicated that the combined sales for the week were at the highest weekly total since 1991. The lack of deliveries and news that Argentina will not export corn to China until more of the GMO details are worked out helped to support the nearby contracts. South Korea is tendering to buy 55,000 tonnes of corn.

TODAY’S GUIDANCE: Corn is expensive to South American corn, Black Sea corn and wheat which could help ease the export demand but the USDA may still be in a position to raise the corn export forecast by 50-75 million bushels for the report next week and tighten old crop ending stocks. Traders are using a yield estimate of 164-166 for the report next week which leaves ending stocks near 1.8 billion bushels from 801 million this year and this has kept selling pressure on December.

TODAY’S MARKET IDEAS: December resistance is at 533 3/4, and if the weather stays this good, we can not rule out another swing down to 511 before the market puts in a spring low.

Soybeans: Short-term Weather Outlook Remains Bearish

by Terry Roggensack on May 4, 2012

The old crop soybeans recovered some of the steep two-day losses overnight with the market selling off as much as 47 cents after a reversal top. The trade continues to view the market as overbought and traders believe that much of the China buying spree has been priced. July soybeans closed moderately lower on the session yesterday while November closed near unchanged. Long liquidation selling from fund traders was active for much of the session with plenty of talk that fund traders own a record high net long position in both soybeans and meal by a significant margin. This, along with the key reversal has attracted profit-taking ahead of next week’s Supply/demand update. December meal recovered from lower on the session to close near unchanged as well while December oil pushed sharply lower on the day to experience the lowest close since March 29th. Weekly export sales for soybeans came in at 1.732 million tonnes. Traders expected near 1.3-1.5 million. Old crop sales of 60,000 tonnes are needed each week to reach the USDA forecast. Meal sales were 151,700 and oil sales came in at 14,900 metric tonnes. Ideas that China could soon shift to using more government-owned reserves helped to pressure the market. Private exporters reported the sale of 232,000 tonnes of US soybeans to China for the 2012/13 season. South Korea is tendering to buy 55,000 tonnes of soybean meal for arrival in September. The Buenos Aires Grains Exchange cut their soybean production forecast to just 41 million tonnes, down 2 million from previous estimate and down from 45 million as the April USDA forecast. Traders see a sharp reduction from the USDA next Thursday and the first look at the 2012/13 season. US ending stocks estimates are expected to be historically tight as the lower South American crops push demand to the US all the way out to early next year.

TODAY’S GUIDANCE: The reversal this week may attract some short-term profit-taking but the tightening stocks outlook remains a key supportive force. New buyers might wait to see how far November pulls back into early next week before buying as the short-term weather outlook remains bearish.

TODAY’S MARKET IDEAS: Buying support for November soybeans comes in at 1359 1/2 and 1347 3/4 with 1421 3/4 and 1507 as next targets. December oil may show some solid support near 54.90 with 56.23 as first good resistance. December meal buying support is at the 376.60-372.90 zone with 400.90 as next target.

Coffee: Looking to Retest Last Week’s Lows

by Terry Roggensack on April 26, 2012

July coffee remains on the defensive this morning, although prices have avoided a retest of last week’s lows for the move so far. There was no near-term catalyst for Wednesday’s selloff but there were reports of producer selling near this week’s highs, which more than likely eroded positive market sentiment fairly quickly. A lack of bullish supply news has kept the market’s focus on a potentially record-sized Brazilian coffee crop later on this year, and kept the coffee prices from sustaining any strong move above the longer-term downtrend. Yesterday’s severe downdraft triggered the ICE exchange’s circuit-breaker, which could further add to the market’s anxiety during today’s session. Sluggish global equity markets and a rebound in the Dollar are likely to put additional pressure on coffee prices this morning as well. ICE exchange coffee stocks were down 2,806 bags at 1.524 million as of April 25th, with 17,710 pending review.

TODAY’S GUIDANCE: July coffee looks to be heading towards a retest of last week’s lows for the move later on during the session, as prices are not finding support from outside markets this morning. Given the volatile nature of coffee’s recent price action, a decisive move below the 173.90 level could lead to another sharp selloff during today’s trading.

TODAY’S MARKET IDEAS: July coffee selling resistance will be around the 178.40 level with 171.30 and then 169.40 as next downside targets.

Cocoa: Finding Support from Supply News From West Africa; Held Back Outside Markets

by Terry Roggensack on April 26, 2012

July cocoa was able to post moderate gains early in today’s session but has fallen back into negative territory this morning. A report that Asian first quarter cocoa grindings were up 5.7% from last year’s levels points towards emerging market demand as a longer-term source of strength for the market. However, this morning’s rebound in the Dollar as well as sluggish global equity markets are likely to weigh on cocoa prices during today’s trading. News of violence in the Ivory Coast today could cause some anxiety in the cocoa market, as any extended supply disruption from that nation would have far-reaching effects around the globe. There are reports that this season’s cocoa production in Cameroon may be 10% to 20% below last season’s levels, due in large part to poor weather and caterpillar infestation. A major US confectionary firm stated that global demand for cocoa would exceed supply by over 1 million tonnes by the end of this decade, unless there is a dramatic increase with cocoa bean yields in West Africa.

TODAY’S GUIDANCE: July cocoa continues to find support from bullish supply news out of West African production areas but any recovery later this morning may be held in check by lukewarm outside market factors. A positive turnaround in macro-economic sentiment should help to lift cocoa prices back towards this week’s highs.

Hogs: June Hogs Reached Several Downside Targets; No Signs of Low

by Terry Roggensack on April 23, 2012

The pork news was not as bad as feared for the cold storage report and for the daily pork cut-out trade after the close Friday, but with outside market forces weak today, finding new buyers could be difficult. June hogs closed 137 lower on the session Friday and down 282 points for the week. The market gave back nearly all of the strong gains from Thursday to close near the lows of the week. Ideas that China will be actively buying pork for movement into government cold storage reserves left traders believing that China import demand will decline, and this helped spark more long liquidation selling. China does not want to see producer margins dip into the red and are attempting to stabilize prices. A jump in ham prices helped to hold the pork cut-out market from eroding further on Thursday and the cash market was steady Friday. However, sellers turned more active and the market closed weak. Traders saw the possibility that poor export demand could spark higher than expected cold storage stocks in the monthly report. However, end of March frozen pork stocks came in at 612.6 million pounds, which was down 2% from the previous month but up 7% from last year. Normally, frozen stocks decline by 1% for the month so the 2% decline would be considered slightly supportive. Pork cutout values, released after the close Friday, came in at $78.09, up 63 cents from Thursday and up from $77.01 the previous week and up to a 10-day high. Fresh belly prices recovered after a sharp break earlier last week. The CME Lean Hog Index as of April 18th came in at 82.65, up 6 cents from the previous session and up from 82.44 the week before. The estimated hog slaughter came in at 413,000 head Friday and 9,000 head for Saturday. This brought the total for last week to 2.084 million head, up from 2.044 million the previous week and up from 2.060 million a year ago. The Commitments of Traders reports as of April 17th showed non-commercial traders were net long 6,136 contracts, an increase of 554. Non-commercial and nonreportable traders combined held a net short position of 6,343 contracts, up 391. Commodity Index traders held a net long position of 95,640 contracts, up 1,869.

TODAY’S GUIDANCE: High weights and fears that China import demand will be slow ahead helped to drive the market lower last week and the news late Friday was not as negative as feared. The market is probing for a low but hefty weights, weak packer margins and signs of slowing exports are factors which would argue against bottom-picking. It may take some stability in belly and other pork product prices to turn the steep trend.

TODAY’S MARKET IDEAS: June hogs have reached several downside targets but there is still no sign of a low. Resistance is at 87.95, with 86.72 as next downside target.

Cattle: The Market Continues to Probe for a Near-Term Low

by Terry Roggensack on April 23, 2012

The market has remained in a relatively tight consolidation since early April. The USDA report was considered slightly supportive to the market, with the April 1st on-feed supply (101.9%) a bit under trade expectations. Marketings for the month of March were at the high end of trade expectations (96.4%), and this helped to tighten the supply and would be considered supportive for the June contract. Placements for the month of March came in right on expectations (93.6%), and this is neutral to the August futures. The report news may not be important enough to offset the bearish tilt to outside market forces this morning. End of March frozen beef stocks came in at 507.86 million pounds, which was up 8% from the previous month and up 14% from last year. Normally, frozen stocks decline by 4% for the month so the 8% decline would be considered bearish. This shows a weak demand tone for the market and appears to be a record high for March. June cattle closed 40 lower on the session Friday and down 62 points for the week. The market pushed moderately higher on the session early with support from the higher trade in the beef market last week but August cattle was only slightly higher on the day into the mid-session and June cattle pushed lower on the day, with some long liquidation selling emerging ahead of the USDA Cattle-on-Feed report. Outside market forces were supportive early as well but the buying did not last. Weakness in the hog market helped to pressure. The estimated cattle slaughter came in at 123,000 head Friday and 3,000 head for Saturday. This brought the total for last week to 598,000 head, up from 582,000 the previous week but down from 649,000 a year ago. Boxed beef cutout values were up $1.02 at mid-session Friday and closed 93 cents higher at $188.01. This was up from $178.51 the prior week and is the highest beef market since March 22nd. The Commitments of Traders reports as of April 17th showed non-commercial traders were net long 54,552 contracts, a decrease of 2,637 for the week. Non-commercial and nonreportable traders combined held a net long position of 22,750 contracts, down just 114 for the week. Commodity Index traders held a net long position of 119,442 contracts, down 306.

TODAY’S GUIDANCE: The market continues to probe for a near-term low but sluggish placements and surging beef supply in cold storage are factors which could help offset the recent uptrend in beef prices. Outside forces look bearish.

TODAY’S MARKET IDEAS: We believe the market is in a bottoming process but the short-term news looks negative. August cattle support comes in at the 118.47, with 122.27 and 123.87 as upside targets.

Sugar: Short-Term Supportive News Not Likely to Turn the Downward Trend

by Terry Roggensack on April 12, 2012

With the improving crop outlook for Brazil and a continued supply of exportable surplus sugar from Thailand and India, the market looks vulnerable to further price erosion ahead. Fund traders still hold a hefty net long position in sugar and the trend appears to be down. As a result, selling could intensify on breaks. Improved weather appears to have stabilized the production outlook for Brazil and the government forecast for a 5.3% rise in production for the 2012/13 season which begins soon and this is adding to the negative tone. Sugar closed slightly higher on the session yesterday as the early break to the lowest level since March 14th failed to attract new selling pressures. Talk of the oversold condition of the market after the recent collapse plus a positive tilt to outside market forces (strong stock market and lower US dollar) were factors to support the short-covering bounce. Rains for much of the Brazil center-south region for the past week helped to improve the new crop production outlook which has been seen as a negative force. US foodmakers are requesting that the US allow for additional imports of near 1 million tonnes to relieve tightness and this news may have helped to support. The official (CONAB) Brazil sugar production forecast for the 2012/13 season is estimated at 38.9 million tonnes which is near the high end of trade expectations and compares with 36.9 million tonnes for this season. There will be further production estimates from the Brazil industry group Unica today and traders are anxious to see if this group confirms the higher production outlook.

TODAY’S GUIDANCE: With the smaller Mexico crop, the push to expand import quotas for the US by 1 million tonnes could provide some short-term support but this may not be enough of a force to turn the trend.

TODAY’S MARKET IDEAS: Look for selling resistance for July sugar at 23.41 and 23.52 with 22.97 and 22.39 as next downside targets. Aggressive traders can sell a bounce. There is some light support at 23.12 which held on a closing basis yesterday so new sellers might wait for a recovery bounce before pressing the short side.

Cotton: Without Weather Problems, Vulnerable to More Selling

by Terry Roggensack on April 12, 2012

The surge higher in the May contract on tightness concerns for the old crop supply helped to support the strong gains in cotton into the mid-session yesterday. However, while the May contract stayed strong, July cotton closed near the lows of the day and just slightly up on the session. Traders believe short-covering in the May futures plus talk that China continues to build a strategic reserves helped to support the rally. The lack of follow-through buying after the early surge in buying and the lower close for the December cotton leaves the market vulnerable to further price erosion ahead. While China demand looks strong ahead, the market also faces a massive global surplus this season and a record high world beginning stocks. World usage was revised lower again by near 1 million bales to 107.74 million bales. In addition, a major revision higher for beginning stocks sparked a surge in world ending stocks for the 2011/12 season to a whopping 66.07 million bales as compared with 50.5 million last year and 47.09 million two years ago. A high percentage of the stocks are expected to be from China and India and this has helped to provide some support. This pushes the world stocks/usage to 61.3% from 44.1% last year and 39.6% two years ago. Certified deliverable stocks against the ICE exchange increased to 102,888 bales from 99,774 bales the previous session.

TODAY’S GUIDANCE: Without a weather issue, the market looks vulnerable to more selling ahead. The massive world stocks and the move by India to allow exports of sales on the books could keep the sellers more active over the near-term.

TODAY’S MARKET IDEAS: July cotton selling resistance is at 90.38 with 87.55 and 84.99 as next downside targets. December cotton resistance is at 88.43 and 88.94, with 86.12 and 84.60 as next objectives.

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