Market Wrap-Up
by Chris L. Haverkamp
| Date: 07/02/09 | Estimated Update: 07/06/09 |
|---|---|
| Company: | Paragon Investments, Inc. |
| Phone: | 888-452-8751 |
| E-Mail: | info@pitrader.com |
| Website: | www.ParagonInvestments.com |
Corn Futures
Fundamental: The corn market struggled to maintain overnight gains during the day today, with the December contract ultimately finishing modestly higher. Traders said that an ongoing break in the dollar provided support throughout the day while a day-long slide in crude oil kept a lid on prices. July corn gained on December today after two days with zero deliveries against the July contract. Corn also gained on wheat today although the gains were trimmed late in the session by a recovery in wheat prices. Open interest fell sharply in corn for the third day in a row yesterday. There was talk again today that China will start to release some of its 40-million tonne strategic reserve of corn in coming weeks. Sources there have suggested that the odds of a release increase as we move into July and again into August. The US Energy Information Administration released ethanol production numbers for April yesterday, and they showed corn usage for the month of April at about 42 million bushels below the level needed to reach the current USDA projection for 2008/09. However, higher crude oil prices in May and June along with a sharply lower corn market during June has increased the profitability of many ethanol operations. One analyst indicated that corn usage may still catch up to the USDA's projection for the remainder of the marketing year.
Technical: December corn was higher, which after lower ground put a reversal bottom on the chart. A stronger close would have been more impressive. Technicians will be looking for a higher close tomorrow to confirm the reversal. Previous support at the 400 area is resistance. Support is today' low of 361.75 as a move below that would negate the reversal. The failure of the uptrend and the move below the previous swing low seen in April suggests the start of a leg lower. The consolidation just ended suggests a downside objective of about 315. Today's action suggests some consolidation before that happens. Directionals are oversold to suggest the need for a correction.
Soybean Futures
Fundamental: A very strong soybean complex contrasted with lower wheat and a marginally higher corn market today. Traders said that the strength came on fund buying as well as buying by other specs following yesterday's bullish acreage estimate from the USDA. Liquidation in old crop/new crop spreads is helping to support new crop contracts while the lack of deliveries in the July contract so far during the delivery period is making traders very reluctant to hold short positions in the expiring July contract as well as other old crop contracts in soybeans and meal. Soybean oil also traded substantially higher throughout the day today. Traders said that continued weakness in the dollar over the course of the day helped to support the market. Weather reports from India are again raising questions about the monsoon rains there which are said to be progressing north more slowly than was reported earlier this week.
Technical: November soybeans were sharply higher, breaking out to the upside of the recent downtrend channel. The breakout suggests that the recent down move was a correction to the spring rally, having retraced 50%. The high range close above the pivot point suggests a bullish bias for Thursday. The rally took futures up through the 50 and 40-day moving averages, finally finding resistance at the 20-day of 1031.5. Support should be the 50-day at 1006.2. Directionals are starting to trend higher, favoring the buy side.
Wheat Futures
Fundamental: The wheat market traded higher overnight and opened modestly higher in the day session before quickly selling off to lower on the day. Traders said that the market mostly ignored a lower dollar index and a purchase of 60,000 tonnes of US soft wheat by Egypt as it remained lower over the remainder of the day. The selling pressure was credited to yesterday's larger-than-expected wheat planted acreage number which adds to the ongoing oversupply of wheat in the US and elsewhere on the world market. The Buenos Aires Grain Exchange cut its estimate of this year's planted acreage in wheat again this week. The revised number is just 2.8 million hectares versus 2.9 million last week. This follows scattered rains over the past two weekends that failed to provide substantial relief. Talk of an El Nino in the Pacific Ocean continues to build with Australia's Bureau of Meteorology now saying that they are very likely to declare and El Nino within weeks. El Ninos are closely associated with drought in Australia. Conditions there are currently considered favorable for the newly planted wheat crop there.
Technical: December wheat was lower, posting an inside day that ranged on both sides of unchanged. This looks like consolidation after Tuesday's steep selloff. The uptrend support line just violated, offered resistance, which is at 574 for tomorrow. Support is 550. Directionals show an oversold condition, with Stochastics having turned higher and crossing to give a buy signal. A 38% retracement of June's decline would carry an upside objective all the way up to 617.
Livestock Futures
Live cattle futures were higher on Wednesday, with gains centered around 50-60 points and nearer session highs. August and October climbed to the highest levels in months. The optimism was linked to the new quarter. First, there is new money interested in buying into the cattle futures complex. Second, the supply/demand pictures looks to improve to attract buyers. On the supply side, traders are already starting to look forward to the July Cattle report, which should show the herd in continued liquidation implying lower supplies. On the demand side, most are looking for improved economics to prompt better demand in the last half of 2009. Price forecasts seem to be mostly centered in the $90-95 range for the end of the year. That suggests that there is more upside than downside from where futures sit.
Feeder cattle futures were higher. Gains were attributed to spillover from the higher live cattle futures, higher cash feeder prices, and leftover optimism about increased corn supplies. August feeder cattle futures closed near its session high and made a new multi-month high, doing so despite the premium it holds and the overbought condition. Cash feeder prices are moving higher, but not as fast as futures. The feeder index is at 98 and change, while August futures is at 103 and change. This would seem likely to attract sellers, or at least discourage buyers. Some consolidation after the steep gains seems necessary at this juncture.
Lean hog futures were higher on Wednesday. The buying seemed to be linked to ideas that a bottom has been made, feeding off the recent reversal bottoms, the oversold conditions, and new money for the new quarter. This all was despite weak cash fundamentals. The lower pork cutout value prompted selling early, but that didn't last. Cash hog prices were steady to lower. Some commentary was talking about buying in July due to its discount to the lean hog index. I don't see that as the projected value is 58.65, with a one-day value of 58.35 as of yesterday. Accounting for price action today, it would suggest a value that is closer to 58.10, more than a dollar lower than where July futures closed today. It is hard to envision that packer demand is going to be strong/aggressive with the cutout value only at 54.05. Hog slaughter has been running lighter than last year, but that is to be expected with the poor margins. Based on the fundamentals, it seems to me that the current bounce is another short covering rally and won't be sustained.
Milk futures were mixed. The action generally saw lower lows and lower highs as futures took back more of last week's gains. That bounce was considered to be short covering, making the rally with the futures premiums attractive to sell.