Stocks seems to believe the EU will get its act together. Gold however, is acting like a flight-to-quality investment.
Tag Archives: Grains
Wheat: More of a Follower of Corn For Now
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NEAR-TERM MARKET FUNDAMENTALS: While the recent USDA reports showed ample US and global wheat supply, the market continues to find some underlying support from fears of significant production declines in the US and Ukraine for the coming year “if” weather conditions remain dry in the weeks and months just ahead. It looks dry for the next few weeks in both locations. In addition, talk of the record or near record net short position of speculators in Chicago wheat has helped spark oversold condition fears and this has helped support as well. Wheat followed corn higher after early steep losses yesterday. Saudi Arabia plans to import 1.9 million tonnes of wheat this year due to rising consumption. Egypt, the world’s largest importer, plans to grow 3 million acres of wheat this season from 2.6 million last year and 2.1 million the previous year. December wheat closed slightly higher on the session yesterday with other months mixed. December KC wheat closed down 2 3/4 cents while December Minneapolis wheat closed up 10 3/4 cents. The market was under pressure early led by weakness in outside markets and strength in the US dollar but a lack of aggressive new selling plus higher trade in Minneapolis wheat helped support a strong rally from the early lows to trade moderately higher on the day. Weakness in the other grains helped to limit the advance and the market set-back to near unchanged on the day into the mid-session. Taiwan is tendering to buy 43,950 tonnes of US wheat. Japan is tendering for 102,652 tonnes of food wheat at their weekly tender. Weekly export inspections came in at 16.36 million bushels which was near the low end of trade expectations and compares with 18.4 million necessary each week to reach the USDA projection for the year.
TODAY’S GUIDANCE: Unless the winter wheat conditions in the US and Ukraine deteriorate further, wheat looks more like a follower of corn than anything else. The market is vulnerable to a short-covering trend if corn manages to push to a higher level.
TODAY’S MARKET IDEAS: Look for resistance for December wheat near 635 and 642 1/4, with 608 and 597 as support. A move through resistance would leave 688 as key resistance. Wheat looks to follow corn for now.
Soybeans: Short-Term Rally
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NEAR-TERM MARKET FUNDAMENTALS: From April to early October, November soybeans moved from a 5 cent carry to a 12 cent carry and it took only a few days to see the bull spread move back to 5 under. The bull spreads were a feature of the session yesterday as traders see strong cash basis levels and a lack of producer selling during harvest as a signal that the flat price or the spreads may need to move to a higher level to attract selling from producers. With news of the re-stocking activities in China, many traders have adjusted their China total import estimates to near 58 million tonnes from 56.5 million posted in last week’s supply/demand update. In addition to a smaller crop in China, the National Grains and Oils Information Centre in China believes that crushing capacity in China will jump to 125 million tonnes for 2012, up 12.5 million tonnes. As a result, demand could be on the rise. Weaker crush margins in the US and fears of low protein content have supported bull spreads in meal as well. Crush margins have also weakened in China and Europe so some traders see sluggish demand for soybeans in the short-term. November soybeans closed slightly lower on the session yesterday but up sharply from the early lows. The market was down sharply early due to perceived weak data regarding the China economy and poor economic news from Europe. With gold, silver and energy markets down sharply, traders expected aggressive selling from fund traders but a recovery in the US stock market helped support a strong recover from the early lows. The soybean harvest is 69% complete compared to 51% last week and 81% last year and traders mentioned harvest pressures as another negative force. However, a lack of producer selling during the active harvest season has helped to provide some support as cash basis levels are improving. Weekly export inspections came in at 45 million bushels which was well above trade expectations and compares with 28.1 million necessary each week to reach the USDA projection for the year. The solid recovery in the stock market and in energy markets plus a move higher on the day for corn were seen as the primary reasons for the strong close.
TODAY’S GUIDANCE: The lack of producer selling suggest higher trade just ahead in order to get more soybeans in commercial hands. This mostly provides underlying support as basis and spreads could also invoke new selling from producers.
TODAY’S MARKET IDEAS: Look for a rally short-term but we remain concerned with outside forces so consider smaller objectives and tighter risks on traders in the short-term.
Corn: Demand Concerns vs. Lower US Production Concerns
Below is a sample of The Hightower Report’s Daily Commentary. To get this comment, and our daily coverage of 15 additional markets and trade ideas, visit futures-research.com for your free 2 week trial!
NEAR-TERM MARKET FUNDAMENTALS: The market absorbed a period of weak economic news for the global economy with sideways action in recent days and strong cash markets plus better than expected export news has helped to provide good support. Continued talk that the market can not afford to see yield come in any lower than the recent USDA update continues to provide underlying support as well. China released millions of tonnes of corn from state reserves in the past two years and the shift to a restocking posture leaves the 2011/12 demand uncertain. Some traders see demand moving up rapidly in the next year as China attempts to expand the hog herd rapidly and also restock reserves. Similar to the soybean market, bull spreads were the feature of the session yesterday as nearby futures gain on deferred. Cash markets remain remarkably strong into the heart of the harvest and this has also helped support the flat price and the spreads. A lack of producer selling and some increased support from end users on the early break were seen as factors to support the market to close higher on the day and well up from the early lows yesterday. A turn up in the US stock market and energy markets helped break the bearish psychology seen in many commodity markets to see a solid recovery off of the early lows. China GDP numbers showed growth of just 9.1% not the 9.3% expected and this was the slowest growth in two years which sparked a negative tone for commodity markets. Weekly export inspections came in at 21.17 million bushels which was well below trade expectations and compares with 34.2 million necessary each week to reach the USDA projection for the year.
TODAY’S GUIDANCE: Questionable demand and an increase in corn production from South America and Ukraine this year are limiting factors but the lack of selling from US producers plus increasing fears that US production will be smaller than the current USDA forecast has helped the market avoid further weakness into the heart of the harvest. December corn support comes in at 633 3/4 and 627, with 667 1/2 and 675 1/2 as resistance.
USDA Supply Demand Review – 2011.10
SOYBEANS
The USDA reports were considered bullish for soybeans with the market called cents 5-10 cents higher on the opening. The USDA pegged soybean production at 3.06 billion bushels from 3.085 billion last month and trade expectations near 3.095 billion. Average yield came in at just 41.5 bushels per acre from 41.8 last month and trade expectations near 42. Ending stocks for the 2011/12 season came in at just 160 million bushels as compared with trade expectations at near 185 million and 165 million as last months estimate. World ending stocks for the 2011/12 season came in at 63.01 million tonnes as compared with 62.55 million last month and the increase came from an adjustment higher in the 2010/11 ending stocks to a record high 69.26 million tonnes.
PRICE OUTLOOK: Declining US and world ending stocks and a smaller than expected US crop plus active buying from China yesterday and rumors that China will be re-stocking reserves should keep the short-term trend up. Look for more up with 1282 1/4 and 1318 3/4 as next upside targets for January soybeans.
CORN
The USDA report this morning was considered slightly negative against trade expectations with the market called 3-5 cents higher on the opening due to positive soybean news. Production came in at 12.433 billion bushels as compared with 12.497 billion bushels last month and this was about 60 million bushels below trade expectations. However, exports were revised lower so the USDA ending stocks forecast is now at 866 million bushels which is about 60 million above trade expectations and compares with 672 million last month. Harvested acres were revised down by 500,000 which was right in line with expectations and yield was unchanged at 148.1. World ending stocks were adjusted higher to 123.19 million tonnes from 117.39 million last month and 114.53 two months ago. Last year was 129.76.
PRICE OUTLOOK: Given the limit-up surge yesterday and a positive tilt to the soybean data, the market may see some follow-through higher on China buying rumors but December corn resistance should emerge near 675. A lower close today could suggest a set-back to 624 if outside forces turn sour.
WHEAT
The USDA Supply/Demand report this morning was considered bearish for wheat with the market called slightly lower. US wheat ending stocks were pegged at 837 million bushels as compared with 761 million bushels last month and 671 million two months ago. Traders were looking for ending stocks near 735 million. The USDA lowered wheat feeding to 160 million from 240 million bushels last month and also lowered exports by 50 million bushels. For the world report, 2011/12 ending stocks were pegged at 202.4 million tonnes from 194.6 million last month. Demand numbers were far worse than expected with wheat feeding down in the US and down near 5 million tonnes for the world. World production was revised up by 3 million tonnes.
PRICE OUTLOOK: The jump in US and world ending stocks was not anticipated and the market looks to work lower over the near-term with support for December wheat emerging at 622 3/4 and 608.
USDA October Supply Demand Preview
SOYBEANS
The soybean market has seen a collapse of more than $3.00 since late August and is extremely oversold going into the key October USDA Crop Production and Supply Demand reports on Wednesday, October 12th. On top of the bearish macroeconomic news of the past six weeks, the market is also absorbing better weather for September and a general expectation for higher yields in the report. There have been recent indications that yield in areas which were hit with dryness could be down due to low moisture content. 
However, we still expect to see a jump in yield to around 42.8 bushels/acre, up 1 bushel/acre from last month. While the late start to corn plantings might have pushed actual soybean planted area a bit higher, the FSA data has indicated the opposite. We lowered our estimate of harvested acreage by 100,000 acres. With a record South America supply on September 1st, we also lowered our export forecast by 10 million bushels. As a result, we see ending stocks increasing to 233 million bushels from 165 projected last month. This would push the stocks/usage ratio to 7.4%, a 5-year high.
PRICE OUTLOOK: We see a bounce in January soybeans to the 1211 3/4 to 1266 3/4 zone as a selling opportunity, with 1145 and 1139 as next downside objectives.
CORN
There is also plenty of talk from the early harvest of higher than expected yield. While the weather in July was some of the worst on record, subsoil moisture ahead of the heat was good. Producers used record high profitability on paper to justify spending more on inputs (such as fertilizer) in order to attain optimal yields. On top of that, the weather in September was nearly ideal. We are looking for a jump in yield in this report to the vicinity of 150 bushels/acre, up from 148.1 last month. This would more than offset a drop the harvested acreage of 500,000 acres that we think resulted from the poor weather earlier in the growing season. Based on these changes, we are looking for production to come in around 12.585 billion bushels, which is still below projected usage. We have lowered our estimate of ethanol usage by 25 million bushels and have raised our exports estimate by 50 million bushels due to expected increases in demand from China. As a result, we see ending stocks increasing to 943 million bushels from 672 projected last month. This would push the stocks/usage ratio to 7.4%.
PRICE OUTLOOK: The increase in ending stocks is expected, and even if yield is left unchanged, ending stocks will increase to 858 million bushels (784 million with the acreage adjustment), so it will be tough to see a bullish surprise for the report. Our concern is that the soybean numbers could be negative enough to carry the other grains lower after the report. The long liquidation trend by hedge funds and index funds is a concern. Look for December corn resistance at the 630 to 651 zone, with support at the 575 to 551 zone.
WHEAT
The Quarterly Grain Stocks and Small Grains numbers (which included wheat production were released last week, so a good deal of the uncertainty in the wheat outlook has already been absorbed by the market. As a result, the “by class” estimates will be the most important data for the wheat market in Wednesday’s Supply/Demand report. Hard spring wheat ending stocks could slip below 100 million bushels, which would be the second tightest on record. (In 2007, record low stocks contributed to the rally to $24.00 per bushel.) While this could be the bullish highlight of the report, US total ending stocks and especially world ending stocks data are not showing any abnormal tightness. US ending stocks could drop to 725 million bushels from 761 million last month and 861 million last year. Production was already revised down by 69 million bushels last week.
PRICE OUTLOOK: With the extremely oversold condition, it will not take much in the way of positive news or even some relief from global economic concerns to spark at least a short-covering bounce in wheat. Dryness in Ukraine is still an issue, and there could also be a return to dry weather in the US southern plains that could spark concerns for next year’s supply. Given the huge profitability for corn and soybean producers around the world, the wheat market might also be caught up in a battle for planted acreage. Close-in support for December wheat is 610, with 642 and 676 1/2 as stiff resistance. The double bottom might spark some short-covering ahead, with funds holding a record high net long position.
COTTON
Traders see yields coming down for this report, which could drag production down by 150,000-250,000 bales. Pakistan’s production may also be revised lower. However, there are still concerns that other key exporters like India will be more competitive than the US, which could raise questions on the ability of the US to export 12 million bales this season. It is too early in the marketing year and the current export pace is too strong for us to expect the USDA to revise is US export estimate lower. With that in mind, the US ending stocks might come in at 3.2 to 3.3 million bales versus 3.4 million last month and 2.6 million last year. World demand is still in question as well, so lower US and Pakistan production estimates may not necessarily lower world ending stocks.
PRICE OUTLOOK: Look for a range of 106.80 to 94.55 for December cotton over the near term.
Supportive News Out of EU; China Corn Production Concerns Support
A bit of an exhale on the European debt crisis with news of a plan that would attempt isolate the problems. Bernanke warns of weak US economy, but promises to support the economy if necessary. This tamped down flight-to-quality buys of bonds and precious metals. Some private jobs numbers out this week ahead of the US numbers Friday. The corn markets seems to have found some support from production concerns out of China and US acreage reductions.
USDA Grain Stocks Review – 2011.09.30
Below is The Hightower Report’s summary of the most recent USDA Quarterly Grain Stocks report. This report is available with your subscription to our Daily Commentary. Sign up for a Free Trail.
Full Report: USDA Quarterly Grains Stocks Review – 2011.09.31
CORN
The USDA report this morning was considered bearish with the market called to open down 15-20 cents lower. September 1st corn stocks were pegged at 1.128 billion bushels, which was 164 million bushels above trade expectations and outside of the wide range of estimates.
This is the beginning stocks for the 2011/12 season and if we plug in the new number to the supply/demand report and leave all of the other numbers unchanged, ending stocks are adjusted to 836 million bushels from 672 million posted in the September supply/demand report.
PRICE OUTLOOK: A resumption of the downtrend for December corn leaves 616 and 603 1/4 as next support levels.
SOYBEANS
The USDA reports this morning were considered slightly supportive for the soybean market but a bearish number for corn has caused an opening call of 15-20 cents lower. The USDA pegged September 1st stocks at 214.7 million bushels which was about 10 million bushels below trade expectations. This is the beginning stocks for the 2011/12 season and will tighten the outlook somewhat for the coming season; depending on the October 12th production update.
PRICE OUTLOOK: A resumption of the recent downtrend due to bearish news for the corn market leaves 1187 as next downside target for November soybeans.
WHEAT
The USDA wheat production report this morning was considered positive to the wheat market but this was more than offset by bearish news for wheat stocks and corn stocks and the market is called 5-10 cents lower on the opening. Traders were looking for spring wheat production near 493 million bushels but the report came in at 462.5 million bushels which is supportive. As a result, all wheat production is pegged at 2.008 billion bushels which is 36 million below trade expectations and down from 2.077 billion as the last USDA estimate. However, September 1st stocks came in at 2.15 billion bushels which was 115 million bushels above trade expectations. The report suggests that wheat feeding was not as high as expected.
PRICE OUTLOOK: A resumption of the recent downtrend leaves 606 3/4 as next target for December wheat.
Equity Indexes are Weaker; US Dollar Higher; Metals Back to Flight to Quality
Slides in many equity indexes are showing a return to slowing economic conditions. Slowing numbers out of EU add to that sentiment. Precious metals may be returning to a “flight-to-quality” role with the inverse relationship with equities returning. Grain markets have some critical numbers this morning with focus on tightening supplies and concerns about ongoing demand.
Commodity Outlook – 2011.10.24
by Dave Hightower on October 22, 2011
Below is an excerpt from The Hightower Report’s most recent Newsletter. To receive access to this story, with trade strategies, and our daily coverage of 16 markets, visit futures-research.com for your free 2 week trial!
The most positive thing that can be said about the global economy is that some sectors have managed to hold up against the deterioration that was seen for most of the last 4 months. Clearly the Euro zone debt crisis has been and continues to be the primary cloud hanging over consumer and investor sentiment. One only needs to look back to the negative reactions in consumer confidence to the Fukushima incident and the August US debt debate to understand that the current debt event has the potential to be a very important junction. While the US debt situation remains unsolved, the markets can be expected to trade primarily off the ebb and flow of the Euro zone crisis. In other words, internal fundamental factors are likely to take a back seat to headlines and big picture macroeconomic influences.
Since the outcome of the October 23rd EU meeting (after this writing) looks to be the dominating influence for a large portion of this week’s trade, one might expect a rather significant expansion of volatility. At stake is the latest loan of 8 billion Euros, which is only a small portion of the 350 billion Euros that Greece owes the World Bank, the EU and a long list of European banks. While the trade as of this writing was assuming something in the range of 2 trillion Euros for the EFSF, a more troublesome concern is that ratings agencies have already begun another round of sovereign debt downgrades, with Spain, France and Italy under increased scrutiny.
While recent history suggests that another “plan” won’t fully end the Euro zone debt crisis, it is possible that a euphoria window might be presented and that many markets might see an extension of the relief rallies that have already been engineered from the September and October lows. Those that are skeptical of a final and sustainable Euro zone fix (with good reason) might consider buying near to expiration, near to the money call options and buying longer dated, further out of the money put options, particularly in those physical commodity markets that are heavily tied to the recession/no recession theme.
From a big picture perspective, the recent slide in many commodity prices should eventually be seen as a big value play, but even if the Euro zone situation is put to rest, the markets still need to see the US come to terms with its unfulfilled promise to reduce its budget by just over 2 trillion dollars. In looking at a chart of the speculator net long position in non-financial commodities, one can see that nearly two-thirds of the peak position has already been eliminated. Another sharp slide in prices could mean that commodities will have once factor in a return to recession or worse.