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BROCK MONDAY MIDDAY COMMENTS
Monday, June 15, 2009
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BROCK MIDSESSION GRAIN COMMENTS
NEW CORN RECOMMENDATIONS
1) Strict cash marketers: sell the final 20% of the 2008 crop.
2) Both strict cash marketers and hedgers: forward contract an additional 10% of the '09 corn crop, taking you to 40%.
3) Hedgers: sell December corn futures to cover another 10% of the '09 crop, taking you to 25% hedged.
NEW SOYBEAN RECOMMENDATION
Strict cash marketers: sell the final 10% of the 2008 crop.
NEW WHEAT RECOMMENDATION
Both strict cash marketers and hedgers: sell another 15% of the 2009 crop, taking you to 75% sold.
NEW COTTON RECOMMENDATIONS
1) Sell the final 20% of the 2008 crop.
2) Contract another 10% of the '09 crop, taking you to 30% sold.
Farm commodities are trading lower this morning and in most cases the losses are sizeable. This is follow through selling after Friday's weak close and therefore provides additional technical confirmation of a top. But technically-oriented selling is just part of the reason investors have suddenly turned more bearish toward commodity prices. The U.S. dollar has shot higher and appears to have confirmed a bottom. The selling pressure is not limited to the grain and soy markets, as the metals, the softs (cotton, cocoa, coffee, etc.) and energy futures are all posting hefty losses this morning.
What goes around comes around when it comes to the impact of commodity trading funds in commodity markets. Fund buying (in addition to late plantings worries) were largely responsible for pushing grain and soy prices higher this spring. But the funds are now aggressively taking profits on long positions in corn and soybean futures. In the cash of wheat, they are adding to what has become a net short position. The surge in interest in “owning†commodities has been primarily driven by ideas a weak dollar will lead to better export demand for U.S. production, which in term will result in inflation. That theory has not been totally discounted, but there isn't nearly as strong a commitment to this theory now that the dollar has suddenly turned upward. The dollar is being lifted by assurances from Russia that they will continue to invest heavily in U.S. Treasury instruments and other government-backed securities.
Uptrend lines drawn on the daily soybean charts off swing closed charted about the first of May have been shattered this morning. Both old- and new-crop contracts dropped down close to these support lines on Friday, but it wasn't until this morning's sharply lower opening that the trend-lines were broken. Longer-term uptrend lines drawn off the early December lows remain intact on the daily charts for soybean futures, but this is by far the strongest technical confirmation yet a major tops has been plotted. Also, a 5-wave sell signal was give on Friday.
Corn futures dropped below similarly uptrend lines earlier last week, but it wasn't until prices dropped sharply on Friday that horizontal support was taken out. There were other technical signs flashed last week indicating the party was over in corn futures, including an outside-day down from near the highs for the move.
Old-crop soybeans are still looking at a very tight supply situation, but that doesn't mean the lowest ending stocks estimate in 29 years hasn't been fully factored into prices. Plus, it needs to be remembered a record amount of acres have been planted to soybeans this year. The market just needs to find a way to scrap by for another 3 months.
Recent cancellations by Chinese buyers of soybean purchases already on the books are an indication prices have risen high enough to ration usage. However, thanks to the big run-up in meal prices domestic crush margins have improved and soybean processors are starting to push plants a little harder. According to the National Oilseed Processor's Assn. 142.2 million bushels of soybeans were crushed last month. The trade was looking for a crush total of between 134.5 and 139.4 million bushels. It must be pointed out, however, that meal futures are currently down more than $9 per ton.
This week's weather forecast for the middle of the nation is fairly wet. Rains from the Plains across the southern portion of the Corn Belt are slowing the wheat harvest and making it difficult for farmers to get the final 10% or so of the soybean crop planted. The eastern Corn Belt could use some drier and especially warmer weather. On the other hand, the soil moisture situation is favorable in roughly the western half of the Corn Belt. Warmer weather would be welcomed there, too. Nationwide, USDA has already dropped its corn yield projection to about 2.5 bushels below the historical yield trend-line.
Wet weather in Kansas appears to be limiting the losses in wheat futures this morning. It also needs to be remembered that the wheat market is well ahead of corn and soybeans in backpedalling from the spring highs. The high in wheat was charted the first day of June and Chicago July has since retreated a dollar.
MIDSESSION LIVESTOCK COMMENTS
NEW LIVE CATTLE HEDGE RECOMMENDATION
Live cattle hedgers should sell Oct. live cattle futures at the market to cover 25% of 3rd qtr. marketings.
Livestock futures have turned lower under pressure from a broad wave of speculative selling that has swept through most commodity markets this morning amid further strength in the dollar, weaker crude oil prices and sharp declines in U.S. stock markets. Lean hog futures found some early support from speculative profit taking spurred by oversold conditions and tightening hog supplies, but have since succumbed to pressure from fresh fund selling. Live cattle futures have largely followed other markets lower, but also continue to feel fundamental pressure from weak beef prices. Feeder cattle futures have been limited somewhat by sharply lower corn prices.
Oct. live cattle futures are trading moderately lower, finding some support at last week's low of $86.35. However, we see increased downside risk for the market due to its repeated inability to push back above $87.50 last week and the significant weakness we are seeing today across stock and commodity markets today. Fears of a new round of economic problems could easily cause the Oct. premium to current cash markets to evaporate in coming weeks. The Dec. live cattle are also in trouble from a technical standpoint and a close below $87.55 Dec. would open another $1-$4 of downside risk for that contract.
Plains direct live cattle markets are quiet this morning with feedlots offering cattle for $85, up $3 from Friday's trade, but no packer bids reported. Feedlots were generally happy they were able to hold the line on prices at $82 last week and were also happy with sales volumes, so they are likely to slow to sell again this week unless futures collapse. Smaller showlists and hopes for pre-July 4 demand to buoy beef prices should help keep feedlots slow sellers. Packers, meanwhile, may be in no rush to buy cattle ahead of Friday's cattle-on-feed report. Packer operating margins are looking a bit firmer, with the avg. margin estimated at $16.70 per head, up from minus $13.55 a week ago.
Midwest direct cash markets are steady to lower this morning with cash sources reported that supplies are ample to meet lackluster packer demand. Friday's renewed weakness in wholesale pork prices has helped limit demand as packer margins remain in the red. The avg. packer margin is estimated at minus $3.55 per head down from minus $1.35 on Fri. and minus $3.20 a week ago. Packers are having no trouble producing ample pork to meet demand due to larger than expected hog supplies and high market weights. Pork production for the week ended June 13 was estimated to be down 1.2% from a week earlier, but up 3.6% from a year earlier. The weekly slaughter ran 1.3% above a year earlier, contrary to earlier expectations for slaughter to be running several percentage points below last year's levels at this time. Last week's avg. federally inspected live hog weight of 271 lbs. was down 1 lb. from a week earlier, but was 5 lbs. above a year earlier. The bottom line is that there is more than enough pork to meet demand weakened by high unemployment and the negative impact of H1N1 flu concerns. Although domestic demand appears good, export demand remains weak, especially from Russia and China.
With cash markets looking weak again, July lean hog futures are struggling to maintain even a modest premium to cash. Key support for July hogs is at the contract low of $57.80, which the market appears bent on retesting. Aug. hogs have already dropped to a new contract low. The market is clearly oversold, but there is little hope of a significant rally this week unless cash prices turn higher. Oct., Dec. and Feb. futures have all extended to new contract lows, leaving them without any daily chart support. Looking further out, position evening ahead of the June 30 all hogs and pigs report may bring some significant support for futures next week.
NEW SPEC RECOMMENDATIONS
1) Sell 7 December corn futures at the market
2) Sell 2 October live cattle futures at the market
CURRENT SPECULATIVE POSITIONS:
Short 5 November soybean futures
CURRENT BROCK GRAIN MARKETING POSITIONS:
CORN: Strict Cash Marketers: 2008 Crop: 80% sold and basis was locked in on the other 20% on 3-2.
2009 Crop: 30% cash contracted (5-13, 2-2 & 3-24)
Hedgers: 2008 Crop: 100% sold in the cash market
2009 Crop: 30% cash contracted (5-13 & 3-24), short Dec. futures on 15%
SOYBEANS: Strict Cash Marketers: 2008 Crop: 80% sold
2009 Crop: 20% place on hedge-to-arrive contracts 2-12; 20% cash contracted (3-24 and 6-3)
Hedgers: 2008 Crop: 100% sold; Net profits equivalent to 21 1/2 cents on 100% of the crop have been recorded on closed futures hedge positions; a profit of about $1.44/bu. was taken 1-7 on a reownership strategy on 40% of the crop in July futures.
2009 Crop: 40% cash contracted (3-24 and 6-3); short November futures on 25% of the 2009 crop
WHEAT: Strict Cash Marketers:
2009 Crop: 60% sold in the cash market (7-31, 9-7, 10-25 and 6-3)
Hedgers:
2009 Crop: 60% sold in the cash market (7-31, 9-7 & 10-25 and 6-3); with some previous hedge profits are in the bank
HOGS: With some hedge profits in the bank, carry all risk in the cash market.
LIVE CATTLE: Carry all risk in the cash market for now.
FEEDER CATTLE: Carry all risk in the cash market for now.
MILK: Carry all risk in the cash market for now.
FEED BUYERS: Corn needs have been covered through the end of 2008 in the cash market; 100% of 1st qtr needs covered on 10-3, 10-8 & 10-28; 100% of 2nd quarter needs on 10-29 & 12-10. Soybean meal needs were also covered through the first half of the year
COTTON: 80% of the 2008 and 20% of the 2009 crops have been sold in the cash market.
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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 2009 by Richard A. Brock & Associates, Inc.
Any unauthorized redistribution or reproduction of this commentary is strictly forbidden.
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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 2008 by Richard A. Brock & Associates, Inc.
Any unauthorized redistribution or reproduction of this commentary is strictly forbidden.
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