Tuesday, February 15, 2011
BROCK MIDSESSION GRAIN COMMENTS
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NEW RECOMMENDATION FOR CORN HEDGERS
Sell December futures on a straight stop at $5.96 to hedge 20% of expected 2011 corn production.
NEW RECOMMENDATIONS FOR SOYBEAN HEDGERS
1) Sell November futures at the market to hedge 10% of expected 2011 soybean production.
2) If November futures trade at or below $13.50 during the final five minutes of today's session, hedge
another 10% of expected 2011 soybean production in that contract.
NEW RECOMMENDATION FOR RICE MARKETERS
Cash contract another 10% of expected 2011 production, taking you to 30% contracted.
The grain and soy complex is under significant pressure this morning. This could be nothing more than
a corrective pullback, but with prices at very high levels the possibility of a major top can definitely not be
ruled out. Therefore, we are taking relative small steps to increase downside price protection in some
markets.
More than anything else this appears to be follow through selling after yesterday's weak closes.
December corn left a downside key reversal on the daily chart and some closely watched moving
averages were violated. These markets were looking for an excuse to get back into better balance. The
underlying fundamentals remain the same, with the corn market in almost desperate need of a very large
crop this year if it hopes to keep the long-term trend in usage pointed upward.
Today's downturn in corn and soybean futures is not a direct reaction to USDA's baseline acreage
projections for the 2011 crop, but those estimates appeared to change the momentum yesterday morning
and have now triggered more profit taking on long positions. USDA pegged corn planted acreage at 92
million bushels (compared to 88.2 million last year) and soybeans plantings at 78 million acres, which
would be roughly a million-acre increase. While we cannot rule out the possibility the plantings totals will
be this large, it must be remembered that these projections are strictly for budgetary purposes. They are
based on statistical analysis and not any producer survey work. And if you want to be cynical, it's easy to
think these baseline predictions were set to make the federal government's budget look better. The
survey work for USDA's initial plantings estimates will be done in a couple weeks and the results will be
released March 31. The market will have a lot more faith in those numbers.
Regardless of what triggered the downturn, the reality is that all the bullish fundamentals could now be
fully factored into prices. We don't see a huge amount of downside risk because old-crop supplies will be
tight and the market will need to see solid evidence a big crop is on the way before it will push new-crop
futures a great deal lower. But just because there's limited downside risk in the shorter term does not
mean major tops have not been charted.
The soybean market is getting slammed today in part because another export cancellation was
announced. There were a bevy of cancellations in last Thursday's weekly export sales report and USDA
announced another 110,000-ton cancellations to an unknown buyer (probably China) this morning. This is
further evidence export demand is shifting toward South America, a shift that happens every year about
now.
Expectations for a big South American crop continue to rise. It won't be a record crop in Argentina due
to dry conditions earlier in the growing season, but it will be far from a disastrous crop. Meanwhile, it
sounds like Brazil probably is headed for a record-breaking crop. Oil World now sees the possibility Brazil
will harvest 71 million metric tons. The previous record was set just last year at 69 mmt and USDA's most
recent prediction for this year is 68.5 mmt.
There is some news on the export front for corn. Egypt has booked 120,000 tons of U.S. corn for
delivery during the next marketing year. Also, Mexico is expected to be more dependent upon imported
corn due to frost damage last week. It's estimated between 1 and 3 million tons worth of corn production
was lost. Corn exports went into a lull late last year, but sales have perked up rather dramatically the past
few weeks.
Wheat futures are trading about 20 cents lower at mid-morning. This selloff has all the markings of a
corrective pullback, even though some near-term uptrend lines have been broken. The U.S. continues to
attract strong export demand from northern Africa and the Middle East. Iraq is being mentioned
prominently again today, along with Morocco.
Recent snows have helped the drought area in China's northern Plains, but a lot more moisture is
needed in this important wheat producing region. Melting snow has given the winter wheat crop in the
U.S. a shot of moisture, but it also leaves fields vulnerable if cold weather dips south another time or two
before spring.
MIDSESSION LIVESTOCK COMMENTS
NO NEW RECOMMENDATIONS
Livestock futures are mostly higher with live cattle futures supported by smaller market-ready cattle
supplies in the Plains, technical buying and expectations for Friday's cattle-on-feed report to show a drop
off in feedlot placements. Continued talk of food price inflation is also a supportive market factor with
China reporting its food prices rose another 10.3% during January. Lower grain prices have been a
negative market factor for live cattle and lean hog futures, but have helped boost feeder cattle futures
along with strong gains in cash feeder prices. Lean hog futures are mixed with the front four contracts
supported by indications of strong export demand for U.S. pork and ideas recent cash price weakness will
be short lived. Backend futures are lower under pressure from bull spreading activity and the weakness in
grain prices.
Lean hog futures remain on solid technical ground for now. Nearby April futures appear to be forming
a small pennant formation on their daily chart. Such patterns are usually continuation patterns, pointing to
a continuation of the trend, which is still upward. An April close above $93.90 would suggest an upside
objective in the $98.00-$99.00 range. An April close below $91.25 would weaken the chart picture and
could set up a correction back to at least the $88.00-$89.00 range. June futures remain very strong as
they have traded above $103.00 for the first time. There are some signs that the market's upward
momentum is stalling, however, and a June close below $102.00 would look negative. Oct. futures traded
to a new contract high for the 6th session in a row, pushing as high as $89.83, but have turned lower. The
market is overbought and could correct $2-$3 at any time.
Midwest cash hog prices remain under pressure from ample hog supplies as producers continue to
catch up on marketings under favorable Midwest weather conditions. Packer demand remains slow with
most plants having this week's needs well covered. Cash sources report most direct markets are 50 cents
to $1.50 lower. The national cash carcass value fell another $1.37 on Monday. The good news is that with
the pork cutout value up 68 cents and hog prices lower, packer operating margins have rebounded
further. The avg. packer margin is estimated at $8.15 per head, up from $3.85 yesterday. The improved
margins will help spur competition for hogs as producers get caught up on sales and hog supplies resume
their seasonal decline.
Live cattle futures traded to 2-week highs early today, but buying interest has waned and futures are
now struggling to hold at higher levels amid speculative profit taking. Feb. live cattle futures appear to
have solid chart resistance at $109.75-$110.00 and it will likely take strong cash trade to push the market
past that level. The downside for Feb. is probably limited to $108.00, however, with chances for cash
trade at that level in the southern Plains this week looking good. April futures have established nearby
chart resistance at $114.60 and the market will need to close above $115.15 to turn its chart picture more
bullish again. The downside risk looks limited, however, as April will likely continue to find strong support
in the $110.00-$111.00 range. Mar. feeder cattle futures have traded to a 3-week high after breaking out
of what looks like a bull-flag formation on their daily chart yesterday. The market needs to take out its
contract highs at $129.95-$130.03, however, to confirm a new upward move and has so far stalled out at
$129.50. A lower close would leave a potential major double top on the Mar. chart.
Plains direct cash cattle markets remain quiet this morning with no packer bids reported. Feedlots in
the southern Plains are asking $108-$110 for cattle on a live basis, while asking prices are $173-$175 in
Nebraska dressed markets. Feedlots may have the upper hand this week as the number of cattle
estimated to be on Plains showlists is down 28,000 head from last week, with offerings down 14,000 head
in Kansas and 14,000 head in Nebraska. Texas/Okla. cattle offerings are said to be unchanged from last
week, which could limit price strength in markets there. The wholesale beef market also appears to be
stabilizing, which may help support live cattle prices. The choice cutout is up 47 cents to $168.14 per cwt.
at midmorning.
NEW SPECULATIVE RECOMMENDATION
Sell 3 November soybean futures at the market
CURRENT SPECULATIVE POSITIONS
Short 3 December corn futures at $6.10
CURRENT BROCK GRAIN MARKETING POSITIONS:
CORN: Strict Cash Marketers: 2010 Crop: 90% sold (11-6, 11-24, 12-18, 4-22, 9-10, 11-5, 11-10 & 1-4);
2011 Crop: 40% on hedge-to-arrive or cash contract (7-23, 11-1, 11-16 & 1-4)
Hedgers: 2010 Crop: 90% sold (11-6, 11-24, 1-14, 9-10, 10-11, 11-5 & 11-10); 2011 Crop: 30% on
hedge-to-arrive or cash contracts (8-3, 11-1 & 11-16)
SOYBEANS: Strict Cash Marketers: 2010 Crop: 90% sold (11-6, 11-24, 12-18, 4-22, 7-7, 10-29, 11-5, 11-
10 & 1-4) 2011 Crop: 40% sold on hedge-to-arrive or cash contracts (7-23,11-16 & 1-4)
Hedgers: 2010 Crop: 90% sold (11-6, 11-24, 4-22, 7-7, 8-19, 9-29, 11-5 & 11-10); 2011 Crop: 30% on
hedge-to-arrive contracts (8-19 & 11-16)
WHEAT: Strict Cash Marketers: 2010 Crop: 100% sold; 2011 Crop: 40% on HTA contract (7-9, 7-19, 8-3)
Hedgers: 2010 Crop: 100% sold (10-23, 11-19, 11-24, 1-7, 5-13, 5-20 7-9); 2011 Crop: 50% sold on HTA
contracts (7-9, 7-19 and 8-3)
HOGS: Short June and October hog futures on 25% of 2nd and 3rd quarter sales at $98.50 and $85.45
FED CATTLE: Short April live cattle on 25% of 1st quarter sales at $111.80
FEEDER CATTLE: Carry all risk in the cash market for now.
MILK: 35% February thru August and 10% September thru December has been contracted
FEED BUYERS: Corn needs have been covered through April; protein needs through March
COTTON: 100% of the 2010 crop has sold (5-4, 6-18, 8-24, 9-23, 9-29, 10-19 & 11-10); 2011 CROP:
Both strict cash marketers and hedgers have contracted 10% (2-14), hedgers are short December '11
futures on another 20%
RICE: 90% of the 2010 crop has been sold, 20% of the 2011 crop cash contracted
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NOTE: Along with the potential for profit, there is always a risk of losing money when trading futures and
options contracts.
Copyright 2011 by Richard A. Brock & Associates, Inc.
Any unauthorized redistribution or reproduction of this commentary is strictly forbidden. |
NOTE: Along with the potential for profit, there is always a risk of losing money when trading futures and options contracts.
Copyright 2008 by Richard A. Brock & Associates, Inc.
Any unauthorized redistribution or reproduction of this commentary is strictly forbidden.
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